Bipartisan debate threatens to push US into bankruptcy

The irreconcilable conflict between Republicans and Democrats over budget management is pushing the US government closer to the risk of bankruptcy.

US House leaders are scheduled to meet with President Joe Biden at the White House on May 12 to discuss a way out for the government facing the imminent risk of default. The US public debt has exceeded the $31.5 trillion ceiling set by Congress in January, forcing the US Treasury to take "extraordinary measures" to pay for federal spending.

However, Treasury Secretary Janet Yellen warned on May 1 that the extraordinary cash management measures would not be able to continue to meet all the government's payment obligations in the next month if lawmakers do not act. That means the US government will default on June 1 if the debt ceiling is not raised by Congress.

The rescue plan was proposed when Republicans who control the House of Representatives proposed raising the debt ceiling by $1.5 trillion, on the condition that the US government significantly cut public spending to restore fiscal discipline. However, this proposal faced opposition from the Biden administration and even within the Republican Party.

"I did not vote to raise the debt ceiling under President Donald Trump. I have no intention of changing my mind now," said Tim Burchett, one of four Republicans who voted against his party's proposed spending reform bill.

Burchett analyzed that even if the government spending reform bill and debt ceiling increase are implemented as planned by the Republicans, the US public debt will continue to expand at a rate of about $ 1.5 trillion per year. "This scenario will destroy the country," he warned.

US President Joe Biden at the White House on May 5. Photo: AFP

Brian Riedl, senior fellow at the Manhattan Institute for Policy Research, predicts that US public debt will increase by about $20 trillion over the next 10 years if the budget deficit trend does not change.

The Congressional Budget Office (CBO), a federal agency that provides information to the US Congress on the budget and economy, predicts that the budget deficit will reach $114 trillion over 30 years, mainly due to the burden of social security and public health insurance.

With this forecast, the US government will spend about half of its tax revenue each year just to pay interest on the public debt. If interest rates increase, the government's spending on debt repayment will account for about 70-100% of its tax revenue.

The bill to raise the debt ceiling passed the House of Representatives on April 26, as House Speaker Kevin McCarthy struggled to convince Republicans to support it. He faced difficulties because conservative Republicans demanded tighter fiscal discipline for the US government, opposed raising the debt ceiling, and wanted to drastically cut budget spending.

The CBO estimates the Republican bill could save the government about $4.8 trillion over the next 10 years, while reducing the annual deficit by about $1.52 trillion.

However, Democrats are fiercely opposed to the spending restrictions included in the bill, meaning it has little chance of passing the Senate, where Democrats hold a majority.

Democrats believe the solution to the budget deficit is to increase tax revenue, including taxing the super-rich and investing $80 billion to improve the Internal Revenue Service (IRS)'s auditing capacity.

President Joe Biden in March proposed reducing the budget deficit by about $3 trillion over the next 10 years by raising taxes, including taxing billionaires and reversing tax incentives that his predecessor Donald Trump gave to corporations and the wealthy.

Republicans have rejected the proposal, arguing that the government is spending too much. The bill passed by the House on April 26 would cut $80 billion in IRS spending, reduce subsidies and tax incentives for clean energy, reroute unused Covid-19 recovery funds, and tighten work requirements for Medicaid and other benefits.

"Republicans don't want to increase revenue, while Democrats don't want to reduce spending on social welfare," former Democratic Senator Kent Conrad, who participated in negotiations to adjust the US debt ceiling in 2011, commented on the deadlock in debt ceiling negotiations.

Time is running out for both sides to find a solution that satisfies everyone. Experts warn that a default could damage America’s creditworthiness, causing interest rates to rise for years and dragging the country into recession. America’s position in the international economy is at risk of decline, while the world may seek to move away from the dollar.

However, instead of compromising, both sides are intensifying their attacks on each other. Democrats criticize the conservative faction in the Republican Party for pushing the US and world economies to the brink of crisis for their own benefit.

"If a group wants to crash the global economy because they don't get what they want, they're not policymakers. They're acting like hostage takers," Sheldon Whitehouse, chairman of the US Senate Budget Committee, said at a hearing in early May.

President Biden and House Democrats continue to argue that the debt ceiling must be raised without preconditions and that the Republican position is "irresponsible."

Meanwhile, Mr. McCarthy criticized the President for not negotiating with congressional leaders sooner, and expressed anger at the impasse in the discussions. Neither side has been able to articulate a clear roadmap that could garner enough support to pass both chambers of Congress.

“We need a real plan, not a political agenda,” said former senator Conrad. “The reality is that both sides have to make concessions. We need bipartisan commitment and action.”

The US Treasury building in Washington on January 19. Photo: AFP

According to Conrad, the congressional deadlock can be resolved by a familiar tactic: The parties agree to temporarily raise the debt ceiling to buy more time to find a way to balance fiscal policy.

The House Unraveling Caucus, formed in 2017 and made up of members from both parties, made a similar proposal last week. They said Congress could agree to raise the debt ceiling until the end of 2023 and create a committee to “stabilize the long-term deficit and debt.”

According to expert Brian Riedl, passing a bill to raise the debt ceiling is the only viable option for the US Congress at this time to prevent the risk of default. The US Congress has no other less risky legislative process that allows them to adjust the entire budget and change revenue and spending priorities with just one vote when the deadline is approaching very soon.

"At all costs, the US Congress must raise the debt ceiling in a timely manner. If they fail, federal spending will be cut by 20% and lead to a national debt default. That would be a disaster for families, businesses, financial markets and the economy," Mr. Riedl warned.

Thanh Danh (According to WSJ, CSM )

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