The Biden administration and leading Republican in Congress Kevin McCarthy reached an agreement to raise the U.S. government’s debt ceiling
For President Joe Biden, the debt ceiling victory came just in time. The White House and the leading Republican in Congress, Kevin McCarthy, reached a tentative agreement Saturday night on lifting the government’s debt limit.
Both parties called the agreement a crucial step toward avoiding a government default. But between sweeping spending limits and stricter food stamp rules, Republicans have more to celebrate than their Democratic counterparts.
America and its creditors generally have even less reason to rejoice.
After months of negotiations, Biden and McCarthy reached an agreement just nine days before U.S. Treasury Secretary Janet Yellen declared that the country was likely to run out of money.
The agreement raises the debt ceiling by $4 trillion from the current $31.4 trillion and extends the government’s borrowing for two more years. This will allow Biden to avoid a similar standoff before the 2024 presidential election.
Biden has some advantages, but most importantly, he can maintain spending he had already pushed through, including money for clean energy projects under the Inflation Reduction Act. Student loan relief also remains. Republicans had tried to cut those.
The actual changes to the budget work in conservatives’ favor. For example, $10 billion in funding is being cut from the Internal Revenue Service that had been earmarked for modernizing the system.
That could have helped the government collect more taxes – the revenue side of the budget equation that was sorely lacking in the current agreement.
The White House also caved to Republican urgings to impose work requirements for government assistance programs. If Democratic and Republican lawmakers, who have yet to vote, agree in the coming days, low-income Americans will have to work until age 54 to receive federal food assistance, up from the previous limit of 49.
In the meantime, Biden seems to be hoping that American voters have short-term memories. Cutting sacred entitlements is troubling for Democrats. But 2024 is a long way off, and for the next two years, American spending habits can continue without disruption from Congress.
In the end, however, U.S. finances could be worse off. The net result of this bill is that spending levels will stay the same in 2024 and increase by about 1% in 2025, likely adding to the $925 billion deficit.
Investors still seem eager to buy U.S. debt, but when the world’s largest creditor plays foul with its finances while living paycheck to paycheck, it’s a reminder that patience eventually runs out.