Debt Ceiling Deal (Tentatively) Reached: McCarthy and Biden reach a deal to raise U.S. debt limit. Averting a default crisis now depends on Congress approving agreement with some GOP spending cuts. By Courtney Subramanian, Don Lee and Noah Bierman for the LA Times.
President Biden and House Speaker Kevin McCarthy reached what both men called an “agreement in principle” on Saturday to raise the federal government’s borrowing limit and cut some spending, as they sought to end a months-long stalemate that brought the government to the brink of defaulting on its credit for the first time.
The deal must still pass Congress. Its failure could upend the global financial system, jarring markets from Tokyo to London, jeopardizing Medicare and Social Security payments and calling into question the United States’ role as the world’s most reliable economy.
McCarthy (R-Bakersfield) said that he and Biden had agreed to a two-year increase on the $31.4-trillion debt ceiling, extending the nation’s borrowing limit until after the 2024 presidential election. The White House said it would accept temporary spending caps on nondiscretionary funding, tougher work requirements on social safety net programs and permitting changes to speed up energy and gas projects.
Biden and McCarthy will need to sell the compromise to their respective allies in Congress, an uphill battle that includes convincing far-right GOP members who wanted McCarthy to go further in extracting spending cuts and progressive Democrats who say Biden caved to right-wing demands.
McCarthy said that he and Biden had spoken twice on Saturday and that “we still have a lot of work to do. But I believe this is an agreement in principle that’s worthy of the American people.”
The bill has “historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce,” the speaker said.
He said he expected that the bill would be written and posted by Sunday, with a House vote on Wednesday.
Biden, in a statement late Saturday, called the agreement “an important step forward that reduces spending while protecting critical programs for working people and growing the economy for everyone.”
He said that the deal protects his signature legislative accomplishments, but conceded that it “represents a compromise, which means not everyone gets what they want.” He urged Congress to approve it quickly to avoid “catastrophic default.”
A source familiar with the pact said the new work requirements for safety net programs are limited, sparing Medicaid, for example. But they do include some new work requirements for people who receive SNAP benefits, known as food stamps. The source, speaking on condition of anonymity because they weren’t authorized to discuss the deal publicly, said the agreement does not curtail spending approved last year as part of the Inflation Reduction Act, Biden’s signature climate legislation.
House Republicans demanded sweeping spending cuts in exchange for raising the debt ceiling. The White House initially insisted that the once-perfunctory practice of raising the borrowing limit should be considered separately from the budget talks, since it allows the government to continue borrowing to pay bills it has already accrued.
A compromise is a political risk for McCarthy, who secured the speaker’s gavel in January by empowering right-wing House members and striking a deal that allows a single vote to oust him as speaker. Passing a brokered deal with Biden could avert an unprecedented default, but could also cost the California Republican his leadership post.
Several members of the Republicans’ hard-right faction have expressed frustration that McCarthy diluted a GOP debt limit bill passed in April that featured deep spending cuts, clawed back billions of dollars in funding for the Internal Revenue Service and unspent COVID-19 money, and repealed parts of the White House climate agenda.
McCarthy and the White House will need dozens of Democrats to back the bipartisan plan in order to pass it in the narrowly divided House. Both the House and the Democratic-controlled Senate need to pass a bill by June 5, when the Treasury Department projects the government will run out of cash to pay its bills.
A default could trigger economic chaos that could potentially cascade across global financial markets and devastate millions of Americans. The White House has warned it would disrupt payments to Social Security beneficiaries, government employees and members of the military.
A default would almost certainly knock the already fragile American economy into a recession and risk causing irreparable long-term damage to the credibility and safety of the U.S. dollar, the reserve currency that anchors the global financial system.
The U.S. has trillions of dollars in outstanding debt, and missing interest payments on its obligations would shock stock markets and sharply raise the cost of borrowing to finance Washington’s deficit spending, ultimately rippling through businesses and consumers.
The threat of a default has had Wall Street on edge — stocks have been trending lower in recent days — but the damage was mitigated by investors’ expectation that even die-hard partisan politics wouldn’t dare allow a breach to the debt ceiling. They knew that if there’s a default, “there’s no way to hide,” said Ryan Sweet, chief U.S. economist at Oxford Economics.
On Wednesday, credit rating agency Fitch placed the United States’ AAA rating on negative, warning of a potential downgrade if lawmakers fail to pass a deal.
The agency said that “brinkmanship over the debt ceiling” threatened the U.S. rating — the highest available — but it expected a resolution before the projected June 5 deadline.
The government narrowly averted a default under President Obama in 2011, but Standard & Poor’s downgraded the U.S. credit rating as a result of that fiscal showdown.
Progressive Democrats have pointed to the 2011 debt crisis as an example of how GOP lawmakers have used the debt ceiling as a means of extracting policy concessions, noting that Republicans lifted the nation’s borrowing limit three times under former President Trump without issue.
Some progressive lawmakers have pushed Biden to invoke the 14th Amendment, which says the “validity of the public debt, authorized by law ... shall not be questioned.”
Biden has said he believes he has the authority to use the amendment to bypass Congress and allow for more debt to be issued, but acknowledged that move would be challenged in courts.
Earlier this month, the president canceled a high-profile trip to Australia and Papua New Guinea following the Group of 7 summit in Japan, returning to Washington early to meet with McCarthy. The two men failed to make any immediate progress and negotiators continued haggling into Memorial Day weekend, telling congressional members to be ready to return to Washington to vote on a bipartisan bill ahead of the deadline.
From the New York Times: What's in the deal? Preventing catastrophe-America is a little closer to averting a self-imposed economic crisis.
