Republican Kevin McCarthy, the top congressional leader, has stated that he is making progress in negotiations with President Joe Biden to raise the federal government’s debt ceiling. The United States is facing a risk of default in just over a week. The Treasury Department has predicted that the government will run out of funds to pay its bills by June 5th without congressional action, which is a slightly later deadline than previously anticipated but is more firm. The negotiations between Biden and McCarthy will be the start of a process that is expected to take at least a week to shepherd legislation through Congress, whose members are narrowly and bitterly divided. McCarthy has said that they have not yet reached a deal but have made progress and are working towards an agreement.
A Narrow Path to Agreement
The Republicans control the House by a margin of 222-213, while the Democrats hold a Senate majority of 51-49, which leaves a narrow path to pass any agreement by the Democratic president and Republican speaker into law. Hardline Republicans have threatened to block any bill that does not meet their expectations, including sharp spending cuts. Progressive Democrats have also threatened to withhold support for some of the compromises raised, particularly around imposing new work requirements on federal anti-poverty programs.
The Agreement
The two sides have tentatively agreed to raise the debt ceiling by enough to cover the country’s borrowing needs through the November 2024 presidential election. It would boost spending on the military and veterans’ care and cap spending for many discretionary domestic programs. Republicans are also pushing for reforms to energy permitting, including making it easier to drill for gas and oil. While Republicans have sought to curb government spending sharply over the coming 10 years to slow the growth of the US debt, which is now equal to the annual output of the economy, the agreement would likely fall well short of their goal.
Safety-Net Programs Remain a Sticking Point
Safety-net programs such as Medicaid health plans for the poor and the SNAP food assistance program remain a sticking point. Republicans want to stiffen work requirements for these programs, while Democrats believe that this would create more barriers for people already struggling to make ends meet. Both programs expanded dramatically during the COVID-19 pandemic but have been scaled back in recent months.
The Consequences of Default
If Congress fails to raise its self-imposed debt ceiling before June 5th, it could trigger a default that would shake financial markets and send the United States into a deep recession. Several credit-rating agencies have said they have put the United States on review for a possible downgrade, which would push up borrowing costs and undercut its standing as the backbone of the global financial system. A similar 2011 standoff led Standard & Poor’s to downgrade its rating on U.S. debt, hammering markets and sending the government’s borrowing costs higher.
While progress has been made in negotiations between Republican Kevin McCarthy and President Joe Biden to raise the federal government’s debt ceiling, there is still a long way to go before a deal can be reached. The negotiations are taking place in a bitterly divided Congress, and both Republicans and Democrats have threatened to withhold support for certain aspects of the agreement. Safety-net programs such as Medicaid and SNAP remain a sticking point, and Republicans are pushing for reforms to energy permitting. The consequences of a default are severe, and several credit-rating agencies have placed the United States on review for a possible downgrade.
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