As The Thread of Default looms, The US House of Representatives Approves a Debt Ceiling Deal
Mitchell Nixon
On Wednesday (US time – Thursday AU time), the U.S. House of Representatives, divided along party lines, approved a bill to temporarily suspend the $31.4 trillion debt ceiling. The legislation received majority support from both Democrats and Republicans, enabling them to overcome opposition from hard-line conservatives and prevent a disastrous default.
We did an article on the deal being agreed in principle.
With a vote of 314-117, the Republican-controlled House passed the bill, which now moves on to the Senate for approval. The Senate must enact the measure and deliver it to President Joe Biden before the impending Monday deadline when the federal government is projected to exhaust its funds for bill payments.
President Biden is optimistic about receiving the bill in a timely manner to prevent a default that would severely impact the U.S. economy and unsettle global financial markets.
The bill, a compromise reached between President Biden and House Speaker Kevin McCarthy, faced opposition from 71 hard-line Republicans. Typically, this level of opposition would be sufficient to block partisan legislation. However, with the support of 165 Democrats, the bill was successfully pushed through.
Currently, Republicans hold a narrow 222-213 majority in the House.
This legislation effectively suspends the federal government’s borrowing limit until January 1, 2025, allowing President Biden and Congress to defer addressing this politically sensitive issue until after the November 2024 presidential election.
Additionally, the bill includes provisions to cap certain government spending over the next two years, expedite the permitting process for specific energy projects, reclaim unused COVID-19 funds, and expand work requirements for additional recipients of food aid programs.
Hard-line Republicans had originally sought more substantial spending cuts and stricter reforms.
Representative Chip Roy, a prominent member of the hard-line House Freedom Caucus, criticised the bill, stating, “At best, we have a two-year spending freeze that’s full of loopholes and gimmicks.”
Progressive Democrats, who, along with President Biden, had resisted negotiations over the debt ceiling, oppose the bill for various reasons, including the introduction of new work requirements for federal anti-poverty programs.
Representative Jim McGovern, a Democrat, expressed his opposition by saying, “Republicans are forcing us to decide which vulnerable Americans get to eat or they’ll throw us into default. It’s just plain wrong.”
The nonpartisan Congressional Budget Office released an assessment late on Tuesday, stating that the legislation would result in $1.5 trillion in savings over a decade. This falls short of the $4.8 trillion in savings sought by Republicans in a bill passed by the House in April and the $3 trillion reduction in the deficit proposed by President Biden’s budget through new taxes.
Leaders from both parties in the Senate expressed hope to swiftly enact the legislation before the weekend. However, potential delays related to amendment votes could complicate matters.
Republicans suggested that Senate Majority Leader Chuck Schumer and Senate Minority Leader Mitch McConnell might need to allow votes on Republican amendments to ensure prompt action.
Schumer, however, appeared to rule out amendments, stating, “We cannot send anything back to the House, plain and simple. We must avoid default.”
Debates and voting in the Senate could extend into the weekend, particularly if any of the 100 senators attempt to impede the passage of the bill.
Hard-line Republican Senator Rand Paul, known for delaying crucial Senate votes, indicated that he would not obstruct the bill’s passage if given the opportunity to propose an amendment for a floor vote.
Senator Bernie Sanders, a progressive independent who caucuses with the Democrats, announced his opposition to the bill due to the inclusion of an energy pipeline and additional work requirements. Sanders stated on Twitter, “I cannot, in good conscience, vote for the debt ceiling deal.”
The bill includes a provision that redirects some funding away from the Internal Revenue Service, although the White House maintains that it will not compromise tax enforcement.
President Biden can also claim certain victories. The deal largely preserves his significant infrastructure and green-energy laws, while the spending cuts and work requirements are considerably less than what Republicans had initially sought.
Republicans argue that significant spending cuts are necessary to control the growth of the national debt, which currently stands at $31.4 trillion, roughly equivalent to the country’s annual output. Government forecasts indicate that interest payments on the debt will consume an increasing portion of the budget as healthcare and retirement costs rise due to an ageing population. However, the deal does not address the expansion of these fast-growing programs.
The majority of savings in the bill will come from capping spending on domestic programs such as housing, education, scientific research, and other forms of discretionary spending. Military spending, on the other hand, will be permitted to increase over the next two years.
The debt-ceiling standoff has prompted credit rating agencies to issue warnings about the potential downgrade of U.S. debt, which forms the foundation of the global financial system.
Last week, credit rating agency DBRS Morningstar placed the United States under review for a potential downgrade, echoing similar concerns expressed by Fitch, Moody’s, and Scope Ratings. In 2011, during a comparable debt-ceiling standoff, another agency, S&P Global, downgraded U.S. debt.
The United States came perilously close to defaulting in 2011, a period marked by a similar partisan divide in Washington, with a Democratic president, a Senate majority, and a Republican-majority House.