Biden and McCarthy Reach Deal to Raise Debt Ceiling and Avoid Default
After months of stalemate, President Joe Biden and House Speaker Kevin McCarthy reached a deal to raise the debt ceiling and avoid a potentially catastrophic government default.[0] The agreement suspends the nation’s $31.4 trillion borrowing limit until Jan. 2025, allowing the Treasury Department to borrow as much money as needed to pay the nation’s bills during that time period, plus a few months after the limit is reached.[1] At the core of the accord lies a pause in the debt ceiling for two years, which limits the maximum sum of money that the government can borrow.[1]
The deal is a modest compromise that includes more spending cuts than Democrats were initially willing to make, but less than Republicans wanted. The proposed legislation indicates a reduction in non-defense discretionary spending, excluding veterans' programs, to roughly match the expenditure levels of the previous year by 2024. The White House projects that when veterans funding is set aside, nondefense spending would barely change, with a slight reduction overall from 2023 to 2024. In fiscal years 2024 and 2025, discretionary spending would be divided into distinct caps for defense and nondefense programs under the proposed bill, followed by a single combined cap for the next four years.[2] Starting from fiscal year 2025, there will be a 1 percent growth allowance for capped spending every year.[2]
The agreement also includes new work requirements for food stamps on adults ages 50 to 54 who don’t have children living in their home.[3] Presently, the aforementioned work prerequisites are solely applicable to individuals aged between 18 and 49.[1] Starting from fiscal year 2023, the age limit will be gradually introduced over a span of three years.[1] It also includes a technical change to the T.A.N.F.[1] The funding formula may lead certain states to redirect program funds.[1]
Despite successfully preventing any cuts to its student debt relief program in the agreement, the White House is unsure of the program's fate in the future.[4] In the upcoming weeks, the Supreme Court will determine if Biden can proceed with debt cancellation.[4] As the Supreme Court will be making the final decision on Biden's student loan cancellation plan, the bill did not cover this topic.[5]
The agreement has reignited lawmaker conversations about proposals to change or get rid of the debt ceiling altogether. The outcome of this year’s negotiations sends a message that the debt ceiling will likely continue to be used as leverage by both parties. Despite both parties being concerned about concessions, the fear of a default and the possibility of an economic crisis outweighed their concerns.[6] If the agreement passes, it will put the debt ceiling threat out of reach until after the next election.[6]
By announcing the deal, the long-held concerns over a possible default have been resolved, thus averting the potential market turbulence, surges in interest rates, and a rise in unemployment.[6] [6]
The agreement also codifies into law the Biden administration’s plan to end the ongoing freeze on monthly student loan payments and interest at the end of the summer, according to a source familiar with negotiations. Prior to September, the Education Department was getting ready to resume payments.[4]
The legislation formally terminates Mr. Biden's suspension of student loan payments, which will come into effect by August's end, and curbs his authority to reintroduce such a pause. [1] The project, costing $6.6 billion, aims to transport gas from the Marcellus shale fields in West Virginia over a distance of approximately 300 miles. The pipeline will cross almost 1,000 streams and wetlands before reaching its final destination in Virginia.[1]
Overall, the deal is a modest compromise that includes some spending cuts and new work requirements, but avoids the potential for a catastrophic economic crisis. It remains to be seen how the use of the debt ceiling as a bargaining chip will continue to play out in future negotiations.
0. “The Graphic Truth: Who caused the US national debt?” GZERO Media, 29 May. 2023, https://www.gzeromedia.com/the-graphic-truth-who-caused-the-us-national-debt
1. “Here’s What’s in the Debt Limit Deal” The New York Times, 29 May. 2023, https://www.nytimes.com/2023/05/29/business/debt-ceiling-agreement.html
2. “Bipartisan debt limit package unveiled as clock ticks toward ‘x date'” Roll Call , 29 May. 2023, https://www.rollcall.com/2023/05/28/bipartisan-debt-limit-package-unveiled-as-clock-ticks-toward-x-date/
3. “Debt ceiling deal reached in principle by Biden and McCarthy to avoid default” NPR, 28 May. 2023, https://www.npr.org/2023/05/27/1177688226/debt-ceiling-deal-biden-mccarthy-latest
4. “Here are the 6 must-know provisions of the new debt ceiling deal” POLITICO, 28 May. 2023, https://www.politico.com/news/2023/05/28/6-pillars-of-the-debt-ceiling-deal-00099108
5. “Debt Ceiling Agreement Lifts Student Loan Pause, Cuts Some IRS Funding” Forbes, 29 May. 2023, https://www.forbes.com/sites/kellyphillipserb/2023/05/29/debt-ceiling-agreement-lifts-student-loan-pause-cuts-some-irs-funding
6. “What’s in the debt ceiling deal” Vox.com, 28 May. 2023, https://www.vox.com/politics/2023/5/28/23734460/debt-ceiling-deal-crisis-default-biden-mccarthy
