Joe Biden and the House Republican speaker, Kevin McCarthy, have reached a deal in principle to raise the federal government’s $31.4tn debt ceiling, with just days left before America was expected to default.
“I just got off the phone with the president a bit ago. After he wasted time and refused to negotiate for months, we’ve come to an agreement in principle that is worthy of the American people,” McCarthy said in a tweet.
Biden and McCarthy held a 90-minute phone call earlier on Saturday evening to discuss the deal.
It was reported that the deal would raise the debt limit for two years, averting any further standoffs until after the 2024 presidential election.
The deal still needs to receive approval from the divided Congress, and McCarthy will probably need some support from Democratic members to get the proposal through the House, given Republicans’ narrow majority in the lower chamber.
The deal would avert an economically destabilising default which the Treasury Department warned would occur if the debt ceiling was not raised by 5 June.
Republicans who control the House of Representatives have pushed for steep cuts to spending and for funds to be stripped from the Internal Revenue Service, the US tax agency.
Both sides have suggested one of the main holdups had been a Republican effort to boost work requirements for recipients of food stamps and other federal aid programs, a longtime Republican goal that many Democrats have strenuously opposed.
Exact details of the final deal were not immediately available, but negotiators have agreed to cap non-defence discretionary spending at 2023 levels for two years, in exchange for a debt ceiling increase over a similar period, sources told Reuters earlier.
The two sides have to carefully thread the needle in finding a compromise that can clear the House, with a 222-213 Republican majority, and Senate, with a 51-49 Democratic majority.
The long standoff spooked financial markets, weighing on stocks and forcing the United States to pay record-high interest rates in some bond sales. A default would take a far heavier toll, economists say, likely pushing the nation into recession, shaking the world economy and leading to a spike in unemployment.
Biden for months refused to negotiate with McCarthy over future spending cuts, demanding that lawmakers first pass a “clean” debt-ceiling increase free of other conditions, and present a 2024 budget proposal to counter his issued in March. Two-way negotiations between Biden and McCarthy began in earnest on 16 May.
Democrats accused Republicans of playing a dangerous game of brinkmanship with the economy. Republicans say recent increased government spending is fueling the growth of the US debt, which is now roughly equal to the annual output of the economy.
McCarthy has vowed to give House members 72 hours to read the legislation before bringing it to the floor for a vote. That will test whether enough moderate members support the compromises in the bill to overcome opposition from both hard-right Republicans and progressive Democrats.
Then it will need to pass the Senate, where it will need at least nine Republican votes to succeed. There are multiple opportunities in each chamber along the way to slow down the process.
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