Biden gives little, gets less in debt ceiling deal
For President Joe Biden, a debt-ceiling victory comes with a bittersweet taste. The White House and top congressional Republican Kevin Mccarthy reached a tentative deal for lifting the government’s borrowing limit on Saturday night.
Each party championed the deal as a crucial step toward avoiding a sovereign default. But between broad spending caps and stricter rules for food stamps, Republicans have more to celebrate than their Democratic peers. America and its creditors, generally, have even less to be happy about.
After months of negotiation, Biden and Mccarthy reached an agreement just nine days before US Treasury Secretary Janet Yellen said the country was expected to run out of cash.
The deal lifts the debt ceiling about $4 trillion from its current level of $31.4 trillion, extending the government’s borrowing power for two more years. It conveniently allows Biden to avoid a similar standoff before the 2024 presidential election.
Biden has a few wins, but mostly he gets to keep spending he had already pushed through, including money dedicated to clean energy projects through the Inflation Reduction Act.
Student loan relief will also remain in place. Republicans had looked to roll those back.
The actual changes made to the budget swing in conservatives’ favour. It redirects $10 billion of funding away from the Internal Revenue Service that was meant to modernise the system.
In effect that might have helped the government collect more in taxes – the revenue side of the budget equation that was woefully missing from the current deal.
The White House also caved to Republicans’ push for work requirements for federal aid programmes. If passed in the coming days by Democratic and Republican lawmakers, who still need to vote, low-income Americans up to age 54 will need to work in order to receive federal food support, up from the previous 49-year-old limit.
Meantime, Biden appears to be hoping that American voters have short-term memories. Cutting sacred entitlements is unnerving for Democrats. But 2024 is far away, and for the next two years,
America’s spending habits can hum along without congressional disruption.
In the end, though, US finances may be worse off. The net result of this bill is that spending levels stay the same in 2024 and increase by roughly 1% in 2025, which will likely add to the $925 billion deficit.
While investors seem to be as eager as ever to buy US debt, having the world’s largest creditor play chicken with its finances – all while living paycheck-topaycheck – is a reminder that at some point, patience somewhere will run out.