Biden and McCarthy Negotiate Debt Ceiling Deadline with Little Progress Made
President Joe Biden and House Speaker Kevin McCarthy met on Monday to discuss the looming deadline to raise the debt ceiling. The two sides have been negotiating for weeks, but have made little progress towards a deal. Republicans have insisted that any bill that raises the debt limit should include spending cuts and work requirements for those receiving government assistance. Biden, on the other hand, wants a “clean” bill to raise the debt ceiling with no conditions. The government could default as early as June 5 if an agreement is not reached, which could have catastrophic consequences for the economy, including a crash in the stock market and millions of job losses.
Biden had previously said he wanted Congress to authorize a debt ceiling increase without any conditions. However, after the deadline was set for June 1, his administration began negotiating on federal spending, which officials insisted was happening “parallel” to lifting the debt ceiling. McCarthy's allowable loss on any debt-limit agreement is limited to a narrow margin of five votes. This implies that he requires backing from a minimum number of House Democrats in order to ensure approval. Simultaneously, the agreement cannot grant excessive demands to conservatives as it would deter Democrats from providing McCarthy with the necessary votes to pass it.
The proposal holds non-defense spending for fiscal year 2024 at roughly current levels and raises it 1% in 2025. For a duration of two years, the debt limit has been increased under a separate agreement. Defense spending would be set at the level proposed in Biden’s budget for the coming fiscal year, representing a modest 3.5 percent increase over current funding levels, which is less than what many Republican defense hawks would’ve liked to see for the Pentagon in order to keep pace with inflation. In addition to lifting the $31.4 trillion borrowing cap through the 2024 presidential election, the deal in principle would keep non-defense spending roughly flat for the fiscal year that begins Oct. 1, falling far short of the $130 billion in cuts at fiscal 2022 levels that Republicans had originally demanded.
If the debt ceiling isn’t raised, the U.S. won’t have the legal authority to pay for spending it has already committed to, like Medicare and Social Security payments. In other words, the U.S. would be forced to default on its debt, which would have a catastrophic impact on the economy. Instead of increasing the debt limit by a particular amount, Congress can opt to suspend it or permit the Treasury to surpass it for a limited time. Although it was an infrequent occurrence in the first 90 years of its existence, Congress has now suspended the debt limit seven times since 2013.
Earlier this month, Biden expressed his “considering” of using the 14th Amendment as a way to bypass the debt ceiling. However, he expressed some uncertainty about its effectiveness. If Biden were to invoke the 14th Amendment to sidestep the debt ceiling and continue borrowing, White House aides warn that investors would question the validity of any bonds issued under this untested authority. According to them, the impact of uncertainty on the economy could be as severe as that of an actual default, potentially causing a downward spiral.
The root of McCarthy's difficulties lies in a straightforward fact: a significant faction of the Republican Conference, comprising around two to three dozen legislators, will not back any legislation that falls short of the Limit, Save, Grow Act, which was approved by the House last month. These politicians have risked their political standing by refusing to give in to Democrats and are determined not to back down from their stance. In addition, if they perceive that the speaker made excessive concessions on a compromise that they had no intention of endorsing from the beginning, McCarthy may encounter a revolt from the extremely conservative faction of his party. If that were to occur, his tenure as the speaker could come to an end only a few months after it commenced. In the same way, if the bill includes conservative requests, it could cause McCarthy's conference to be less willing to accept anything else.
After much negotiation, the White House and GOP negotiators have agreed in principle to raise the debt ceiling and cap federal spending, just in time before the nation's first-ever default deadline. Although the precise terms of the agreement were not immediately apparent, CBS News reported that it would increase the debt ceiling for two years and maintain non-defense expenditures at the same level as the 2023 fiscal year for the same period. As per the agreement, there would be a 1% hike in non-defense expenditure during the fiscal year of 2025. There is still little time left to prevent a default. McCarthy has promised that legislators in the House would have a period of 72 hours to review any proposed laws before casting their votes. Following that, the bill shall proceed to the Senate for a final passage vote, and subsequently to the president for signing. In spite of the urgency to tackle the debt limit, McCarthy reiterated the House's commitment to abide by the 72-hour rule, which grants House members a 3-day window to scrutinize a bill following the finalization of its text, prior to voting on it.
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