Biden and McCarthy near deal to avoid US debt default

United States President Joe Biden and leading congressional Republican Kevin McCarthy moved closer to striking a deal to avert the impending US debt default yesterday. Despite the two sides remaining far apart on an agreement to increase the debt ceiling, McCarthy expressed optimism that a deal could be reached by the end of the week. While Democrats were less positive about the time frame, the White House described the meetings as “productive and direct.”

Biden expressed disappointment that Republicans were unwilling to consider ways to raise revenue, as raising taxes on the wealthy and corporations is a key aspect of his 2024 budget. Republicans have refused to vote to increase the debt ceiling beyond its US$31.3 trillion limit unless the Democrats agree to federal budget spending cuts. Senate Republican leader Mitch McConnell, however, assured that the US would not default on its debt.

The US government may default on some debts as early as June 1 unless Congress votes to increase the debt ceiling. Economists have warned that this could lead to a recession. Biden remains “optimistic that there is a path to a responsible, bipartisan budget agreement if both sides negotiate in good faith and recognise that neither side will get everything it wants,” according to the White House.

The uncertainty surrounding the debt ceiling has prompted Biden to cancel stops in Papua New Guinea and Australia after attending the Group of Seven summit in Hiroshima, Japan. Both parties agree on the need for urgent action, and in the past week, staff from both sides have discussed a range of issues, including work requirements for some benefit programmes for low-income Americans, spending caps, and changes to energy permitting.

The current deadlock has alarmed investors, pushing the cost of insuring exposure to US government debt to record highs. A recent Reuters/Ipsos poll found that three-quarters of Americans fear a default would have a significant impact on families like theirs, reported Channel News Asia.