Biden and McCarthy Reach Deal to Raise US Debt Limit for Two Years and Curb Federal Spending
After weeks of negotiations, House Speaker Kevin McCarthy and President Joe Biden have reached a deal to raise the country's debt limit for two years and curb federal spending. McCarthy, backed by a GOP majority in the House of Representatives, had previously refused to agree to a debt ceiling raise without significant spending cuts and without raising taxes on the wealthy, while the president held strong, insisting that the debt ceiling should not be used as a bargaining chip. The compromise reached last night “will not be a final agreement” until Congress has been able to review the legislation, the text of which is expected to be released Sunday afternoon.
At the core of the agreement lies a budget plan that spans over two years, maintaining spending levels for 2024, but elevating them for defense and veterans, and limiting any hikes to 1% for 2025. In addition, they will increase the debt limit for a duration of two years, effectively postponing the contentious political matter until after the upcoming presidential election. As per the Republicans' demand to cut down on expenses, the package encompasses a two-year budget agreement that would maintain the same level of spending for 2024 and establish restrictions for 2025. For instance, the bill's one-page summary from the GOP indicates that non-defense spending in 2024 will be limited to the same level as 2022. However, according to the briefing materials from the White House, the agreement will maintain spending at about the same level as 2023.
The deal came together after Treasury Secretary Janet Yellen told Congress that the United States could default on its debt obligations by June 5 if lawmakers did not act in time. Lifting the nation's debt limit, now at $31 trillion, allows more borrowing to pay bills already incurred. The recent agreement is a result of yet another instance of high-stakes negotiation surrounding the debt ceiling. The debt ceiling, being legislation that must be passed, has been utilized by both political factions as a means to achieve their policy objectives or as a tool for communication. Over the past few decades, Republicans have increasingly shown a willingness to push the US closer to default in order to achieve their policy objectives. The result of the current year's discussions has conveyed a clear message that both factions are likely to utilize the debt ceiling as a bargaining tool, and has sparked discussions among lawmakers about potential modifications or complete elimination of the same.
With hard-right conservatives seeking to reduce spending, McCarthy's slim Republican majority in the House could face resistance to any deal they perceive as inadequate. If he decides to make compromises with Democrats, he may face the risk of losing the support of his own party members, which could create a challenging career moment for the recently appointed speaker. The margin of McCarthy's victory in the House is very narrow, and his extreme right-wing supporters are already seeking ways to sabotage the agreement. At least nine House Republicans have pledged not to vote for the forthcoming legislation.
However, a 100-strong group of moderates in the New Democratic Coalition gave a crucial nod of support on Sunday, saying in a statement it was confident that Biden and his team “delivered a viable, bipartisan solution to end this crisis” and were working to ensure the agreement would receive support from both parties. When asked if McCarthy had the necessary votes to pass the legislation, Biden replied to the reporters, “I am not aware of his vote count.” I expect he does, or I don’t think he would have made the agreement.”
The announcement of a deal defuses longstanding fears about a potential default, which could have led to significant market volatility, spikes in interest rates, and an increase in unemployment. It also suggests that the minority party continues to use the debt ceiling as a valuable bargaining tool, contributing to the ongoing brinkmanship over this matter, particularly among Republicans. Republicans leverage the debt ceiling to steer the discussion on fiscal policy towards the theoretical issue of determining the appropriate limit for total expenditure. This further empowers them. As a recent CNN poll showed, 60 percent of voters believed that the debt ceiling should only be raised if spending was cut.
Despite progressive apprehensions about certain aspects of the deal, Biden must secure those votes and address the Democrats' general disillusionment with the White House's PR struggles. Although the specifics of the suggested agreement are still being formulated, Pramila Jayapal, a Democratic Representative from Washington and chair of the Congressional Progressive Caucus, warned on CNN Sunday morning that the White House should be concerned about the likelihood of progressive Democrats withholding their support for the deal. Jayapal stated that the level of opposition cannot be determined until legislators review the “precise legislative language.”
 In the end, both parties' worries regarding concessions were less significant compared to the apprehension of a default and the possibility of a disastrous economic catastrophe. There will be no default on the debt of the United States of America. Today’s agreement makes urgent progress toward preserving our nation’s full faith and credit and a much-needed step toward getting its financial house in order,” Biden said in a brief statement about the bipartisan agreement.
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