Democratic President Joe Biden, along with Republican Representative Patrick McHenry, signaled on Friday that progress was being made towards a resolution to raise the US government’s $31.4 trillion debt ceiling. The Treasury Department has issued a warning, stating that the government would default by June 5 if the debt ceiling isn’t raised.
The Looming Debt Ceiling Crisis
For weeks, negotiations have been ongoing between the two sides on a potential agreement to increase the federal government’s self-imposed borrowing limit. Republicans have been leveraging the negotiations to call for substantial spending cuts. A failure to reach an agreement could lead to an unprecedented and catastrophic default on US government debt. Despite the challenges, Biden expressed optimism to reporters, stating, “Things are looking good. I’m optimistic.”
Echoing Biden’s optimism, Republican Representative Patrick McHenry, one of the key negotiators from the House of Representatives, also expressed a hopeful outlook. However, he warned that negotiations were still underway and there were significant challenges to address, such as tax and agreement lines.
Crucial Deadlines and the Way Forward
Janet Yellen, the U.S. Treasury Secretary, followed up on these statements, saying that the government could run out of funds to pay its bills by June 5. Yellen’s previous estimation was June 1, hence the new forecast buys a bit more time but sets a stricter deadline.
Currently, the negotiators are discussing a deal that would raise the debt limit for the next two years. However, there’s still disagreement over whether to enforce stricter work requirements for certain anti-poverty programs.
Sources said that no deal had been reached yet according to one of McCarthy’s top aides during a conference call on Friday. Any potential agreement would need to pass through the Republican-controlled House and the Democrat-led Senate before reaching Biden’s desk, a process that could take more than a week.
Despite the disagreements over work requirements in the safety-net programs, there seems to be a tentative agreement to cap spending on many government programs for the next fiscal year.
The contentious proposal put forth by Republicans would require more participants in Medicaid and SNAP (Supplemental Nutrition Assistance Program) to demonstrate they are either working or seeking work. This could potentially save $120 billion over a decade but also result in over a million Americans losing benefits, according to the non-partisan Congressional Budget Office.
While the deal under discussion could increase funding for military and veterans care, it could reduce funding for the Internal Revenue Service (IRS). There’s a likelihood that non-defense discretionary spending may remain at current levels.