The US is a big step closer to averting an impending government default at the last minute. The US House of Representatives approved a bill on Wednesday evening (local time) that is intended to prevent the government from defaulting. A cross-party majority in the House of Representatives voted in favor of the bill, which aims to suspend the debt ceiling until 2025 while curbing government spending over the next two years. Now the Senate has to approve the project as quickly as possible, and President Joe Biden has to sign the bill into law so that the government doesn’t run out of money. Treasury Secretary Janet Yellen had warned this could happen next Monday.
In the United States, parliament sets a debt ceiling at irregular intervals and determines how much money the state can borrow. This time the procedure degenerated into bitter party-political wrangling and ideological trench warfare between Democrats and Republicans. Republicans refused to raise the debt ceiling and demanded significant cuts in government spending. The dispute triggered great concern both nationally and internationally: A default by the world’s largest economy could trigger a global financial crisis and an economic downturn.
Biden’s administration and Republicans struggled to find a bipartisan compromise
Biden’s administration and the Republicans, who have a narrow majority in the House of Representatives, had been struggling to find a cross-party compromise in long and difficult negotiations in recent weeks. Biden and Republican House Speaker Kevin McCarthy finally presented a deal over the weekend. Many politicians, both Democrats and Republicans, are dissatisfied with the result, especially on the left and right fringes of both parties. In view of the threatened dramatic consequences of a default, however, MPs from the center of both parties rallied behind the deal and ensured the necessary majority for the vote – albeit with some gnashing of teeth.
314 members voted in favor of the bill in the House of Representatives: 149 Republicans and 165 Democrats. For McCarthy, the vote was an important test. The Republican was initially confronted with opposition from radical members of his faction. McCarthy was elected chamber leader earlier this year after a historic election mess. The turbulence had greatly weakened his position.
McCarthy now gathered almost two-thirds of his faction behind him in the vote – the Democrats had set this as a bar for the leader of the majority faction in the chamber. At the same time, as expected, dozens of Republicans refused to approve the deal: exactly 71 MPs. In the end, more Democrats than Republicans voted in favor of the compromise, helping the project achieve a whopping bipartisan majority.
For Biden and McCarthy, this is initially a success. The still considerable number of Republican dissenters could nevertheless cause discussions within McCarthy’s already divided faction. One of his critics – Republican Rep. Dan Bishop, who recently floated a no-confidence vote against McCarthy – tweeted after the vote: “This is what it looks like when the single-party cartel betrays the American people.”
Impending default on Monday should be prevented
In addition, the vote in the Senate is still pending: the Democratic majority leader in the chamber, Chuck Schumer, promised on Wednesday evening to bring the draft to a vote there as quickly as possible in order to anticipate the deadline of an impending default on Monday.
During the debate in the House of Representatives, many MPs from both factions expressed their dissatisfaction and stressed that it was by no means a perfect compromise, but it was a necessary one. Several Democrats warned that it was about saving the country from a disaster that the Republicans had conjured up through their resistance. Several Republicans, on the other hand, emphasized that the draft is the first step in the right direction to curb uncontrolled debt accumulation in the country.
McCarthy complained that excessive spending was also making the United States more dependent on foreign debtors. “Continuing Washington’s spending streak is both irresponsible and just plain wrong,” he warned. The new law will not completely prevent that. However, it is a first step to “turn the ship around”.
The compromise is intended to effectively freeze the size of the federal budget, which the Democrats under Biden wanted to increase. The budgets of many federal agencies and ministries would be adjusted for this. The Republicans were also able to enforce that recipients of certain social benefits must prove a job. The Democrats actually wanted to increase state revenues by taxing the rich more heavily. The Republicans opposed it.
For some radical Republicans, the cuts in the deal don’t go far enough. Some left-wing Democrats, on the other hand, lament the cuts in social programs. And those moderates in the middle who finally agreed to the deal are not really satisfied either.
Biden explained: “Neither side got everything they wanted.” It was a cross-party compromise. However, the House of Representatives has now taken a decisive step forward in order to prevent a default.