President Joe Biden and House Speaker Kevin McCarthy have reached an agreement in principle to raise the country's debt limit and cap government spending. The deal was finalized during a phone call between the two leaders and would raise the limit on how much the government can borrow through the end of 2024. In return, it would cap annual discretionary spending for two years, with non-defense spending levels remaining flat next year and increasing by 1% in 2025. The deal includes provisions to rescind unspent COVID-19 rescue funds, expedite permitting for energy projects, and roll back $10 billion of $80 billion in IRS funding. The agreement includes no measures to close tax loopholes used by high-income earners and corporations, which President Biden had pushed for. The deal keeps intact the Inflation Reduction Act and the president's program to forgive student loan debt for millions of Americans, which Republicans had targeted.
The deal still needs approval in Congress, which is not guaranteed to pass a bill to raise the debt ceiling even with the backing of Biden and McCarthy. Some hardline conservative Republicans in the House have signaled they won't vote for a negotiated deal on the debt ceiling regardless of the details, while others made new 11th-hour demands for border-security measures that aren't in the deal. Even with an agreement in place, a complicated logistical path looms for passage before June 5. Members of Congress are set to return from the long Memorial Day weekend on Tuesday. McCarthy has also told Republicans he will follow a rule giving members 72 hours to read a bill before holding a vote.
The federal government hit its borrowing limit of $31.8 trillion on Jan. 19, forcing the Treasury Department to take extraordinary measures to pay the nation’s bills. Treasury Secretary Janet Yellen warned repeatedly that the government could run out of money to pay its bills in early June, putting Social Security benefits, military paychecks, and other programs in jeopardy. The rating agency Fitch put the country's "AAA" credit rating on a negative watch ahead of possible inaction by Congress to raise the debt ceiling. Biden called for an unconditional increase in the debt limit. But he began negotiating a separate budget agreement with McCarthy after the Republican-controlled House approved a debt ceiling bill with $4.8 trillion in cuts last month.