President Biden and Speaker Kevin McCarthy, the Republican House leader, announced yesterday that they had reached a deal to increase the amount of money the government can borrow. The deal includes caps on federal spending, additional work requirements for food stamps and welfare, and reforms to build energy projects more quickly. Altogether, it is the kind of spending deal that Democrats and Republicans have agreed to multiple times over the past few decades.
But the agreement is remarkable because of how close the country has come to calamity this time. The Treasury Department has warned that the U.S. will run out of money as early as June 5 — in just a few days. At that point, the federal government could be forced to default on its debts, potentially setting off a global financial crisis (as this newsletter has explained).
The bill’s passage in Congress is not guaranteed. Today’s newsletter will explain the deal struck by Biden and McCarthy — and the main thing that could still go wrong.
A bipartisan deal
The final agreement is a compromise. Many Republicans wanted steeper cuts, and many Democrats wanted no cuts. The deal landed in between. “I don’t think everybody is going to be happy at the end of the day,” McCarthy said on Thursday. “That’s not how this system works.”
First, the deal would raise the debt limit for two years. This moves any future debt limit fight to after the 2024 election.
The spending caps at the center of the agreement target federal programs besides Social Security, Medicare, Medicaid and the military — such as education, scientific research and border security. The caps would not actually reduce spending, but aim to make it grow more slowly than inflation and the economy. This arrangement lets both sides claim a win of sorts: Republicans can call it a spending cut, since spending will grow more slowly than it might have otherwise. And Democrats can say they prevented actual cuts.
The deal would also claw back some of the funds previously allocated to the Internal Revenue Service to crack down on rich tax cheats. Under the deal, some of the I.R.S. funds could be used to mitigate other spending cuts. That reflects the bipartisan nature of the talks, with both sides getting wins: Republicans get to claim they successfully cut I.R.S. funding, and Democrats get to use the money to soften other cuts they never wanted.
Similarly, the permitting reforms in the deal could enable more clean energy projects, a Democratic priority, but also more oil and gas projects, which Republicans favor.
One last hurdle
The big question now: Will the deal pass? The right flank of the House Republicans has a big say. Those lawmakers have a history of doing everything they can to block spending deals they disapprove of. They could do so again, and they have sufficient power to kill the deal because McCarthy has only a nine-vote majority.
McCarthy has tried to avoid a mutiny by involving some of the most conservative members in debt limit talks and putting them in leadership positions. But there is no guarantee they stick with him — especially if they believe he went too far in his concessions to the White House.
There are two leading scenarios. In one, far-right Republicans vote against the deal but let it pass, and McCarthy secures the needed votes from Democratic lawmakers willing to back his compromise legislation with Biden. That result would be a vindication for McCarthy’s approach to the speakership: By bringing his most conservative members into the fold, he’ll have stopped them from taking more drastic action.
In the other scenario, far-right Republicans essentially tank the agreement. They could call a vote on whether to oust McCarthy as speaker and, because House Republicans have such a narrow majority, McCarthy could lose. (Remember: It took McCarthy 15 ballots to win the speakership in the first place.)
Conservative Republicans might stop short of such a step to avoid being blamed for the aftermath, said my colleague Carl Hulse, The Times’s chief Washington correspondent. If the federal government defaults on its debts and economic catastrophe follows, it will be clear that the hard right allowed this to happen by blocking a deal that a majority of lawmakers were ready to pass.
With that scenario in mind, conservative Republicans may let a deal go through even as they vote against it.
State Farm is stepping back in California-Company won’t take new applications for business or personal property coverage. By Corinne Purtill for the LA Times.
Insurance giant State Farm is no longer accepting new applications for business or personal property coverage in California.
Automobile insurance is not affected by the change, which took effect Saturday.
The company was the state’s largest provider of property and casualty insurance as of 2021, the most recent year for which data are available from the California Department of Insurance.
Last year, California became the first state to require insurance premium discounts for owners who implement wildfire protection safeguards at homes or businesses.
The change was a response to soaring insurance costs for people in areas prone to wildfire.
While State Farm has pledged to “work constructively” with California policymakers and regulators, the change is necessary to “improve the company’s financial strength,” the statement said.
State Farm last year posted a net loss of $6.7 billion , driven largely by losses in the auto division.
The company’s homeowner division recorded $849 million in underwriting gains.
UK inflation falls to 8.7%: UK inflation dropped to 8.7 per cent in April, a smaller fall than the Bank of England expected, raising pressure on the central bank to keep increasing interest rates.
From the New York Times: The end of vacation?
Summer vacation season is here. But if you’re like a surprising number of Americans, you’re probably leaving some paid time off on the table. Among workers whose employer offers paid vacation or leave, 46 percent said they typically took less time off than was offered, a recent Pew survey found. Here’s why:
- They don’t feel they need to take more time off (52 percent).
- They worry about falling behind at work (49 percent).
- They feel bad about having co-workers take on additional work (43 percent).
- They think taking more time off might hurt their chances for career advancement (19 percent).
- They think they might risk losing their job (16 percent).
- Their manager discourages taking time off (12 percent).
Decisions that leaders make about work culture most likely play into several of these reasons, such as a fear of being retaliated against or missing a promotion. And worry about leaving co-workers with extra work could be more intense on a team that is poorly managed or understaffed.
At the same time, the most popular reason cited for not taking all the available paid time off is that workers don’t feel they need to.
And many people keep working when they are technically “off.” Fifty-five percent of respondents said they checked work emails and messages outside work hours “extremely often,” “often” or “sometimes.”
Employees do seem to value having paid time off available. In the Pew survey, 89 percent of all workers said it was “extremely” or “very” important that their job provide paid time off for vacations, doctor appointments and minor illnesses, with more people selecting the “extremely important” category than for employer-sponsored health insurance or an employer-sponsored retirement program.