America’s debt-ceiling deal means it should now avoid Armageddon | World News | Times Of Ahmedabad
Even in a sharply divided Washington, DC, politics-as-usual sometimes works. America has a history of debt-ceiling drama, staring into the abyss of a government default before reaching a deal at the last minute. This time, too, the familiar pattern has repeated itself. Intense negotiations went down to the wire. But President Joe Biden and Kevin McCarthy, the Republican speaker of the House of Representatives, resolved the final points of an agreement in a phone call on the evening of May 27th.
Some feared that this time would be different. Such is the depth of the partisan divide in Washington nowadays, and so ardent the radicalism of the extremists in both camps, the worry was that a compromise might prove elusive. Republicans were demanding budget cuts on a scale—equivalent to about 25% in real terms—that was unacceptable to Democrats.
Yet the looming deadline concentrated minds as usual. The “X-date”, when the country might be unable to pay its bills unless Congress raised or suspended the debt ceiling of $31.4trn, was fast approaching. Although Janet Yellen, the treasury secretary, had on May 26th moved back her estimate of the X-date from June 1st to June 5th, time was running short to reach a deal and get it through both chambers of Congress. The consequences of a debt default, the first in America’s modern history, would be dire: the shock from disruption in the biggest sovereign-debt market, accounting for about one-third of the global total and underpinning pricing in financial markets everywhere, threatened to reverberate through every economy around the world. The gravity of the situation led Mr Biden to cut short his trip to Asia after the G7 summit, and prompted desperate speculation about whether there might be hitherto untested ways around a crisis, for example by invoking the 14th Amendment, in effect declaring the debt ceiling unconstitutional.
So the breakthrough achieved on May 27th came as a relief. The deal, if it gets through Congress, will suspend the debt ceiling for two years. That conveniently puts off any future debt-limit drama to beyond the presidential elections of 2024. There will be limits on some government programmes over those two years, meaning non-defence spending will be flat in the 2024 fiscal year instead of growing, though the cuts will be far less swingeing than Republicans originally wanted.
Details of the deal were due to be released on May 28th. It reportedly includes new work requirements and time limits for some people on food stamps and some other safety-net programmes (though there will be exceptions for homeless people and veterans, and Mr Biden resisted any new work requirements for Medicaid, the health-insurance programme for the poor). Among the more contentious spending cuts, the Internal Revenue Service will get $10bn less than previously planned to enforce tax collection. The agreement includes some modest provisions aimed at helping speed up environmental reviews of energy projects, a sensitive issue for progressive Democrats, though Republicans are not alone in complaining that such projects too often get bogged down by problems of permits. But military spending, and spending on veterans’ care, will still grow. And the White House has resisted any unwinding of Mr Biden’s landmark laws, such as the clean-energy investments under the Inflation Reduction Act.
An effort to sell the deal has begun on both sides. Mr McCarthy said it would bring “historic reductions in spending” and “rein in government overreach”. For his part, Mr Biden said: “The agreement represents a compromise, which means not everyone gets what they want.”
A measure of that compromise is that it has already produced noisy disgruntlement among radicals on both sides. For the Republicans, the House Freedom Caucus is said to be exploring ways to make the bill more radical. On the Democratic side, progressives are complaining that it goes too far.
Such discontent means that the deal’s journey through Congress will be bumpy. The clock is still ticking. The House is in recess but will return to consider the deal on Wednesday.
Albeit grumpily, and despite opponents on both sides, the deal seems likely to win approval, with support from Democrats and Republicans who are unwilling to push America (and world markets) over the brink. Any celebration at such an outcome should be tempered by the fact that the two-year horizon of the debt-ceiling suspension almost guarantees that you can pencil in renewed fears of debt Armageddon in 2025. But for now, at least, the centre in America has held.
© 2023, The Economist Newspaper Limited. All rights reserved. From The Economist, published under licence. The original content can be found on www.economist.com
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