Biden and McCarthy Closing In on Debt Ceiling Deal, Military Funding to Increase

U.S. President Joe Biden and top congressional Republican Kevin McCarthy are making significant progress toward reaching a deal to address the government’s $31.4 trillion debt ceiling. The agreement, which is yet to be finalized, aims to raise the debt ceiling for two years while implementing spending caps on various items. Although the negotiations are ongoing, there is a consensus to increase funding for discretionary spending on military and veterans while maintaining non-defense discretionary spending at current levels. This article delves into the details of the potential deal and explores the implications it may have on the nation’s financial landscape.

 

Increased Military and Veterans Funding, Non-Defense Spending Held Steady

The deal being discussed seeks to allocate additional funding to the military and veterans’ programs, providing a boost to these essential sectors. Simultaneously, non-defense discretionary spending would remain relatively stable, keeping it in line with the current year’s levels. While the agreement has not been finalized, the progress made so far indicates a mutual understanding between the parties involved. It is worth noting that the information shared here comes from an anonymous U.S. official who is privy to the internal discussions surrounding the negotiations.

Potential Scaling Back of IRS Funding

As part of the discussions, the White House is contemplating reducing its plans to augment funding for the Internal Revenue Service (IRS). Originally intended to hire more auditors and target wealthy Americans, this aspect of the agreement is now an open issue. The primary objective, as stated by a second U.S. official, is to ensure the execution of the president’s priorities within the IRS. This may involve making minor adjustments to the funding or redistributing it to different areas. The final decision on IRS funding will likely emerge as the negotiations progress further.

Specifying Total Spending and Minor Discrepancies

In the final agreement, the total amount of government spending on discretionary programs such as housing and education would be defined. However, a breakdown of the spending into individual categories may not be included. As per a reliable source familiar with the negotiations, the two sides are only $70 billion apart in determining the total figure. This amount would substantially exceed $1 trillion. The discussions have already taken place virtually, as confirmed by the White House.

Republican Shift in Stance on Defense and Non-Defense Spending

Republican negotiators have altered their stance on military and non-defense spending. Initially, they proposed increasing military spending while reducing non-defense expenditures. However, they have now embraced the White House’s position, which calls for a more equitable treatment of both budget items. This adjustment in approach demonstrates a willingness to find common ground and work towards a mutually agreeable solution. Despite progress in the negotiations, there remains a disagreement between Biden and McCarthy regarding the specific areas in which spending cuts should be implemented.

Uncertain Timeline and Congressional Approval

It is currently unclear how much time Congress has left to act on the debt ceiling issue. The Treasury Department received a warning that it may face difficulties covering all its obligations as early as June 1. However, the department’s decision to sell $119 billion worth of debt due on that date suggests that the deadline is not absolute. Market experts interpret this move as an indication that the Treasury believes it can settle the auctions. Nevertheless, the urgency to address the debt ceiling remains, as failure to act could have severe repercussions for global financial markets and potentially push the United States into recession.

To pass any agreement, it would need approval from both the Republican-controlled House of Representatives and the Democratic-controlled Senate. This process presents challenges, as some right-wing Republicans and liberal Democrats express dissatisfaction with the possibility of compromising on certain aspects. House Speaker McCarthy stated that a deal has not yet been reached, acknowledging the complexities involved.

While “I don’t think everybody’s going to be happy at the end of the day. That’s not how the system works,” McCarthy said.

With the House adjourned for a week-long break and the Senate not in session, lawmakers have been instructed to remain prepared to return for voting if a deal is reached. It’s important to note that any agreement reached will only provide broad spending outlines, leaving the task of filling in the specific details to lawmakers in the following weeks and months.

Biden has been resistant to Republican proposals that aim to strengthen work requirements for anti-poverty programs and relax regulations on oil and gas drilling, according to Democratic Representative Mark Takano. On the other hand, Representative Kevin Hern, who leads the Republican Study Committee, expressed confidence that a deal would likely be reached by Friday afternoon.

‘TIME’S UP’: Democrats Raise Concerns

Meanwhile, Democrats have directed their attention towards expressing concerns over what they perceive as devastating cuts in federal aid for veterans if the Republicans’ proposals were to materialize. They highlight the potential impact on essential areas such as healthcare, food aid, and housing assistance. Democratic Representative Don Davis, a U.S. Air Force veteran, emphasized the need for urgency, stating, “Time’s up for all of these games around here,” during a press conference.

Potential Credit Downgrade and Economic Implications

A potential U.S. default on its debt obligations has raised alarms within global financial markets, as it could have far-reaching consequences, potentially pushing the United States into a recession. Credit rating agency DBRS Morningstar has placed the United States on review for a possible downgrade, echoing warnings previously issued by Fitch, Moody’s, and Scope Ratings. S&P Global, another credit rating agency, already downgraded U.S. debt following a similar debt-ceiling standoff in 2011.

The prolonged standoff has had a noticeable impact on Wall Street, with U.S. stocks being weighed down and the nation’s borrowing costs increasing. Deputy Treasury Secretary Wally Adeyemo revealed that concerns over the debt ceiling have already resulted in an $80 million increase in the government’s interest costs.

The Routine of Raising the Debt Ceiling

Raising the self-imposed debt limit is a regular occurrence for lawmakers, necessary to cover the costs of spending and tax cuts that have already been approved. House lawmakers will have a three-day period to review any debt-ceiling bill before voting on it. McCarthy has maintained that any agreement must include cuts to discretionary spending in the coming year and impose limits on spending growth in the future, as a means to curb the growth of the U.S. debt, which currently equals the nation’s annual output.

Frustration on the Flanks

Lawmakers on both ends of the political spectrum are growing increasingly frustrated. Republican Representative Chip Roy, a member of the hard-right Freedom Caucus, insists that any deal should incorporate the substantial spending cuts passed last month. Some Democrats, on the other hand, criticize Biden for not sufficiently emphasizing the drawbacks of the proposed spending cuts put forth by Republicans. In contrast, McCarthy has been providing multiple briefings to reporters each day. Democratic Representative Steven Horsford urged the president to utilize the power of the presidency’s “bully pulpit” to convey the implications of the proposed cuts.

 

As negotiations between President Biden and Republican leader Kevin McCarthy continue, progress has been made towards reaching a deal to address the government’s debt ceiling. The potential agreement includes increased funding for the military and veterans while maintaining non-defense discretionary spending at current levels. However, some aspects, such as IRS funding, are still being deliberated. The final agreement will outline the total amount of government spending on discretionary programs without providing a detailed breakdown. Congressional approval is necessary, with potential challenges arising from dissenting voices on both the right and left. The urgency

to resolve the debt ceiling issue remains as the Treasury Department faces potential difficulties in meeting obligations. The outcome of these negotiations will have significant implications for the United States’ financial stability and global economic landscape.