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Biden and McCarthy make progress on US debt ceiling agreement

US President Joe Biden is flanked by Vice President Kamala Harris and Senate Majority Leader Chuck Schumer (D-NY) as he hosts debt limit talks with HSenate Minority Leader Mitch McConnell (R-KY), House Speaker Kevin McCarthy (R-CA), and Congressional leaders in the Oval Office at the White House in Washington, US, May 16, 2023. —Reuters

WASHINGTON: President Joe Biden and top congressional Republican Kevin McCarthy expressed their determination on Wednesday to promptly reach an agreement to raise the federal government’s debt ceiling of $31.4 trillion, thus preventing a potentially disastrous default.

Following months of deadlock, the Democratic president and the Speaker of the House of Representatives have agreed to engage in direct negotiations to resolve the issue. A mutually acceptable agreement must be reached and approved by both houses of Congress before the government’s funds are depleted and it becomes unable to fulfil its financial obligations, potentially as early as 1st June.

During a press briefing at the White House, Biden stated, “We will come together because we have no other choice.” He further disclosed his decision to cut short his trip to Asia and return to Washington on Sunday, while discussions at the staff level will continue in his absence.

Biden emphasised that the negotiation primarily concerns the budget framework and is not about the question of honouring the nation’s debts. He affirmed that all congressional leaders have reached a consensus: avoiding default is imperative and will be ensured.

Republicans, who currently hold a majority in the House with a 222-213 margin, have long insisted on spending reductions as a precondition for raising the self-imposed debt limit of Congress. The limit must be regularly increased due to the government’s expenditure surpassing its tax revenue.

When asked at the Capitol if it was possible to reach a debt ceiling agreement by the time of Biden’s return from Asia, McCarthy replied, “It’s doable.” He expressed determination, stating, “Despite the tight timeline, we won’t give up. I possess the resilience and perseverance to accomplish this.”

The ongoing discussions are now streamlined to a two-way dialogue, simplifying the prior five-way format that involved the three other congressional leaders. Biden departed for the Group of Seven summit in Hiroshima, Japan, which will take place from Friday to Sunday.

Financial markets responded positively to these discussions, with U.S. stocks showing gains on Wednesday, partly due to cautious investor optimism regarding ongoing negotiations.

According to the U.S. Treasury, the funds could be exhausted as early as 1st June, leading to a potential recession. The negotiators aim to finalize an agreement before Biden’s scheduled return on Sunday, leaving Congress with limited time to act before the deadline.

McCarthy stated that any agreement would first be voted upon by the House before being sent to the Senate, where Democrats hold a slim majority of 51-49. Senate rules necessitate the support of at least nine Republicans for any deal to be approved.

Negotiations continue regarding the duration of the agreement, work requirements for aid programs such as food subsidies, and spending limits. Work requirement discussions mainly focus on programs like the Supplemental Nutrition Assistance Program (SNAP) and the Temporary Assistance for Needy Families program. However, Biden has previously expressed opposition to work requirements affecting the Medicaid health insurance program for low-income individuals.

While McCarthy defended conservative calls for work requirements in a CNBC interview, stating their potential positive impact on the economy and workforce, he pledged to exclude discussions on taxes.

Biden’s proposed 2024 budget involves raising taxes on the wealthy and companies to fund programs benefiting other Americans. On Tuesday, Biden expressed disappointment that Republicans refuse to consider revenue-raising options.

House Democrat Hakeem Jeffries stated that he remains hopeful for a bipartisan agreement but intends to file a “discharge petition” as a contingency plan, bypassing regular chamber procedures to address the debt limit and avoid default.

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