Biden said the White House said it was an important advance that would reduce spending while protecting vital programs for working people and strengthening the economy for all. In addition, the agreement secures the most important parts of his agenda. However, the 80-year-old also acknowledged that the deal is a compromise – “which means not everyone gets what they want.”
The text of the law will now be finalized and forwarded to the House of Representatives and the Senate. “I urge both chambers to pass the agreement immediately.” McCarthy spoke of an “agreement worthy of the American people.” The text should soon be finally approved in cooperation with Biden. A vote in the House of Representatives is planned for Wednesday.
The draft must be passed in both chambers of Congress – the House of Representatives and the Senate – and signed by the President as quickly as possible so that an imminent default by the US government can be averted. US Secretary of the Treasury Janet Yellen had recently warned that the money could run out on June 5th. This was preceded by an intense dispute that even prompted Biden to cancel trips abroad.
The compromise that has now been reached is intended to effectively freeze the size of the federal budget, which the Democrats under Biden actually wanted to increase. The budgets of many federal agencies and ministries would be adjusted for this. Exact figures were not initially available. The New York Times estimated that the US government could spend about $650 billion less over the next ten years with the new rule. McCarthy spoke of “historic spending cuts” with no new taxes or government programs.
The Democrats actually wanted to increase state revenues by taxing the rich more heavily. The Republicans opposed it. During the negotiations, you had urged Biden to make savings in social areas, for example, in return for an increase in the debt limit. McCarthy, for example, called for people who receive certain social benefits to have a job in return. According to media reports, the Republicans should have prevailed on this point.
In the United States, parliament sets a debt ceiling at irregular intervals and determines how much money the state can borrow. In the meantime, this debt ceiling of around 31.4 trillion US dollars has been reached and the Treasury must tap into the capital reserves. Biden and his Democrats need the Republicans in Congress to raise the debt ceiling.
Approval in the House of Representatives on Wednesday is likely, but not guaranteed. The situation in the chamber is particularly muddled because the Republicans have a very narrow majority. There are also radical MPs in the parliamentary group who show no interest in a realistic compromise. McCarthy was only elected chairman by his group at the beginning of the year after a historic election chaos. This had greatly weakened his position.
The dispute over the debt limit is a major test for McCarthy, in which he must deliver results for his party. He must also succeed in rallying a few radicals behind the agreement in order to have the broadest possible majority in his party. If he had to rely on a particularly large number of votes from the Democrats because his party colleagues opposed him, that would further weaken him. McCarthy said he was confident on Fox News: “I think the majority of Republicans will vote for this bill,” he said. President Biden also approved the text, “so I think many Democrats will also vote for it.”
The months-long dispute had brought the United States to the brink of insolvency. If this now increasingly unlikely event were to occur, a subsequent global financial crisis could trigger a severe economic downturn. The US would then no longer be able to pay most of its bills – millions of people would probably lose their jobs as a result.
The dispute had meanwhile even threatened the creditworthiness of the USA. The rating agency Fitch retained the top rating “AAA” for the world’s largest economy on Wednesday evening (local time), but lowered the outlook to “negative”, so that a downgrade could be threatened. The row had also cast a shadow over Biden’s trip to the G7 summit in Japan. Biden continued to negotiate during the trip. He had repeatedly emphasized that 78 times in US history it had been possible to prevent a default.
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