After days of intense negotiations, the administration of US President Joe Biden and House Speaker Kevin McCarthy reached a preliminary agreement on lifting the debt ceiling late on May 27.
Both sides see the deal as a crucial step to help the world's largest economy avoid defaulting on its debt on June 5 if Congress fails to act, as warned by US Treasury Secretary Janet Yellen.
While a U.S. default on its bills could have far-reaching consequences, a deal would likely lessen the damage from Congress defaulting on its debt.
“This deal is a compromise, which means not everyone gets what they want. That’s the responsibility of stewardship,” Biden said.
Too much concession
For the US president, the debt ceiling victory comes with mixed feelings. While the deal will bolster Biden’s reputation as a bipartisan negotiator, it comes at a significant cost.
In Mr. Biden’s view, the deal averts a catastrophic default that would cause widespread unemployment, crash the stock market, jeopardize Social Security payments and send the economy into a tailspin.
However, many on the progressive left were furious that Mr Biden, who had declared the debt ceiling “non-negotiable”, had given in to Mr McCarthy’s strategy of “holding the economy hostage”.
The progressive caucus of the US House of Representatives held a press conference on the risks of default. Photo: NY Times
Many Democrats, especially the most conservative members, have grown increasingly unhappy with the terms of the deal, believing the president has given up too much. To the frustration of allies, negotiations in recent weeks have been entirely on Republican terms.
The deal includes immediate cuts to federal spending. Democrats will not be able to spend as they please, even though they still control the House. It is also the first major spending cut by the US government in history.
The White House also caved in as Republicans imposed additional requirements on federal aid programs. If passed in the coming days by both Democratic and Republican lawmakers, low-income Americans up to age 54 would be required to work to receive federal food assistance, up from the previous age limit of 49.
“This deal represents conservative budget ideology at its worst. It cuts investments in workers and families, adds costly and burdensome new barriers to families who need it, and shields the wealthiest Americans and largest corporations from paying their fair share of taxes,” said Lindsay Owens, executive director of the Groundwork Collaborative, a left-leaning think tank.
The only way
The US president is probably well aware of this, but he has no choice. If the deal is rejected by the US Congress, the country's financial markets could be thrown into turmoil, threatening the strong labour market and dealing a heavy blow to America's role as the economic engine of the global market.
Mr Biden would not have the political wherewithal to withstand such a shock. In previous contests, Democratic administrations have often portrayed Republicans as fiscal extremists. But recent polls show Mr Biden does not hold a clear advantage this time.
“If this causes a recession, the blame will be on the president and the Republicans. The political implications are very unpredictable,” said Jay Campbell, a senior fellow at Hart Research.
Democrats have repeatedly asked Mr. Biden to bypass the debt ceiling and continue borrowing on the basis of the 14th Amendment, which states that the validity of the US public debt is “unquestionable.”
Mr. McCarthy also faced opposition from some Republicans after the debt ceiling deal with the White House. Photo: NY Post
But the Biden administration has stressed that such a unilateral solution, like other alternatives, would be unworkable and potentially legally risky. Despite that, some critics say Biden should still be more aggressive with Republicans to force McCarthy to back down.
Mr Biden has said little about the fiscal talks in recent days, much less than Mr McCarthy and other Republican negotiators, which helps limit any conflict in the final stages of negotiations.
The more he publicly confronts, the more he will demonstrate that he is doing the opposite of what he says, and the more it will affect the prospects of a deal.
Now, the challenge for Mr Biden is to convince Democrats to vote for the new deal.
House Minority Leader Hakeem Jeffries said Republicans have committed to providing at least 150 votes. Democrats would need to make up the shortfall to reach the 218-vote threshold needed to pass the deal.
Therefore, Mr. Biden will have to play an important role in the coming days to gain the support of allies .
Nguyen Tuyet (According to Reuters, Financial Times, NY Times, WSJ)
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