Biden, McCarthy reach deal on debt ceiling increase

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Biden, McCarthy reach deal on debt ceiling increase

Joe Biden and the House Republican speaker, Kevin McCarthy, have reached a deal in principle to raise the federal government's $31.4 tn debt ceiling, with just days left before America was expected to default.

I just got off the phone with the president a bit ago. After he wasted time and refused to negotiate for months, we have come to an agreement in principle that is worthy of the American people, he said.

Biden and McCarthy have held a 90-minute phone call earlier this week to discuss the deal.

The deal was reported to raise the debt limit for two years, averting any further standoffs until 2024.

The deal has to be approved by the divided Congress, and McCarthy will probably need some support from Democratic members to get the proposal through the House, given Republicans have a narrow majority in the lower chamber.

The deal would avert an economically destabilising default, which the Treasury Department warned would happen if the debt ceiling was not raised by June.

Republicans have pushed for steep cuts in spending and money to be pulled from the IRS, the US tax agency.

Both sides have suggested that one of the main holdups had been a Republican effort to enhance work requirements for recipients of food stamps and other federal aid programs, a longtime Republican goal that many Democrats have strenuously opposed.

Exact details of the final deal were not immediately available, but negotiators have agreed to cap non-defence discretionary spending at 2023 levels for two years, in exchange for a debt ceiling increase over a similar period, sources said.

The two sides have to carefully thread the needle in finding a compromise that can clear the House, with a 222 - 213 Republican majority, and the Senate, with a 51 - 49 Democratic majority.

The long standoff affected financial markets, affecting stocks, and causing the United States to pay record-high interest rates in some bond sales. A default would take a far heavier toll, economists say, potentially pushing the nation into recession, shaking the world economy and leading to a rise in unemployment.

For months, Biden refused to negotiate with McCarthy over future spending cuts, demanding that lawmakers pass a clean debt-ceiling increase free of other conditions and present a 2024 budget proposal to counter his proposed in March. On May 16th, two-way negotiations between Biden and McCarthy began in earnest.

Democrats said Republicans were playing a dangerous game of brinkmanship with the economy. Republicans believe that government spending is fueling the growth of US debt, which is now roughly equal to the annual output of the economy.

Mr McCarthy has vowed to allow House members 72 hours to read the legislation before bringing it to the floor for a vote. That will test whether enough moderate members vote for the compromises in the bill to overcome opposition from both hard-right Republicans and progressive Democrats.

Then it will need to pass the Senate, where it will need at least nine Republican votes to succeed. There are numerous opportunities in each chamber to slow down the process.