Speaker Kevin McCarthy (R., Calif.) and President Joe Biden reached an agreement, in principle, to raise the debt ceiling for two years on Saturday night, potentially averting a national economic crisis.
Early reports of the deal suggest that non-defense-related discretionary spending would be capped at a 1 percent increase until 2025, pushing the next contentious round of negotiations until after the 2024 presidential election. Moreover, nearly $2 billion President Biden had allocated to the IRS via the Inflation Reduction Act would be rescinded alongside a $29 billion clawback of unused government pandemic funds.
“We still have a lot of work to do. But I believe this is an agreement in principle that’s worthy of the American people. It has historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce, and rein in government overreach. There are no new taxes, no new government programs. There’s a lot more within the bill,” Speaker McCarthy said following news of the announcement.
President Biden was similarly enthusiastic about the legislative breakthrough following an hour-and-a-half phone conversation earlier on Saturday with the Speaker.
“It is an important step forward that reduces spending while protecting critical programs for working people and growing the economy for everyone,” the president said of the deal. “And the agreement protects my and congressional Democrats’ key priorities and legislative accomplishments. The agreement represents a compromise, which means not everyone gets what they want.”
However, some Republicans and Democrats have taken aim at their own parties, accusing them of compromising on important issues and being bested.
“Conceding to Republican demands to hamstring the I.R.S.’s ability to go after wealthy tax evaders is a losing proposition for Democrats,” Lindsay Owens, a director of Groundwork Collaborative, a liberal group, told the New York Times after the deal. “It undermines an important policy initiative, drains a good source of revenue and requires the caucus to vote down a policy that is incredibly popular with the public.”
A source close to Representative Bob Good (R., Va.) told the outlet that he believed everything House Republicans had “fought for” was lost in the deal.
In early May, President Biden extended an invitation to Speaker McCarthy to the White House to discuss the debt ceiling following warnings from Treasury Secretary Janet Yellen that the federal government could be insolvent as early as June 1.
“Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments,” Yellen wrote in a letter to McCarthy on May 1.
In a letter, Janet Yellen says the debt-limit "X date" could bind "potentially as early as June 1" https://t.co/9xTlinUSSh pic.twitter.com/yhHiXhEqSD
— Nick Timiraos (@NickTimiraos) May 1, 2023
Yellen’s cautionary note was echoed by the Congressional Budget Office (CBO), a nonpartisan government agency.
“Because tax receipts through April have been less than the Congressional Budget Office anticipated in February, we now estimate that there is a significantly greater risk that the Treasury will run out of funds in early June,” CBO director Phillip Swagel wrote in a blog post at the time.
Republicans spied an opportunity to leverage the urgency on the part of the Biden administration to advance spending cuts to the Supplemental Nutrition Assistance Program (SNAP). Part of the new deal will include a Republican measure incorporating new time limits attached to the program.
The California representative stated that the deal should be fully publicized later Sunday and brought for a vote before Congress by Wednesday, less than a week before the Treasury projected the country would exhaust its ability to pay its bills.