US Congress and President Biden Reach Debt Ceiling Agreement in Principle

The week promises to be busy for the US Congress. After several days of negotiations, US President Joe Biden and Speaker of the House of Representatives Kevin McCarthy announced on Saturday May 27 that they had reached an “agreement in principle” to avoid default on payment by the United States. 99 pages long, the text was published on Sunday evening. It must now be approved by the elected representatives of both chambers before June 5.

“The agreement averts the worst possible crisis: a default for the first time in the history of our country, an economic recession, devastated retirement savings accounts and millions of lost jobs”, said Joe Biden on Sunday evening during a short address to the media.

In the United States, the maximum debt limit for the administration is set by Congress. Due to recurring budget deficits, this ceiling has to be increased regularly. The current threshold was set in December 2021 at $31.4 trillion. Beyond this amount, the country can no longer issue loans to finance its operation. However, it is dangerously approaching this threshold.

The debt ceiling raised for two years

At the heart of the agreement is an increase in the maximum amount of US debt, so as to cover at least two years of expenditure. This means that a new vote on this debt ceiling should not take place until January 2025, after the presidential election in November 2024. This is one of the priorities of the administration of Joe Biden , candidate for re-election and anxious to avoid yet another showdown with the opposition for the rest of his term.

At the same time as this increase, the agreement provides for limiting the increase in non-military federal spending. This concerns, for example, the financing of aid for real estate rental or scientific research. These expenses will remain stable until 2025, with levels close to 2022, before increasing by 1%.

At the same time, funds related to the fight against Covid-19 that have not yet been spent will be cut, amounting to 30 billion dollars. Those allocated to the fight against tax evasion will be reduced by 10 billion dollars.

A veteran-friendly agreement

Behind this major drop in spending, the Republican Party, which has the majority in the House of Representatives and represented by Kevin McCarthy, is pursuing several objectives. First, the increase in funding for the military. Aid paid to war veterans will be increased slightly to offset inflation. A measure in line with the proposals made in March by the Biden administration regarding the 2024 federal budget.

Another priority of the Republicans: to restrict the conditions of access to social assistance. In their sights, food stamps, family benefits and the Medicaid health insurance program. The agreement thus provides for raising from 50 to 54 the age at which an adult without children must work to benefit from food aid. For veterans and the homeless, access to this aid will, on the contrary, be facilitated. These changes will end in 2030.

The Inflation Reduction Act plan spared

The agreement does not provide for reversing the significant tax credits granted to industries under the anti-inflation plan adopted in August 2022, the Inflation Reduction Act (IRA). Nor does he plan to reverse the student debt forgiveness promised by Joe Biden. The American president had announced that he wanted to deduct 10,000 dollars (9,340 €) from the slate of student borrowers earning less than 125,000 dollars per year, and 20,000 dollars for former scholarship holders. The proposal is currently being considered by the Supreme Court.

Among the points of the agreement revealed on Sunday were also several highly contested provisions. This is the case of the one aimed at accelerating the construction of a pipeline in West Virginia. The Mountain Valley Pipeline, a project criticized by environmental organizations, aims to transport shale gas to Virginia. The federal agencies concerned will be required to issue all the permits and verification necessary for its construction within 21 days following the validation of the text by Congress.

An uncertain vote

Economically, this agreement is above all political. Chief negotiators Joe Biden and Kevin McCarthy both stake their credibility. The first wishes to avoid bankruptcy without alienating the most progressive Democrats, necessary for his re-election. The second seeks to establish his authority within his party, after having been poorly elected to the perch after the mid-term elections in January.

The text should be presented to the House of Representatives, with a Republican majority, from Wednesday, May 31. But its adoption remains uncertain. Several conservative members of the Republican Party have already expressed their opposition to the text, such as Dan Bishop, who accuses Kevin McCarthy of not having “hardly got anything”.

On the Democratic side, optimism is not there either. Some fear that these budget cuts will penalize policies considered to be priorities. An alliance between disappointed progressives and conservatives could see the light of day, jeopardizing the final adoption of the text before June 5.