US President Joe Biden and House Republican Speaker Kevin McCarthy decided to suspend the debt ceiling till January 1, 2025. The deal to remove the $31.4 trillion debt ceiling is expected to help the US government prevent defaulting on its debt. The deal was reached following weeks of heated negotiations between Biden and Republicans.
President Biden believes the deal to be “good news” for American people after the tentative deal was struck on Saturday night. He said the deal takes the threat of catastrophic default away from the table and protects the hard-earned economic recovery.
It must be kept in mind that the deal still needs to pass through the Congress before June 5.
WHAT IS THE DEAL?
The debt-ceiling agreement that would suspend the debt limit till 2025 would cap spending in the 2024 and 2025 budgets. It would also repurpose the unused COVID funds, as well as speed up the permission process for some energy projects.
The bill, 99-page long, would authorise over $886 billion for security spending in fiscal year 2024 and over $703 billion in non-security spending for the same year. It would also authorise a 1 per cent increase for security spending in fiscal year 2025.
WHY WAS THE DEAL NEEDED?
The US Treasury said that the country could run out of money to pay its bills as soon as June 1 if the $31.4 trillion borrowing limit or debt ceiling is not lifted. If nothing is done as soon as possible, it could trigger an unprecedented default, which could possibly rattle the markets and push the country into a recession.
This point was in the making for decades. By the end of the 1990s there was a budget surplus due to a booming economy, hike in taxes and limited spending. But once the dot-com bubble burst, the surplus evaporated swiftly. George W Bush cut taxes, and the country spent in the expensive Iraq and Afghanistan wars. In 2008, the recession took place following the collapse of the housing sector. Bush as well as his successor Barack Obama issued stimulus packages.
Donald Trump too cut taxes, which led to a slump in revenues. Then COVID-19 happened, and around $6 trillion was spent on fighting the pandemic and aid the economy.
WHAT NOW?
The Republicans have said that 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.
Representative Pramila Jayapal, who chairs the Congressional Progressive Caucus praised the deal and said that it would save Medicaid from benefit cuts, while expanding the safety net to veterans and homeless people.
Biden and McCarthy have ruled out cuts to Social Security and Medicare. Republicans have pushed for an increase in defence spending, while Democrats have opposed new restrictions on the anti-poverty programmes.
Progressive Democrats have said that they would not support any deal that had additional work requirements for government food and healthcare programmes.
(With Reuters inputs)
Also read: Biden says final US debt ceiling deal ready to move to Congress for vote