01 June 2023 , 02:11
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President Joe Biden and Speaker Kevin McCarthy's debt ceiling deal has been approved, sparking major relief in economies across the world.
With the House vote of 314-117, the Bill now heads to the Senate with passage expected by week’s end.
The key agreement prevents the world's biggest economy from defaulting, but needed approval by the House amid criticism on both sides.
Factions of both the Democratic and Republican parties showed their discontent with the deal.
Progressive Democrats were concerned President Biden negotiated with the GOP under the threat of a default, while far-right Republicans are disappointed the deal does not do enough to stem the president's agenda including his student loan forgiveness plan.
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Ahead of the vote, a number of GOP legislators said they would vote against the deal including Matt Gaetz and Lauren Boebert.
Some GOP dissenters are questioning Speaker McCarthy's position (Bonnie Cash/UPI/REX/Shutterstock)"This current UNLIMITED debt ceiling increase is the burst of wind that is going to send us right over," Ms Boebert claimed.
On the left, Alexandra Ocasio-Cortez said her red lines were "surpassed" and she could not vote for the deal.
"[No] clean debt ceiling. Work requirements. Cuts to programs. I would never – I would never – vote for that," she said.
Democrat Minority Leader Hakeem Jefferies said he supported the deal "without hesitation, reservation, or trepidation".
Texas GOP Representative Chip Roy told Glenn Beck of Blaze Media since the deal was a "betrayal of the power-sharing arrangement that we put in place".
Interestingly, Roy, who also branded the deal a "turd sandwich", threatened: "We're going to have to then regroup and figure out the whole leadership arrangement again."
Speaker McCarthy was elected after 15 rounds of voting in January, despite his party having a majority in the lower chamber.
The bipartisan debt deal narrowly passed a 7-6 House Rules committee vote on Tuesday to allow debate by the House.
The deal
The deal will allow the federal government to borrow money until 2025, a significant date due to the upcoming presidential election.
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Any borrowing must be approved by Congress, according to the Constitution.
President Joe Biden (Getty Images)Compromises were reached and the Republicans relented on their initial plan for an overall spending freeze for the next 10 years.
Speaker McCarthy branded it the "most conservative deal we’ve ever had".
The current debt ceiling is $31.4tn and needs to be raised every so often so bills can be paid, including for vital schemes like Social Security and Medicare.
Federal employees and the military also rely on the government's pockets.
The Biden-McCarthy deal included the following:
- Increase of one per cent in non-defence spending.
- Military spending budget to increase to $886billion in 2024 and $895billion in 2025
- $80billion over the next decade of the Internal Revenue Service to enforce tax targets on the highest earners. No new tax hikes on wealthiest earners.
- Inflation Reduction Act untouched
- Two years of spending caps then a switch to spending targets that are not legally binding
- Return of unspent Covid funds, around $30billion according to estimates
- No change to Medicaid
- New rules to make it easier for both renewable projects and fossil fuel projects to start
- SNAP requirements for those in work age raised from 50 to 54
Peter Anderson of Appalachian Voices called the approval of a controversial pipeline in Virginia and West Virginia in the deal an "egregious act".
Why does it matter?
A national default could destroy businesses (Getty Images/iStockphoto)The possibility of the world's biggest economy defaulting on its $31.4 trillion debt is extremely serious.
A default would "probably tip the US into recession", Economist Mohamed El-Erian, president of Queens' College at Cambridge University, told the BBC.
With the US being a key trading partner across the world, the country would have less money to spend on products globally. This would have a massive impact on the global economy.
Mortgage rates could rise, as could unemployment. Social Security and public services could also be impacted by any potential debt default.
Treasury Secretary Janet Yellen warned this week that a national default would destroy jobs and businesses, and leave millions of families who rely on government payments to "likely go unpaid," including social security beneficiaries, veterans and military families.
If the US does not default on its debt, it will be unable to borrow more money which will lead to them running out of funds to pay for public services.
In addition, pensions could plummet as the stock markets are likely to react negatively to a US default.
Welfare payments could be slashed and people would be left unable to pay their bills and the economy would suffer, according to financial experts.