Daily Management Review

US Congress Adopts A Suspension Of The Debt Ceiling To Avoid A Historic Default


US Congress Adopts A Suspension Of The Debt Ceiling To Avoid A Historic Default
Bipartisan legislation that raises the government's $31.4 trillion debt ceiling was approved by the U.S. Senate on Thursday, preventing what would have been a first-ever default and having the support of President Joe Biden.
After months of partisan fighting between Democrats and Republicans, the Senate voted 63-36 to adopt the package that the House of Representatives had enacted on Wednesday.
If Congress could not pass legislation by June 5, the Treasury Department had issued a warning that it would not be able to pay all of its payments.
"We are avoiding default tonight," Senate Majority Leader Chuck Schumer said on Thursday as he steered the legislation through his 100-member chamber.
Biden commended Congress for acting promptly. The Democratic president issued a statement saying, "This bipartisan agreement is a big win for our economy and the American people," and he added that he will sign it into law as soon as possible. On Friday at 7 p.m. EDT (2300 GMT), he stated that he would make an additional statement.
Biden and House Speaker Kevin McCarthy had a direct working relationship during the bill's development process.
Even though this hard debate is over, Senate Republican Leader Mitch McConnell has already signalled the next budget dispute.
"In the coming months, Senate Republicans will continue working to provide for the common defense and control Washington Democrats’ reckless spending," he said in a statement.
In addition to carrying out the general directives of the debt limit law, the 12 bills that Congress would work on during the summer to fund government programmes that begin on October 1 were mentioned by McConnell.
While everything was going on, Treasury Secretary Janet Yellen gave some sage advise, stating, "I continue to strongly believe that the full faith and credit of the United States must never be used as a bargaining chip," as Republicans had been doing over the past few months.
Prior to the vote, senators tore through over a dozen amendments, rejecting each one in a late-night meeting to meet the deadline on Monday.
The statutory cap on government borrowing will be suspended as a result of this law until January 1, 2025.
Regardless of any spending authorised by the Congress, the United States has a debt ceiling, unlike the majority of other affluent nations.
"America can breathe a sigh of relief," Schumer said in remarks to the Senate.
Republicans had prevented the passage of any debt limit hike unless they secured significant expenditure cutbacks, which they claimed would start addressing the nation's rapidly rising debt.
In order to handle the mounting debt, Biden advocated for tax increases on the wealthiest and companies. Republicans refused to discuss raising taxes in any way.
McCarthy refused to consider decreasing spending on the military or veterans, and both parties walled off cuts to the expansive Social Security and Medicare retirement and healthcare programmes.
That left a relatively small group of domestic "discretionary" programmes to take the biggest hit from spending reductions. Ultimately, Republicans secured cuts of roughly $1.5 trillion over ten years, which may or may not be completely realised.
They offered to save $4.8 trillion over a ten-year period as their first bid.
Technically, the Treasury reached its borrowing cap in January. Since then, it has been taking "extraordinary measures" to scrape together the cash required to cover the costs of running the government.
It was acknowledged by Biden, Yellen, and congressional leaders that starting a default due to a shortage of finances would have catastrophic consequences. These included potentially causing job losses and a recession in the United States, shaking up the world's financial markets, and hiking interest rates for consumers on everything from home mortgages to credit card debt.
The bill was approved on Wednesday night by a vote of 314 to 117 in the Republican-controlled House. Republicans made up the majority of those who voted against the bill.
"Time is a luxury the Senate does not have," Schumer said on Thursday. "Any needless delay or any last-minute holdups would be an unnecessary and even dangerous risk."
The contested amendments included ones to compel budget savings that go beyond those in the bill passed by the House and to halt the expedited final approval of a West Virginia energy pipeline.
With so many immigrants crossing the border between the United States and Mexico, Republican Senator Roger Marshall proposed an amendment to implement new border measures. According to him, his proposal will "put an end to the culture of lawlessness at our southern border."
The amendment was, however, rejected by the Senate. Democrats said that it would eliminate protections for immigrant children and deprive American farmers of necessary labour.
Republicans also intended to enhance defence spending beyond what was already included in the plan that was approved by the House.
In response, Schumer stated that the legislation's spending restrictions would not prevent Congress from approving more funds for urgent needs, such as aiding Ukraine in its conflict with Russia.
"This debt ceiling deal does nothing to limit the Senate's ability to appropriate emergency supplemental funds to ensure our military capabilities are sufficient to deter China, Russia and our other adversaries, and respond to ongoing and growing national security threats, including Russia's evil ongoing war of aggression against Ukraine," Schumer said.
Senior Biden and McCarthy aides spent weeks in intense negotiations to piece together the package.
Republicans' desire to drastically decrease spending on discretionary programmes including housing, environmental protection, education, and medical research over the upcoming two years was the main point of contention.
The bill, according to the impartial Congressional Budget Office, would save $1.5 trillion over ten years. That is less than the $3 trillion in debt reduction that Biden suggested, primarily through new taxes.
The previous time the US went this close to defaulting was in 2011. This conflict hurt financial markets, caused the government's credit rating to be downgraded for the first time ever, and increased interest rates for the country as a whole.
This time, there was less drama since it was obvious last week that Biden and McCarthy would come to an agreement that would have enough support from both parties in Congress to pass.