Biden and McCarthy Reach Deal to Raise Debt Ceiling, but Face Criticism from Both Parties
After weeks of negotiations, President Biden and House Speaker Kevin McCarthy have reached an agreement in principle to raise the nation's debt ceiling and avoid a potentially disastrous government default.[0] Late on Saturday, both parties agreed to cap spending and raise the debt ceiling, with the bill's text set to be released on Sunday. However, the bill faces an uphill battle in Congress as both Democrats and Republicans have voiced criticism about the deal reached.[1]
McCarthy's challenges stem from a simple reality: a crucial segment of the Republican Conference, somewhere between two to three dozen lawmakers, will simply not support anything less than the Limit, Save, Grow Act that passed the House last month.[2] These members have staked their political reputations on not caving to Democrats and won't retreat from their position.[2] What's more, if they come to feel the speaker gave too much on a compromise they were never going to support in the first place, McCarthy could face a rebellion from the ultraconservative wing of his own party.[2]
Biden's proposal to forgive a portion of federal student loan debt would not be impeded by the agreement.[3] As per the GOP fact sheet, student borrowers would need to resume loan repayments by ending the pandemic-era pause initiated during the Trump administration and prolonged by Biden.[3] The modifications are set to come into effect after 60 days of enactment, which is a month earlier than the anticipated start date of September 1 that the administration had been preparing for.[3]
The agreement lifts the debt ceiling and holds spending flat through the 2024 presidential election, while allowing non-defense spending to increase by 1% in 2025.[4] The deal also imposes new work requirements on TANF and SNAP assistance programs, clawbacks billions of dollars in unspent Covid relief funds, pairs down Biden's plan to dramatically expand the IRS and codifies the administration's plan to restart federal student loan payments at the end of the summer.[5]
The Treasury Secretary, Janet Yellen, has issued multiple warnings that unless Congress takes action to raise the debt ceiling, the Treasury may exhaust its funds to cover expenses as early as June 1. In a letter to Congress on Friday, Yellen said unless Congress raises the debt ceiling, the U.S. will run out of money to pay its bills on June 5.
This deal is the result of yet another instance of brinksmanship regarding the debt ceiling.[6] As a result of its status as essential legislation, the debt ceiling has been wielded by both political factions as a bargaining chip for policy objectives or as a communication tactic. In the last few decades, however, Republicans have become more aggressive in how close they've been willing to push the US toward a default to secure policy wins.[6]
The outcome of this year's negotiations sends a message that the debt ceiling will likely continue to be used as leverage by both parties and has reignited lawmaker conversations about proposals to change it or get rid of it altogether. Both parties' concerns about concessions were ultimately outweighed, however, by the fear of a default and the potential of a catastrophic economic crisis.[6] Passing the agreement will eliminate the possibility of the debt ceiling becoming an issue until after the upcoming election.[6]
Overall, the announcement of a deal defuses longstanding fears about a potential default, which could have led to significant market volatility, spikes in interest rates, and an increase in unemployment.[6] However, even if the debt ceiling is raised and catastrophe is averted, the menacing new precedent has been normalized.[2] Previously considered an unalterable third rail due to the disastrous ramifications of a default, the debt limit is now regarded as a powerful legislative tool that can be wielded by political parties and leaders who are willing to utilize it.[2]
0. “McCarthy and Biden's debt ceiling plan faces a big test” Axios, 28 May. 2023, https://www.axios.com/2023/05/28/mccarthy-biden-big-debt-ceiling-test
1. “McCarthy on debt deal: Jeffries says there’s ‘not one thing in the bill for Democrats’” The Hill, 28 May. 2023, https://thehill.com/homenews/house/4024182-mccarthy-jeffries-says-theres-not-one-thing-in-the-bill-for-democrats/
2. “Kevin McCarthy's Hardest Job Will Be Selling a Debt-Limit Deal to Conservatives” Barron's, 25 May. 2023, https://www.barrons.com/articles/debt-ceiling-mccarthy-congress-compromise-79f609ce
3. “Bipartisan deal reached to raise debt limit, cap appropriations” Roll Call , 28 May. 2023, https://www.rollcall.com/2023/05/27/deal-reached-on-debt-limit/
4. “Debt ceiling deal reached in principle by Biden and McCarthy to avoid default” NPR, 28 May. 2023, https://www.npr.org/2023/05/27/1177688226/debt-ceiling-deal-biden-mccarthy-latest
5. “Biden touts bipartisan debt ceiling agreement, but says neither side got everything it wanted” POLITICO, 28 May. 2023, https://www.politico.com/news/2023/05/28/biden-bipartisan-debt-ceiling-agreement-00099133
6. “What’s in the debt ceiling deal” Vox.com, 28 May. 2023, https://www.vox.com/politics/2023/5/28/23734460/debt-ceiling-deal-crisis-default-biden-mccarthy
