US President Joe Biden and Republican House Speaker Kevin McCarthy have reached a preliminary agreement to raise the debt ceiling.
The agreement includes a reduction in some aspects of federal spending and “does not include any new taxes or programmes.”
Biden called the agreement “an important step forward,” noting that it reduces spending while protecting vital worker programs and growing the economy for all.
He added that the agreement represents a “compromise”, “which means that not everyone gets what they want. This is the responsibility of governance.”
President Biden called the agreement “good news for the American people,” because it “prevents what would have been a disastrous default, would have led to economic recession, destroyed retirement accounts, and millions of jobs lost.”
The American president said that negotiators will put the final touches on the legislative text, in preparation for its referral to the House of Representatives and the Senate. He urged both houses to pass the agreement immediately.
For his part, the Speaker of the United States House of Representatives, Kevin McCarthy, announced reaching a “preliminary agreement” with the White House on the debt ceiling, before the date set by the Treasury Department, which is 5 June, to default on federal obligations.
The president of the U.S. House of Representatives said the agreement included “historic spending cuts,”
Kevin McCarthy, expected that Congress will vote, next Wednesday, on the bill to raise the government debt ceiling, as it had announced earlier, that he will give Congress 72 hours to review the agreement before the vote, indicating that he talked to President Biden twice, and that he will continue talks with him, Sunday.
The agreement will suspend commitment to the debt ceiling, currently $31.4trn, until January 2025, allowing the US government to meet its obligations. “By contrast, the maximum non-defense discretionary spending will be maintained at current year levels in 2024 and increased by only one percent in 2025.”
According to the Office of Management and Budget, the US government will spend $936bn on nondefense discretionary spending in 2023, money directed to housing, education, road safety and other federal programs
The deal is expected to increase defence spending to about $885bn, in line with Biden’s spending proposal for the 2024 budget.
This includes an 11% increase (over $800bn) in the current budget.
The deal suspends the debt ceiling; effectively giving the Treasury unrestricted borrowing power until January 2025 before it needs congressional approval for any further increase.
That would be a win for Democrats – especially Biden, who won’t have to face another debt-reduction battle before seeking re-election next year.
Biden and the Democrats have provided $80bn in new, 10-year funding to help the Internal Revenue Service tax the wealthy Americans under the Inflation Reduction Act passed last year.
The administration said it would generate $200bn in additional revenue over the next 10 years.
Republicans and Democrats have already fought to move this funding, which was earmarked under the Inflation Reduction Act as “mandatory spending” to keep it out of the political bickering over annual budget preparation, into the “discretionary spending” appropriated by Congress.
The Internal Revenue Service plans to use the funding to hire thousands of new employees, and the additional tax revenue they collect is expected to offset a wide range of tax credits supporting the fight against climate change.