President Biden Urges Congress to Pass Debt Ceiling Deal to Raise Borrowing Limit and Avert Default

President Joe Biden has called on Congress to pass a crucial deal that would raise the government’s borrowing limit and prevent a potentially catastrophic default on US debt repayments. Negotiators from both the Democratic and Republican parties reached an agreement on Sunday night, which, if approved, would allow the federal government to borrow money until well after the next presidential election in November 2024. The deal includes several key provisions aimed at ensuring financial stability and addressing important policy priorities. Let’s take a closer look at what is included in the deal.

Suspension of the Debt Ceiling until 2025

The US Congress must periodically vote to raise or suspend the debt ceiling, enabling the government to borrow more funds to meet its obligations. Currently set at $31.4 trillion (£25 trillion), reaching an agreement on the debt ceiling has become increasingly challenging due to disagreements between the two parties. However, the deal reached on Sunday does not raise the limit to a specific level but instead suspends it entirely until 2025. This suspension ensures that the government can continue to pay its bills without interference until that date, providing stability leading up to the next presidential election.

Spending Caps and Defence Budget

As part of the negotiations, Republicans pushed for a freeze on overall spending for ten years, with a specific increase in defense spending and cuts to other budgets. The final agreement maintains non-defense spending at current levels for the next year, with a 1% increase projected for 2025. Defence spending would see a 3% rise to $886 billion for this year. Notably, the deal does not include budget caps beyond 2025. While the implications of these spending adjustments are yet to be fully understood, it is estimated that government spending would be reduced by at least $1 trillion.

Keep Reading

• China and Biden’s Great Power Competition in the South Pacific: The Case of Papua New Guinea
• Turkish Elections: Why Erdogan grabbing the top role again matters for the West

Return of Unspent COVID-19 Funds

With the public health emergency officially ended in May, Republicans argued for the return of relief funds that were not utilized. The Congressional Budget Office estimated that this would amount to around $30 billion. While the specifics of how these funds will be reallocated have not been outlined, it is a significant aspect of the deal.

Welfare Adjustments

One contentious point in the negotiations was the Republican demand to tighten the distribution of welfare benefits, requiring able-bodied recipients to work to receive food and healthcare assistance. However, Democrats resisted this proposal, and the deal does not include significant overhauls of welfare programs. The age at which work requirements are applied to recipients of the Supplemental Nutrition Assistance Program (SNAP) was raised from 50 to 54, while Medicaid remains unaffected.

Funding for IRS Tax Enforcement

Democrats secured $80 billion over a decade to enhance the Internal Revenue Service’s (IRS) ability to enforce the tax code, as outlined in last year’s Inflation Reduction Act. Republicans initially opposed this funding, but in a display of deal-making, President Biden agreed to cut $20 billion and redirect it to non-defense spending. This funding will aid the IRS in enforcing tax rules on wealthy Americans and potentially modernize the system.

Streamlined Energy Project Permitting

To address the lengthy process of approving energy projects, the deal includes new rules that aim to expedite permits for both fossil fuel and renewable energy initiatives. This provision aligns with the interests of Democratic Senator Joe Manchin from West Virginia, and it is expected to streamline the environmental review process and accelerate project implementation.

Exclusions from the Deal

The deal does not address student loan relief, as Republicans wanted to rescind President Biden’s plan to forgive student debt. However, the plan remains intact, pending a decision by the Supreme Court. The bill does require the Biden administration to end the current pause on student loan repayments, which has been in effect since the start of the pandemic, by the end of the summer.

Additionally, the deal does not introduce new tax hikes, despite Democratic efforts to target wealthy Americans. House Democrats may express frustration at the absence of new taxes on the rich. Furthermore, Republicans did not succeed in repealing key provisions of the Inflation Reduction Act’s clean energy and climate policies, which is considered a win for environmentalists.

The deal reached by negotiators from both parties represents a significant step toward raising the government’s borrowing limit and avoiding a potential default on US debt repayments. By suspending the debt ceiling until 2025, the government can ensure stable financial operations until after the next presidential election. While the deal includes adjustments to spending caps, defense budgets, welfare requirements, and funding for IRS tax enforcement, it also leaves out certain contentious issues such as student loan relief and tax hikes. Nevertheless, the agreement provides a framework for addressing critical financial matters and demonstrates a commitment to prioritizing national interests over partisan politics.