Republicans, Biden reach debt ceiling deal, Congress to vote Wednesday

WASHINGTON: US President Joe Biden and Republican leader Kevin McCarthy announced a deal Saturday (May 27) to raise the debt ceiling, dragging the United States back from the precipice of default with only a few days to spare.

Congress will vote on the deal to extend the government borrowing authority Wednesday, just shy of the Jun 5 "X-date" when the Treasury estimates the government will no longer be able to pay its bills, plunging the world's biggest economy into turmoil.

Biden said in a statement that the deal was "good news for the American people, because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost."

McCarthy, who spoke with Biden on Saturday to close the deal, said there was still "a lot of work to do".

The Republican speaker added that he would consult again with the president on Sunday and oversee final drafting of the Bill, and the House would "then be voting on it on Wednesday".

"I just got off the phone with the president a bit ago," he tweeted earlier on Saturday evening. "After he wasted time and refused to negotiate for months, we've come to an agreement in principle that is worthy of the American people."

"COMPROMISE"

Raising the debt ceiling - a legal manoeuvre that takes place most years without drama - allows the government to keep borrowing money and remain solvent.

This year, Republicans demanded deep spending cuts - largely in social spending for the poor - in return for raising the debt ceiling, saying the time had come for bitter medicine to address the country's mammoth US$31 trillion debt.

Biden argued that he would not negotiate over spending issues as a condition for raising the debt ceiling, accusing the Republicans of taking the economy hostage.

Both sides have now somewhat climbed down.

According to US media reports, the outline of the deal includes freeing up the debt ceiling for two years, meaning there will be no need for negotiations in 2024, when the nation is in full presidential election swing.

The big spending cuts Republicans wanted are not there, according to reports, but effectively a budget freeze will take effect. There will also be tougher rules on accessing unemployment benefits and other federal assistance.

Biden said "the agreement represents a compromise, which means not everyone gets what they want. That's the responsibility of governing".

DEADLINES

Treasury Secretary Janet Yellen had initially warned of a possible default on Jun 1 if Congress failed to raise the ceiling on borrowing, but gave lawmakers some breathing room on Friday when she updated the estimate to Jun 5.

Even so, the legislation will still have to clear Congress much more quickly than the normal timetable for even the most uncontroversial Bills.

Under House rules, lawmakers have to be given 72 hours before voting once a Bill is presented. And if it passes the House, it will then have to go through the Senate, where Democrats hold the majority.

McCarthy is hoping to bring the narrow House majority of 222 Republicans with him, but the deal is likely to face opposition from 35 far-right lawmakers who told him to "hold the line" against compromising on far more sweeping spending cuts. That means a large number of Democrats will have to be persuaded to vote with a reduced number of Republicans - something that rarely happens on big Bills.

In a sign of the uphill battle McCarthy might face corralling his party's votes, hardline conservative Representative Lauren Boebert said she would oppose the deal.

"Our voters deserve better than this," she said in a tweet on Saturday night. "You can count me as a NO on this deal."

The Democrats, meanwhile, may face their own rebellion on the left of the party, which objects to any spending restrictions.

Congress was adjourned for an extended holiday weekend but lawmakers will be called back to vote.

If a default occurs, the government would not miss loan repayments until mid-June but in the meantime it would likely have to halt US$25 billion in social security checks and federal salaries.

The battle has been monitored closely by the major ratings agencies, with Morningstar and Fitch both warning that they could opt for a downgrade, even if crisis is averted.

When Barack Obama's administration narrowly averted a default 12 years ago, a ratings downgrade cost taxpayers more than US$1 billion in higher interest costs.