Just days before the US could start to run out of money, a tentative deal was reached by President Joe Biden and GOP House Speaker Kevin McCarthy to raise the US debt ceiling and prevent a potentially catastrophic default.
The tentative agreement to raise the government’s current $31.4 trillion borrowing limit was reached over the weekend after several weeks of tense negotiations — but the drama is far from over.
Biden and the Republican speaker now have to urge lawmakers from their respective parties to vote for the deal in order to avert a prospective June 5 default that could spark global financial chaos.
If approved, the deal — slated to be voted on by the House and Senate by next week — would allow the federal government to borrow money to pay its bills until 2025.
So as the deadline approaches, here’s what we know about the debt ceiling deal and what it means:
The debt ceiling, also known as debt limit, is the law that limits the amount of money the US government can borrow to cover costs — including paying federal employees, as well as Social Security and Medicare.
The tentative deal reached between Biden and McCarthy would suspend the government’s limit for two years, rather than setting a new limit, which means the issue wouldn’t come again until after the 2024 presidential election.
The current debt limit — $31.4 trillion — was reached back in January. Since then, the Treasury Department has kept within the limit by suspending investments in some federal pension funds while continuing to borrow from investors.
The deal came together after Treasury Secretary Janet Yellen told Congress last week that the US could no longer keep within the limit and could default on its debt obligations by June 5.
In addition to raising the debt limit until 2025, the agreement includes a string of spending cuts demanded by Republicans while boosting it for defense and veterans.
The deal would essentially hold spending flat for the 2024 fiscal year, while boosting it for defense and veterans, and capping increases at 1% for 2025.
For the next fiscal year, the bill matches Biden’s proposed defense budget of $886 billion and allots $704 billion for nondefense spending.
Under the agreement, it would fully fund medical care for veterans at the levels included in Biden’s proposed 2024 budget blueprint.
The deal would impose tougher work requirements on government aid recipients for the Supplemental Nutrition Assistance Program — formerly known as the food stamp program. It ensures people aged 49 to 54 with food stamp aid would have to meet work requirements if they are able-bodied and without dependents.
It also halts some funds to hire new Internal Revenue Service agents and claws back about $30 billion in unspent COVID-19 relief money that Congress had approved through previous bills.
A default could cause financial markets to freeze up and potentially cause an international financial crisis.
The US economy would almost certainly fall into a recession if the government was forced to miss payments on things like soldiers’ salaries or Social Security benefits for the elderly.
Analysts have also warned millions of jobs could vanish, borrowing and unemployment rates would spike and a stock-market plunge could erase trillions of dollars in household wealth.
Treasury Secretary Janet Yellen has said the US could default on its debt obligations by June 5 if lawmakers don’t act in time to raise the debt ceiling.
Speaker McCarthy has said the House will vote on legislation on Wednesday in order to give the Senate time to consider the bill ahead of the deadline.
Some congressional Republicans have already vowed to vote no on the deal after McCarthy said 95% of his fellow GOPers supported it.
Rep. Ralph Norman, of South Carolina, slammed the deal as “insanity,” saying: “A $4T debt ceiling increase with virtually no cuts is not what we agreed to. Not gonna vote to bankrupt our country. The American people deserve better.”
Rep. Ken Buck, of Colorado, said McCarthy’s tentative deal ultimately gave up what the GOP was looking for in the negotiations.
And fellow Colorado Rep. Lauren Boebert echoed the outrage, agreeing that she would join Buck and others in voting “no” over the debt ceiling as it stands.
“Our base didn’t volunteer, door knock and fight so hard to get us the majority for this kind of compromise deal with Joe Biden,” she said. “Our voters deserve better than this. We work for them. You can count me as a NO on this deal. We can do better.”
With Post wires
