White House, Republicans reach deal to raise debt ceiling, avert US default

An agreement in principle between President Joe Biden and House Speaker Kevin McCarthy would raise the nation's legal debt ceiling, but now Congress has only days to approve a package

Joe Biden, US President

Photo: Bloomberg

An agreement in principle between President Joe Biden and House Speaker Kevin McCarthy would raise the nation's legal debt ceiling, but now Congress has only days to approve a package that includes spending cuts and would avert a potentially disastrous US default.
The compromise announced late Saturday risks angering both Democratic and Republican lawmakers as they begin to unpack the concessions. Negotiators agreed to some Republican demands for increased work requirements for recipients of food stamps that House Democrats had called a nonstarter. But bargainers stopped short of greater spending cuts overall that Republicans wanted.
Support from both parties will be needed to win congressional approval before a projected June 5 government default on US debts.
Lawmakers are not expected to return to work from the Memorial Day weekend before Tuesday, at the earliest, and McCarthy has promised lawmakers he will abide by the rule to post any bill for 72 hours before voting.
White House officials planned to brief House Democrats on a video call Sunday.
The Democratic president and Republican speaker reached the agreement after the two spoke Saturday evening by phone. The country and the world have been watching and waiting for a resolution to a political standoff that threatened the US and global economies.

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The agreement represents a compromise, which means not everyone gets what they want, Biden said in a statement. That's the responsibility of governing."

Biden said the deal was good news for the American people because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost.
McCarthy told reporters at the Capitol on Sunday that the agreement doesn't get everything everybody wanted, but that is to be expected in a divided government. At the end of the day, people can look together to be able to pass this.
With the outlines of an agreement in place, the legislative package could be drafted and shared with lawmakers in time for House votes as soon as Wednesday, and later in the coming week in the Senate.
Central to the compromise is a two-year budget deal that would hold spending flat for 2024 and increase it by 1% for 2025 in exchange for raising the debt limit for two years, which would push the volatile political issue past the next presidential election.
Driving hard for a deal to impose tougher work requirements on government aid recipients, Republicans achieved some but not all of what they wanted. The agreement would raise the age for existing work requirements on able-bodied adults, from 49 to 54, without children. Biden was able to secure waivers for veterans and the homeless.
The two sides had also reached for an ambitious overhaul of federal permitting to ease development of energy projects. Instead, the agreement would put in place changes in the landmark National Environmental Policy Act that will designate a single lead agency to develop environmental reviews, in hopes of streamlining the process.
The deal came together after Treasury Secretary Janet Yellen told Congress that the United States could default on its debt obligations by June 5 four days later than previously estimated if lawmakers did not act in time.
Lifting he nation's debt limit, now at USD 31 trillion, allows more borrowing to pay the nation's already incurred bills.
McCarthy commands only a slim Republican majority in the House, where hard-right conservatives may resist any deal as insufficient as they try to slash spending. By compromising with Democrats for votes, he risks losing support from his own rank and file, setting up a career-challenging moment for the new speaker.
I think you're going to get a majority of Republicans voting for this bill," McCarthy said on Fox News Sunday. "This is a good bill for the American public. The president agreed with this bill. So I think there's going to be a lot of Democrats that will vote for it too.
But McCarthy also said that right now, Democrats are very upset, and House Minority Leader Hakeem Jeffries of New York told him, "There's nothing in the bill for them. There's not one thing in the bill for Democrats.
In a tweet on Sunday, Jeffries said he was thankful Biden had reached an agreement in principle and looked forward to reviewing the bill when it was released.
Both sides have suggested one of the main holdups was a GOP effort to expand work requirements for recipients of food stamps and other federal aid programmes, a longtime Republican goal that Democrats have strenuously opposed. The White House said the Republican proposals were cruel and senseless.
Biden has said the work requirements for Medicaid would be a nonstarter. He had seemed potentially open to negotiating changes on food stamps, now known as the Supplemental Nutrition Assistance Programme, or SNAP, despite objections from rank-and-file Democrats.
Americans and the world were uneasily watching the negotiating brinkmanship that threatened to throw the US and global economy into chaos and sap world confidence in the nation's leadership.
Anxious retirees and others were already making contingency plans for missed checks, with the next Social Security payments due next week.
Yellen said failure to act by the new date would cause severe hardship to American families, harm our global leadership position and raise questions about our ability to defend our national security interests.
What’s in the deal 
Non-defence discretionary spending, such as on housing, education, and road safety, capped at current year levels (around $936 bn) in 2024; to be increased by only 1% in 2025
The debt limit extension means Congress wouldn’t need to address the issue again until after the November 2024 presidential election — when either a Republican is elected president or Biden wins a second term

No changes were made to Medicaid in the deal, but the agreement would impose new work requirements on low-income people who receive food assistance under the Supplemental Nutrition Assistance Program, or SNAP
Deal expected to boost defence spending to around $885 bn, in line with Biden’s 2024 budget spending proposal
Biden and McCarthy agreed to new rules to make it easier for energy projects — including fossil-fuel based ones — to gain permit approval

Biden and Democrats secured $80 billion in new funding for a decade to help the IRS enforce the tax code for wealthy Americans in last year’s  Inflation Reduction Act

Republicans and Democrats had battled over moving that funding, which was allocated under the Act as “mandatory spending” to keep it from the political fighting of the annual budgeting process, to “discretionary spending” to be allocated by Congress
Biden and McCarthy are expected to agree to clawback about $50-70-bn unused Covid relief funds as part of the budget deal, including funding that had been set aside for vaccine research and disaster relief
Republicans up in arms, Congress set to be next challenge for the deal

After tough negotiations to reach a tentative deal with the White House on the US borrowing limit, the next challenge for House Speaker Kevin McCarthy is pushing it through the House, where hardline Republicans are already threatening to sink it. As Democratic and Republican negotiators iron out the final details of an agreement to suspend the federal government’s $31.4-trillion debt ceiling in coming days, McCarthy may be forced to do some behind-the-scenes wrangling.

“We’re going to try” to stop it from passing the House, Representative Chip Roy, a prominent member of the hardline House Freedom Caucus, said on Twitter. House and Senate Republicans were critical of the deal's time frame and emerging terms. A failure by Congress to deal with its self-imposed debt ceiling before June 5 could trigger a default that would shake financial markets and send the United States into a deep recession. Republicans control the House 222-213, while Democrats control the Senate 51-49.

These margins mean that moderates from both sides will have to support the bill, as any compromise will almost definitely lose the support of the far left and far right wings of each party. To win the speaker’s gavel, McCarthy agreed to enable any single member to call for a vote to unseat him, which could lead to his ouster if he seeks to work with Democrats.

For markets, it may only be a short-term relief: Experts 
While an end to uncertainty on the deal is welcome, the relief that may come from a deal may be a short-lived sugar high for investors. That's because once a deal is reached, the US Treasury is expected to quickly refill its empty coffers with bond issuance, sucking out hundreds of billions of dollars of cash from the market. The raising of ceiling may be followed by issuance of nearly $1.1 trillion in new Treasury bills over seven months, say JPMorgan estimates, a relatively large amount for that short a period.

Broad overhaul  to speed up energy permits omitted for now 

A plan to speed up energy project approvals has largely been scrapped from the accord to lift the debt ceiling, a win for progressives who opposed broad changes to a bedrock environmental law, according to a Democratic aide familiar with the matter.

While the agreement struck by White House and GOP negotiators makes minor tweaks to the National Environmental Policy Act, the 50-year-old law requiring federal reviews of energy projects, many of the changes sought by Republicans were omitted, the person said.


(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: May 28 2023 | 10:18 PM IST

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