US President Joe Biden and House Republican Speaker Kevin McCarthy suspended the debt ceiling until January 1, 2025, according to a statement issued by the White House. The agreement to lift the $31.4 trillion debt ceiling is hoped to help the US government avoid defaulting on its debt. The deal was reached by weeks of heated negotiations between the Republicans and Biden.
President Biden said the proposed deal was good news for the American people after the tentative deal was struck on Saturday night. The agreement takes the threat of catastrophic default away from the table and safeguards the hard-earned economic recovery.
It must also be kept in mind that the deal still needs to pass through Congress before June 5 if it goes through the House of Representatives.
The debt-ceiling agreement would reduce spending in the budgets of 2024 and 2025, which would be suspended until 2025. It will also repurpose the COVID funds, and speed up the permit process for some energy projects.
The bill, 99 pages long, would authorise more than $886 billion in security spending in fiscal year 2024 and more than $703 billion in non-security spending for the same year. Under current law, it would also authorise a 1 per cent increase for security spending in fiscal year 2025.
The U.S. Treasury said it could run out of money by June 1 if the $31.4 trillion borrowing limit or debt ceiling was not lifted. If nothing is done as soon as possible, it could cause an unprecedented default, which could potentially rattle the markets and push the nation into a recession.
For years, this point was in the making. A thriving economy, hike in taxes and limited spending resulted in a budget surplus by the end of the 1990s. But once the dot-com bubble burst, the surplus had to be quickly flushed out of the market. Bush cut taxes and spent the nation in the wars in Iraq and Afghanistan. The housing sector collapsed in 2008, resulting in a recession. Bush and his replacement, Barack Obama, issued stimulus packages.
The tax cut by Donald Trump led to a drop in revenue. Then COVID-19 happened and around $6 trillion was spent on fighting the pandemic and aiding the economy.
The Republicans have said that they would only support spending restraints and not tax hikes to get the economy under control.
Now, both Republicans and Democrats will have to support the bill, as the Republicans control the House by 222 - 213 and Democrats control the Senate by 51 - 49.
Rep. Pramila Jayapal, chair of the Congressional Progressive Caucus, commended the deal and said that it would save Medicaid from benefit cuts, while expanding the safety net to veterans and homeless people.
Democrats have ruled out cuts to Medicare and Social Security. Republicans have pushed for increased defence spending, while Democrats oppose new restrictions on anti-poverty programs.
Democrats have said they would not support a deal that had additional work requirements for government food and healthcare programs.