Biden and McCarthy agree on US debt ceiling deal.

Biden and McCarthy Reach Tentative Deal to Suspend Debt Ceiling

After months of negotiations, President Joe Biden and top congressional Republican Kevin McCarthy have reached a tentative deal to suspend the federal government’s $31.4 trillion debt ceiling. The deal would suspend the debt limit through January of 2025, while capping spending in the 2024 and 2025 budgets, claw back unused COVID funds, speed up the permitting process for some energy projects, and includes some extra work requirements for food aid programs for poor Americans.

The long standoff on raising the debt ceiling spooked financial markets, weighing on stocks and forcing the United States to pay record-high interest rates in some bond sales. A default would take a far heavier toll, economists say, likely pushing the nation into recession, shaking the world economy and leading to a spike in unemployment.

The Path Forward

The deal was announced without any celebration, in terms that reflected the bitter tenor of the negotiations and the difficult path it has to pass through Congress before the United States runs out of money to pay its debts in early June. Biden and McCarthy have to carefully thread the needle in finding a compromise that can clear the House, with a 222-213 Republican majority, and Senate, with a 51-49 Democratic majority — meaning it will need bipartisan support before the president can sign it.

Republicans who control the House of Representatives have pushed for steep cuts to spending and other conditions, and were sharply critical of the deal as early details were reported. However, the deal will avert an economically destabilizing default, so long as it succeeds in passing it through the narrowly divided Congress before the Treasury Department runs short of money to cover all its obligations, which it warned on Friday will occur if the debt ceiling issue was not resolved by June 5.

What’s Next?

McCarthy has vowed to give House members 72 hours to read the legislation before bringing it to the floor for a vote. That will test whether enough moderate members support the compromises in the bill to overcome opposition from both hard-right Republicans and progressive Democrats to reach a simple majority vote. 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 along the way to slow down the process.

Conclusion

The debt ceiling debate has really come down to one thing, spending. Republicans say they want to cut spending to slow the growth of the U.S. debt, which is now roughly equal to the annual output of the country’s economy. Biden and Democrats have pushed to increase taxes on the wealthy and companies to shrink the debt while increasing spending on programs like free community college. The agreement represents a compromise, which means not everyone gets what they want. That’s the responsibility of governing.