US president Joe Biden and Republican speaker Kevin McCarthy met during the weekend to discuss the debt crisis. Both are asking important concessions.
The day of Monday ended with no deal in sight between the US Democrats and Republicans about the annual discussion on debt ceiling. Time is of the essence for an agreement to be found, as US secretary of treasury Janet Yellen reminded.
According to Yellen, the US debt will mature in early June. Because there isn’t enough cash to repay it, the US would have to declare default for the first time in their history.
Currently, US debt is around $31,4 trillion, 20% larger than the nation’s economy. This is not the first time a default risk arises, and it is always solved by raising the debt ceiling further.
Raising the debt ceiling needs approval from both chambers of Congress, which are currently divided following the Midterm elections last November. While the Senate remains in Democratic hands, the House of Representatives switched to Republican control.
Republican House speaker Kevin McCarthy and US president Joe Biden met over the weekend to discuss a bipartisan deal to raise the ceiling. McCarthy, worried about the massive debt, proposed a bill with massive public spending cuts.
Biden, who is running for reelection next year, cannot afford to radically cut spendings, therefore fundamentally disagreeing with McCarthy’s proposal. As of Tuesday, no deal has been found and the clock is ticking.
What both parties want
It must be said that similar discussions happen every time the debt ceiling is approached. The opposition party tries to halt a further raise in the ceiling by asking for concessions, which the presidential party is often forced to accept.
Both McCarthy and Biden agreed that a default is off the table and an agreement must be reached. They also agreed on a savings plan for 2024 which would start to reduce the debt. How to specifically design this plan, however, is where the two political forces divide.
McCarthy’s proposal crosses out many of Biden’s welfare plans, including the student debt cancellation. In general, Republicans want a return to 2022 spending levels and a focus on slow growth. According to estimates, this plan would provide $4.8 trillion in savings.
On the other hand, Biden wants to keep all of his public spending plans, including tax breaks and childcare subsidies, by raising revenues from other means. In particular, Biden’s plan includes raising taxes for the wealthy and for big corporations. Nevertheless, this plan provides far less savings with estimates putting them at $3 trillion.
McCarthy and Biden will keep meeting every day until an agreement is reached. Usually, once a deal is agreed upon, it needs 72 hours from the first draft to the final vote. And the US default is only 10 days from now.
