It’s the weekend in Washington, and the capital of the United States is almost at the gates of summer. Universities are celebrating graduation ceremonies, municipal pools are preparing to open to the public in just a few days, the Senate is about to enter a week of recess. On Capitol Hill, however, the last week was characterized by intense negotiation against the clock. The Republican Party in the House of Representatives and the Government of Joe Biden are discussing a framework to increase the limit on public debt issuance. They don’t have much time left: if there are no changes to the current debt ceiling, at the beginning of June, the North American country could go into default.
trading paused
The White House and the Republican Party in the House of Representatives negotiated until Friday night, after a day in which the opposition bloc announced a “pause” in the conversation. They did not meet this Saturday, waiting for Biden to return from his trip to Japan. The president of the lower house, Kevin McCarthy, He had been optimistic during the week and said he hoped to reach a deal this weekend, but there are no signs of that happening yet. “I don’t think we can move forward until the president can return to the country,” the Republican said this Saturday.
Democrats and Republicans differ, above all, on the need to make cuts to government spending. At the end of April, the opposition bloc, which dominates the House of Representatives, independently approved a budget bill that increases the ceiling imposed on public debt issuance, but at the same time cuts public spending for the next 10 years.
While little is known about the position of the Republican side in the current negotiation, the content of that bill provides a glimpse of what the party has in mind. For the White House, “the Republicans are recycling a slightly watered-down version of their extreme budget proposal” that it would cut jobs for teachers and law enforcement positions and “could jeopardize health care coverage for millions of Americans.”
The Biden Administration also criticizes that, at the same time that it demands cuts, the opposition party wants to extend “tax breaks for the richest and corporations.” “The Republicans are taking the economy hostage and driving us to the brink of default, which could cost millions of jobs. and lead the country into a recession”, they complain from the White House.
What is the debt ceiling
The US “debt ceiling” is a limit set by Congress on the amount of debt the US country can issue to meet its expenses. When it reaches it, it cannot issue any more public debt.
The current limit is 31.4 trillion dollars and the United States already reached it last January. At the time, the Treasury Department said it took “extraordinary steps” to continue to run government operations and programs. Treasury Secretary, Janet Yellenwarned that these measures would only serve temporarily, allowing the government to finance its activities only until the beginning of June.
What happens if Congress doesn’t raise the ceiling
With that deadline fast approaching, the White House needs to negotiate an increase in the debt ceiling so that the United States does not default.
In general, if the government and the House of Representatives are on the same page, raising the debt ceiling is little more than a simple procedure. During Donald Trump’s presidency, for example, Congress approved expanding the limit three times, without making cuts like those currently called for. During the Biden administration, it was already raised once in 2021. In all those cases, a new ceiling was not established, but the limit was suspended for a certain time. After that period, the ceiling was automatically updated according to the debt that had been issued in between.
If Congress and the White House are at odds, the process is not so simple. It is a deeply divided discussion according to the visions of the two parties. In 2011, after winning the House of Representatives, the Republican Party made a series of budget cuts a condition for approving a debt limit hike during the Barack Obama administration. The agreement came at the last minute, but the uncertainty ahead caused chaos in the markets, stocks fell and the US credit rating was lowered.
Memories of the 2011 debt crisis are fresh in today’s White House: Biden was the vice president at the time. Now he faces a similar scenario, with Republicans demanding budget cuts as a condition of passing a new ceiling. In this case, to the party divisions we must also add the great internal differences in the two main US political forces.
The main differences
“Any serious budget negotiations should include discussions of both spending and revenue, but the Republicans have refused to discuss revenue,” they complain from the White House. “They are focused on hurting American workers instead of considering the president’s proposal to cut unnecessary spending and reduce the deficit by removing subsidies for oil companies, pharmaceuticals and making the richest pay their fair share”.
One of the main demands of the Republicans is to add new “work requirements” in the government’s social programs. That is, the conditions related to employment that must be met by people who want to receive certain State benefits. For example, The recently approved GOP budget bill requires those who want access to Medicaid, the government-funded health care program, to work or perform community service.
These new requirements, which would affect the lower income sectors above all, are inadmissible for the most progressive wing of the Democratic Party. A group of 66 Democratic congressmen asked Biden to invoke the 14th amendment to the US constitution, which establishes that the “validity of the public debt” of the North American country “shall not be questioned”. For this group, the debt ceiling “goes against” this constitutional mandate. “I think (the amendment) should be on the table. And I think the foundations are legitimate,” the congresswoman told him recently. Alexandria Ocasio-Cortez to the portal Political.
How are the negotiations going?
In the middle of the negotiation, Biden traveled to Japan during the week for the G7 meeting in Hiroshima. The US president will return to Washington this Sunday night, after cutting short the tour that was to include a visit to Papua New Guinea and Australia.
Although McCarthy, the Speaker of the House of Representatives, has been optimistic over the past week and believes that a deal will be reached soon, there is no evident progress in the negotiations. Even if both sides reach an agreement this week, the timetable seems too tight for a law to be voted on by both chambers before early June. It is also unclear what the actual deadline is by which the government could run out of money.
About the only thing that seems to be more certain is about the possible results. No deal will make everyone happy, especially the extremes of both parties. This was anticipated by the leader of the Democratic majority in the Senate, Charles Schumer: “No one is going to get everything they want.”
