Overview

President Joe Biden and House Speaker Kevin McCarthy have reached a deal to raise the nation’s debt ceiling before the June 5 deadline, in order to prevent what could be a catastrophic default on U.S. debt. The agreement includes spending cuts and will require support from both Republicans and Democrats in Congress to pass.

Compromise and Challenges

The compromise announced on Saturday includes spending cuts that may not be popular among lawmakers, but the President and the Speaker are working to gather support from the political middle. Negotiators are still drafting the bill text and lawmakers are raising questions, but both Biden and McCarthy are urging swift passage before the June 5 deadline.

McCarthy commands a slim Republican majority in the House, and hard-right conservatives may resist any deal as insufficient while Democrats are hoping for full party support. With the compromise falling short of sweeping spending cuts sought by the Republicans, the deal risks angering some lawmakers.

Potential Consequences of Default

A default on U.S. debt could cause financial markets to freeze up and spark an international financial crisis. Experts predict millions of jobs would vanish, borrowing and unemployment rates would jump, and a stock market plunge could erase trillions of dollars in household wealth, shattering the $24 trillion market for Treasury debt.

Anxious retirees and others have already started to make contingency plans for missed checks as the world watches American leadership at stake.

The Legislative Package

The legislative package will be drafted and shared with lawmakers in time for House votes as soon as Wednesday and Senate votes later in the coming week. The compromise includes a two-year budget deal that would essentially hold spending flat for 2024, while boosting it for defense and veterans and capping increases at 1% for 2025. This deal also includes raising the debt limit for two years, thus delaying the political issue until after the next presidential election.

Republican Demands and Waivers

The compromise reached ensures people ages 49 to 54 with food stamp aid would have to meet work requirements if they are able-bodied and without dependents; this is something Republicans have been pressing to include. However, waivers have been secured for veterans and homeless people.

Conclusion

The compromise reached has taken the threat of a catastrophic default off the table and prevents the worst possible crisis, a default, for the first time in our nation’s history. Though it may not please every lawmaker in Congress, it is necessary to pass the measure before the June 5 deadline to avert a damaging federal default.