Biden and McCarthy agree in principle to raise $31.4 trillion two-year cap to avoid default

US President Joe Biden and Republican top congressman Kevin McCarthy have reached an agreement to raise the federal government’s debt ceiling of $31.4 trillion, ending a months-long stalemate, Punchbowl News reported Saturday.

House Republicans have an agreement in principle with the White House on a debt limit. Call for members at 9:30 p.m.,” a Punchbowl reporter wrote on Twitter.

The deal would avoid an economically destabilizing bankruptcy, so long as they manage to make it through the narrowly divided Congress before the Treasury Department runs out of money to meet all its obligations, which it warned Friday will happen if the debt ceiling is not lifted. will be increased by June 5.

Republicans who control the House of Representatives have pushed for significant budget cuts and other conditions, including new job requirements for some low-income Americans benefit programs and for money being diverted from the Internal Revenue Service.

They said they want to slow the growth of US debt, which is now about equal to the annual output of the country’s economy.

Exact details of the final deal were not immediately available, but negotiators have agreed to limit discretionary spending on non-defense activities to 2023 levels for two years in exchange for a debt ceiling increase over a similar period, sources said. previously to Reuters.

The two sides must carefully mix and match the thread to find a compromise that the House, with a Republican majority of 222-213, and the Senate, with a Democratic majority of 51-49, can pass.

The protracted deadlock spooked financial markets, weighed on equities and forced the United States to pay record high interest rates on some bond sales. Bankruptcy would take a much heavier toll, economists say, likely sending the country into recession, shaking the global economy and leading to a spike in unemployment.

Biden refused to negotiate future cuts with McCarthy for months, demanding that lawmakers first approve a “clean” debt ceiling increase with no other conditions, and presenting a 2024 budget proposal to counter his proposal released in March. Two-way negotiations between Biden and McCarthy began in earnest on May 16.

House Speaker Kevin McCarthy of California carries food for members of the press about debt limit negotiations Saturday on Washington’s Capitol Hill

Democrats accused Republicans of playing a dangerous game with the economy. Republicans say recent increased government spending is fueling growth in US debt, which is now roughly equivalent to the economy’s annual output.

The last time the country came this close to bankruptcy was in 2011, when Washington also had a Democratic president and senate and a Republican-led house.

Congress eventually averted bankruptcy, but the economy suffered severe shocks, including the first-ever downgrade of the United States’ top credit rating and a major sell-off in stocks.

This time, House Speaker McCarthy had strengthened his hand by overseeing the passage of an April bill linking $4.8 trillion in spending cuts to a $1.5 trillion debt ceiling increase. The bill had no chance of passing the Democratic-controlled Senate, but showed McCarthy’s ability to hold together his slim majority just four months into his leadership role.

The sun shines on the US Capitol in Washington on Saturday. House negotiators left the Capitol in the early hours of Saturday without a debt limit agreement with the White House. They were expected to return later in hopes of reaching an agreement over the holiday weekend

Their work is far from done. McCarthy has vowed to give members of the House of Representatives 72 hours to read the legislation before putting it to a vote. That will test whether enough moderate members support the compromises in the bill to overcome opposition from both far-right Republicans and progressive Democrats.

Then it must go through the Senate, where it needs at least nine Republican votes to pass. There are multiple opportunities in each room along the way to slow down the process.

The two sides struggled to agree on spending levels. Republicans had pushed for an 8% cut in discretionary spending in the next fiscal year, followed by annual increases of 1% over several years.

Biden had proposed keeping spending flat in fiscal year 2024, which begins Oct. 1, and raising it by 1% the year after that. He had also called for some tax loopholes to be closed, which Republicans rejected.

(Reporting by Moira Warburton, Steve Holland, and Katharine Jackson; Writing by Andy Sullivan; Editing by Scott Malone, Frances Kerry, Daniel Wallis, and Heather Timmons)