Biden and McCarthy reach deal to raise debt ceiling averting potential default

News, US May 29, 2023 , by IRIA No Comments

After days of tough negotiations, U.S. President Joe Biden and Speaker of the U.S. House of Representatives Kevin McCarthy reached a tentative deal to raise the federal government’s $ 31.4 trillion debt ceiling, averting a potentially catastrophic default.

The U.S. government came on the verge of default as it ran out of funds to pay its staggering bills. The Secretary of the United States Treasury Janet Yellen wrote a letter to Congress on May 26, stating that the government will run out of funds to cover its financial obligations by June 5.

“During the week of June 5, Treasury is scheduled to make an estimated $92 billion of payments and transfers,” including a $36 billion quarterly adjustment towards Social Security and Medicare trust funds. “Therefore, our projected resources would be inadequate to satisfy all of these obligations,” she said.

The agreement between the White House and Congress would allow the U.S. government to borrow more money for the next two years while capping government spending. The deal was announced on May 27, 2023, after the Democratic president and the Republican speaker held a 90-minute telephone call.

“I just got off the phone with the president a bit ago. After he wasted time and refused to negotiate for months, we’ve come to an agreement in principle that is worthy of the American people,” McCarthy said in a tweet. In his brief remarks, McCarthy said that “We still have a lot of work to do.”

President Biden wrote that the agreement was “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.” He said that “The agreement represents a compromise, which means not everyone gets what they want.”

^{U.S. President Joe Biden hosts debt limit talks with U.S. House Speaker Kevin McCarthy (R-CA) in the Oval Office at the White House in Washington, U.S., on May 22, 2023. (Image Credit: Reuters/Leah Millis)}

The agreement would suspend the debt limit for the U.S. government until January 2025, while capping the government spending, reverting the remaining COVID funds, and speeding up the energy projects to generate income resources.

“It has historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce, rein in government overreach, there are no new taxes, no new government programs,” McCarthy said.

As a final step, the deal would have to pass through the narrowly divided U.S. Congress before the Treasury Department gets financial relief to pay off its debts. President needs bipartisan support from the Republican majority House and the Democratic majority Senate to sign the agreement into a bill.