President Biden and House Speaker Kevin McCarthy have successfully negotiated legislation to raise the United States debt ceiling and execute federal expenditure cuts totaling $31.4 trillion. The House Rules Committee voted 7-6 to adopt the rules for a full chamber debate and an expected vote, clearing a major hurdle for this critical issue.
Notably, two Republicans on the committee voted against their party’s position. The fact that Democrats were required to win its passage in the Republican-controlled House emphasizes the necessity of bipartisan cooperation.
The fate of the debt ceiling and federal spending hangs in the balance as the package approaches a vote, with major consequences for the nation’s economy.
What is in the Agreement
The proposed agreement would suspend the $31.4 trillion borrowing limit until January 2025. According to the Congressional Budget Office, it proposes to cut federal expenditure by $1.5 trillion over a decade.
This reduction would be accomplished by effectively freezing specific money expected to increase next year and imposing a 1% growth cap in 2025, which would be lower than the inflation rate.
Furthermore, the legislation imposes stricter work requirements for food stamps, recoups some IRS enforcement and unspent COVID-19 relief funds, expedites the permitting process for new energy projects, and officially ends President Biden’s student loan repayment freeze.
The deadline for congressional approval is June 5, 2023, before the Treasury Department runs out of funds to pay its bills, potentially causing economic pandemonium.
Negotiations and the Road to Compromise
President Biden and Speaker McCarthy have been in strict negotiations to reach an agreement that will suspend the debt ceiling and implement federal budget cuts.
This delicate balancing act has included navigating the complex dynamics of a divided Congress, with Republicans having a tiny majority in the House. The negotiations resulted in a breakthrough agreement, allowing the legislation to go to the House floor for a decisive vote.
What if the treasury department fails to cover its payments
Aside from detailing the bill’s essential provisions, it is critical to analyze the potential economic effects if the Treasury Department fails to satisfy its payment responsibilities.
If the Treasury Department is unable to cover all of its payments or has to prioritize payments owing to a shortage of finances, catastrophic economic instability might ensue in both the US and worldwide economies.
A default on the country’s debt would have far-reaching consequences. It would increase borrowing costs for the government, diminish investor confidence, and downgrade credit ratings.
This, in turn, might lead to higher interest rates, making borrowing money more expensive for individuals, corporations, and the government.
Volatility in financial markets is probable, generating disruptions in the stock market and currency exchange rates.
Conclusion after voting
The law’s passage would provide temporary relief by suspending the debt ceiling and ensuring the government could satisfy its financial obligations.
With a slim Republican majority in charge, the bill’s approval depends on Democratic cooperation.
This critical juncture has produced a once-in-a-lifetime chance for bipartisanship. Lawmakers are putting ideological differences aside to prioritize the nation’s economic stability.
History of Debt Ceiling
The Second Liberty Bond Act of 1917 established the debt ceiling. This was to make the US government fiscally responsible and set the maximum amount of money it could borrow by issuing bonds.
- As part of the Budget Control Act, the US government raised the debt ceiling from $14.3 trillion to $16.4 trillion on August 2, 2001.
- The debt ceiling was briefly suspended on February 4, 2013, until May 18, 2013.
- The Temporary Debt Limit Extension Act on February 12, 2014, suspended the debt ceiling until March 15, 2015.
- The Bipartisan Budget Act of 2017 temporarily postponed the debt ceiling from March 16, 2017, through December 8, 2017.
- The debt ceiling suspension period under the Bipartisan Budget Act of 2018 concluded on March 1, 2019.
- The debt ceiling suspension under the Bipartisan Budget Act of 2019 expired on July 31, 2021.
- A congressional decision raised the debt ceiling to $31.4 trillion on December 15, 2021.