US prez, McCarthy strike deal to avert US debt default | World News - Hindustan Times
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US prez, McCarthy strike deal to avert US debt default

May 28, 2023 10:49 PM IST

Both the President and Speaker projected the deal as a win to convince their constituents that it meets the priorities of their respective parties

Washington: Averting a possible global economic crisis, US President Joe Biden and House of Representatives Speaker Kevin McCarthy have struck a deal on suspending America’s debt ceiling for two years along side spending cuts in the federal budget, the White House announced on Saturday.

US President Joe Biden (right) meets with House Speaker Kevin McCarthy about the debt ceiling, in the Oval Office of the White House in Washington, DC, on May 22. (AFP)
US President Joe Biden (right) meets with House Speaker Kevin McCarthy about the debt ceiling, in the Oval Office of the White House in Washington, DC, on May 22. (AFP)

The House and the Senate will need to pass the agreed-upon legislation to ensure that the US doesn’t default on its obligations. While the legislation is expected to pass, it will encounter challenges from the Republican extreme-Right, which had demanded greater spending cuts, and Democratic progressives, who had warned against spending cuts.

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Both the President and Speaker, however, projected the deal as a win to convince their constituents that it meets the priorities of their respective parties.

In a statement, Biden said that McCarthy and he had reached an agreement in principle. “This agreement is good news for the American people, because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost.”

The president also said that the deal reduced spending while protecting critical programmes for working people, growing the economy for everyone, and key priorities and legislative accomplishments pushed by Democrats.

McCarthy said that the deal, without increasing taxes, would result in “historic reductions in spending, consequential reforms that will lift people out of poverty into the work force, rein in government overreach”.

Biden spoke to McCarthy for 90 minutes on the phone on Saturday to finalise the deal and smoothen over the differences. While the text of the deal isn’t public yet, and the legislation is still being finalised, American media outlets reported the broad contours of the agreement.

Non-defence spending would be maintained at the 2023 levels till next year and would increase by 1% in 2025. The White House has agreed to cut $10 billion in funding for the Internal Revenue Service (IRS) it had secured to go after tax cheats, give up the unspent funding meant for Covid-19 pandemic relief package, impose work requirements for certain segments of the population on government assistance, and maintain the same level of taxes on the wealthy and tax corporations. Republicans have agreed on maintaining proposed spending for Medicare, social security, clean energy, student loan debt waivers, education funding for low income students, care for military veterans, child care grants, cancer research, among other Democratic priorities. The two sides also agreed to streamline permission for energy programmes, both in the case of fossil fuel and renewable infrastructure including transmission lines.

The House is expected to vote on the deal on Wednesday, after which it will go to the Senate. The Congress will have to expedite its approval to be able to meet the June 5 deadline.

The debt ceiling is a rather unique feature of the American political economy. Besides authorising spending, the US Congress also authorises the extent to which the executive can borrow to spend. This limit has increased over the years, but was currently pegged at $31.4 trillion. The US hit its debt limit on January 19 this year, and the Treasury Department since then has been relying on extraordinary measures. Treasury secretary Janet Yellen had warned that the US was likely to default on its obligations if a deal wasn’t struck by June 5.

Republicans, who have a majority in the House, had insisted on major spending cuts, including in welfare programmes and Biden’s signature legislations. The White House had initially insisted that the US Congress had a duty to raise the debt ceiling unconditionally but eventually agreed to negotiate on spending cuts in the budget, in return for a suspension of the ceiling. In the past few weeks, both sides had stepped up negotiations as the deadline loomed, with Biden postponing his trip to Australia and Papua New Guinea to return home from Japan to be available for negotiations.

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  • ABOUT THE AUTHOR
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    Prashant Jha is the Washington DC-based US correspondent of Hindustan Times. He is also the editor of HT Premium. Jha has earlier served as editor-views and national political editor/bureau chief of the paper. He is the author of How the BJP Wins: Inside India's Greatest Election Machine and Battles of the New Republic: A Contemporary History of Nepal.

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