Budget: End of the debt drama in the USA in sight

The US is a big step closer to averting an impending government default at the last minute. The US House of Representatives approved a bill aimed at preventing the government from defaulting.

A cross-party majority in the House of Representatives voted in favor of the bill, which aims to suspend the debt ceiling until 2025 while curbing government spending over the next two years.

Now the Senate has to approve the project as quickly as possible, and President Joe Biden has to sign the bill into law so that the government doesn’t run out of money. Treasury Secretary Janet Yellen had warned this could happen next Monday.

In the United States, parliament sets a debt ceiling at irregular intervals and determines how much money the state can borrow. This time the procedure degenerated into bitter party-political wrangling and ideological trench warfare between Democrats and Republicans.

Default could trigger global financial crisis

Republicans refused to raise the debt ceiling and demanded significant cuts in government spending. The dispute triggered major concerns both nationally and internationally. A default by the world’s largest economy could trigger a global financial crisis and an economic downturn.

Biden’s administration and the Republicans, who have a narrow majority in the House of Representatives, had been struggling to find a cross-party compromise in long and difficult negotiations in recent weeks. Biden and Republican House Speaker Kevin McCarthy finally presented a deal over the weekend. Many politicians, both Democrats and Republicans, are dissatisfied with the result.

Left-wing Democrats complain that the agreement provides for savings in the social sector, for example, or the fast-track approval of a controversial gas pipeline in the US state of West Virginia. For right-wing Republicans, however, the cuts don’t go far enough.

And those moderates in the middle who finally agreed to the deal are not really satisfied either. In view of the threatened dramatic consequences of a default, however, MPs from the center of both parties rallied behind the deal and ensured the necessary majority for the vote – albeit with some gnashing of teeth.

Draft should be approved by Friday evening

The vote in the Senate is still pending. The House’s Democratic Majority Leader, Chuck Schumer, pledged to bring the bill to a vote there as soon as possible to anticipate Monday’s impending default deadline. But delays in a vote in the chamber are possible – for example through amendments. The aim of both parties is to adopt the draft by Friday evening. However, it is quite possible that the procedure will drag on into the weekend.

In the House of Representatives, 314 members voted for the bill: 149 Republicans and 165 Democrats. For McCarthy, the vote was an important test. The Republican was initially confronted with opposition from radical members of his faction. McCarthy was only elected leader of the chamber by his faction earlier this year after a historic electoral chaos. The turbulence greatly weakened his position.

McCarthy now gathered almost two-thirds of his faction behind him in the vote – the Democrats had set this as a bar for the leader of the majority faction in the chamber. At the same time, as expected, dozens of Republicans refused to approve the deal, exactly 71 MPs. In the end, more Democrats than Republicans voted in favor of the compromise, helping the project achieve a whopping bipartisan majority.

For Biden and McCarthy, this is initially a success. The still considerable number of Republican dissenters could nevertheless cause discussions within McCarthy’s already divided faction. One of his critics is Republican MP Dan Bishop, who recently brought a no-confidence vote against McCarthy into play. He wrote on Twitter after the vote: “This is what it looks like when the one-party cartel betrays the American people.”

“Neither side got everything they wanted”

During the debate in the House of Representatives, many MPs from both factions expressed their dissatisfaction. They said it was by no means a perfect compromise, but a necessary one nonetheless. Several Democrats warned that it was about saving the country from a disaster that the Republicans had conjured up through their resistance. Several Republicans, on the other hand, said the draft was the first step in the right direction to curb uncontrolled debt accumulation in the country.

The compromise provides that the size of the federal budget, which the Democrats wanted to increase under Biden, is effectively frozen. The budgets of many federal agencies and ministries would be adjusted for this. The Republicans were also able to enforce that recipients of certain social benefits must prove a job. The Democrats actually wanted to increase state revenues by taxing the rich more heavily. The Republicans opposed it.

Biden stated, “Neither side got everything they wanted.” It is a cross-party compromise. However, the House of Representatives has now taken a decisive step forward in order to prevent a default.