President Joe Biden and Republican congressional leader Kevin McCarthy have reached a tentative agreement to raise the $31.4 trillion debt ceiling, resolving a months-long impasse.
However, the agreement was described in terms indicating that it may not be absolute and without any celebration -- a reflection of the acrimonious tone of the negotiations and the arduous path it must travel through Congress before the United States runs out of money to pay its debts in early June.
"I have just gotten off the phone with the president. "After months of him wasting time and refusing to negotiate, we've reached a worthy agreement in principle for the American people," McCarthy tweeted.
The agreement would raise the debt ceiling for two years while putting a cap on spending during that period, and it would impose additional work requirements on programs for the needy.
Biden and McCarthy discussed the agreement over the phone for 90 minutes on Saturday evening.
McCarthy told reporters on Capitol Hill, "We have more work to do tonight to complete the writing." McCarthy stated that he expects to complete drafting the measure on Sunday, then speak with Vice President Biden and vote on the agreement on Wednesday.
The agreement will avert an economically destabilizing default if a narrowly divided Congress approves it before the Treasury Department runs out of money to cover all of its obligations, which it warned would occur if the debt ceiling is not raised by June 5.
Republicans who control the House of Representatives have advocated for drastic cuts to spending and other conditions, including new work requirements for some benefit programs for low-income Americans and the stripping of funds from the Internal Revenue Service.
They stated that they want to slow the development of the U.S. debt, which is now roughly equal to the country's annual economic output.
According to sources, negotiators have agreed to restrict discretionary non-defense spending at 2023 levels for one year and increase it by 1% in 2025.
Finding a compromise that can pass the House, which has a Republican majority of 222-213, and the Senate, which has a Democratic majority of 51-49, requires the two parties to thread the needle meticulously.
One high-ranking conservative House Freedom Caucus member stated that they were currently gauging member sentiment and were uncertain of the vote totals.
The protracted impasse frightened financial markets, weighing equities and compelling the United States to pay record-high interest rates on certain bond sales. According to economists, a default would have a far greater impact, likely sending the nation into recession, jolting the global economy, and causing an increase in unemployment.
Biden refused to negotiate with McCarthy over future spending cuts for months, demanding that lawmakers first adopt a "clean" debt-ceiling increase free of other conditions and submit a budget proposal 2024 to counter his March proposal. May 16 marked the beginning of Biden and McCarthy's negotiations in earnest.
Democrats accused Republicans of playing a reckless game of brinkmanship with the economy. Recent increases in government expenditure, according to Republicans, are fueling the expansion of the national debt, which is now roughly equal to the nation's annual economic output.
In 2011, when Washington had a Democratic president and Senate and a Republican-led House, the nation came near to defaulting on its debt.
Eventually, Congress averted a default, but the economy endured severe disruptions, including the first-ever downgrade of the United States' top-tier credit rating and a significant stock market decline.
The effort to increase the debt ceiling is not yet complete. McCarthy has promised to give House members 72 hours to peruse the bill before bringing it up for a vote. This will determine whether sufficient moderates support the bill's compromises to overcome opposition from conservative Republicans and progressive Democrats.
The bill must then pass the Senate, requiring at least nine Republican votes. There are numerous opportunities within each chamber to slow down the procedure.
The parties had struggled to reach an agreement on expenditure levels. In the next fiscal year, Republicans pushed for an 8% reduction in discretionary expenditure, followed by annual increases of 1% for several years.
Biden had proposed holding expenditure flat for the fiscal year beginning October 1, 2024, and increasing it by 1% the following year. In addition, he demanded the closure of certain tax exemptions, which Republicans rejected.
