The keys and the great challenge of the US debt ceiling agreement

2023-05-29 21:09:14

With time pressing to avoid falling down the precipice of default that would have sunk the economy of USA into a recession and dragged down the global financial markets, and after intense weeks of negotiationsThe president of United States, Joe Bidenand the leader of the Republican majority in the House of Representatives, Kevin McCarthy, announced this weekend agreement for suspend the debt ceiling and avoid what, in Biden’s words, would have been “a catastrophic default“.

Details of the pact were made public on Sunday, when the legislation was introduced. and the great challenge now is to get that 99-page text to receive approval in Congress before June 5the day marked by the Secretary of the Treasury, Janet Yellenas the “X-date“in which the US could find itself without funds to meet its payments, which are already being made with extraordinary tools since the debt ceiling, currently set at 34.4 trillion dollars, was exceeded in January.

With the division in chambersthe determining weight that to reach his position McCarthy was forced to give up to the ultra wing of his partywho opposes the agreement, and the opposition also from a part of the Democrats who consider that the president has made some unacceptable concessions, an iintense political battle, with uncertain outcomeis served.

The agreement between Biden and McCarthy does not raise but suspends the debt ceiling until January 2025, which in practice is equivalent to a rise, as it ensures that the US can meet its payments until that date. In return, it establishes for the next two years spending cuts and caps on numerous national programsalthough noto Touch neither Social Security nor Medicarethe public health care program for the elderly.

Specifically, the agreement obliges maintain in the next fiscal year the so-called discretionary spending (with which federal agencies and programs are financed) and raise it in 2025 only 1%, which is equivalent to a cut since it will not even include the increase in inflation. According to a calculation by ‘The New York Times’, that is equivalent to a reduction in spending of 55,000 million in 204 and 81,000 million in 2025.

In military expenses, instead, it is approved for 2024 an increase of 3.3% (as Biden had requested) up to 886,000 million, and up to 895,000 million in 2025.

The agreement also remove in the next two years to Hacienda US 20,000 million dollars of the 80,000 million that the Inflation Reduction Law signed by Biden last summer and redirects them to other programs.

They are also imposed new work requirements to qualify for some public assistance programs like food aid. Specifically, and gradually, the age at which a childless person must work to qualify for this aid will rise from the current 49 years to 54. Exempt are veterans and some vulnerable groups such as the homeless.

Another of the agreed elements is accelerate the processes for the approval of certain energy projects and the times allowed to make environmental impact assessments are cut. There is also a specific agreement that will expedite the approval of a gas pipeline in West Virginia, a project that had strong opposition from environmental groups.

What has Biden achieved and what has not

Although Biden initially and for some time insisted that he would not negotiate with the Republicans on the debt ceiling and only offered to talk separately about budgets and conservative calls for deep spending cuts, he has been forced to do so. “Can you think of the alternative,” he posed rhetorically on Sunday in a brief appearance before the media, in which he also stated that “the agreement represents a commitment which means that nobody achieves everything they want, but that is the responsibility of governing“.

One of the great victories of the deal for the Democrat, if he gets the green light in the cameras, it’s ensure that there will not be a similar crisis until after the 2024 presidential elections. And it has also achieved that the labor requirements to obtain public aid do not affect programs such as Medicaid (public health care for the poorest) or that they be more limited than what the Republicans wanted in the case of aid to needy families.

Biden has had to forget about his proposals to raise taxes to the highest incomes and corporations or ideas such as achieving more discounts for insulin that would have reduced spending on public health programs. He has also seen his financial support cut to the Treasury to prosecute fraud and tax evasion. And you must freeze your student debt forgiveness plan.

What McCarthy has and hasn’t accomplished

A great achievement for McCarthy has been force Biden to undo his promises and sit down to negotiate. The most powerful Republican in the country can also present as a triumph having reached a pact that contains federal spending and raises the work requirements to qualify for some aid, “a important first step” in the words of Republicans like Newt Gingrich. The acceleration of fossil fuel energy projects is another of his victories.

McCarthy, however, has agreed to eliminate another similar situation before the 2024 presidential election. And it has beenor very far from the ambitious conservative goalswhich had been reflected in a budget law that the Republicans passed in the Lower House and which proposed much deeper and more lasting cuts and spending limitations.

What should and what can happen

For the agreement to see the light needs to be ratified by Congress and both the division of power in the chambers and the polarization and internal fractures in the two parties do not guarantee that approval.

The biggest challenge is in the Lower House, which McCarthy presides over. To reach his post, the ‘speaker’ had to make concessions to the ultra-conservative wing of the Republican Party and that made those radicals now have a determining weight.

Although the voting in the lower house the Wednesday starting at 7:30 p.m. Washington (72 hours after the legislation has been officially introduced), before must go through the Rules Committee on Tuesday, where there are nine Republicans and four Democrats. With three of the conservative seats held by lawmakers from the ultra wingthese could postpone the legislative process.

When it comes up for debate and a vote before the full House, numerous House Republicans have announced that they will oppose the deal, which force enough Democrats to vote yes for him to get the green light. The more progressive wing of Biden’s party opposes a deal in which they believe too many concessions have been made.

Related news

Any delayand the necessary ratification later in the Senateraise the pressure, because lThe issue must be resolved by June 5.

“Whether it’s a good deal or a bad deal is irrelevant. It’s the only. The alternative is chaos“, has written the progressive economist and former Secretary of Employment Robert Reich. “What happens from now on depends on how many members of the lower house prefer rule to chaos.”