- Biden and McCarthy finally reached a deal to raise the debt ceiling on Saturday night.
- The deal strengthens work requirements on welfare programs and codifies the end of the student-loan payment pause.
- The agreement needs to be signed into law before the US defaults as early as June 5.
An agreement to raise the debt ceiling between House Speaker Kevin McCarthy and the White House will end the pause on student loan payments, make it more difficult for some low-income Americans to obtain food stamps, and reduce government spending by billions in the coming years.
On Saturday night, McCarthy and President Joe Biden finally reached a deal to raise the debt ceiling before the country is set to hurdle toward a default as early as June 5. This agreement came after months of stalemate due to both parties at odds over the best approach to raise the debt ceiling — Biden wanted the eventual deal to be a clean increase, without any spending cuts attached, while McCarthy refused to stave off a default without spending cuts on many Democratic priorities.
The deal the two sides reached required compromise — a New York Times analysis estimated the deal would cut spending by $136 billion through fiscal year 2025. This is a notable reduction from McCarthy’s initial $4.5 trillion spending cut proposal, and it includes new work requirements on government programs, along with codifying the end of student-loan payment pause. The pause is currently set to expire 60 days after June 30 or 60 days after the Supreme Court issues a final decision on the legality of Biden’s broad student-debt relief plan, whichever happens first.
The deal also alters Supplemental Nutrition Assistance Program work requirements for those between 18-54 who do no not have children and are able to work. In order to receive SNAP, these adults must work or be enrolled in job training for at least 80 hours a month.
However, the deal also helps expand access to this program for other vulnerable groups, like veterans and unhoused people, according to the Times.
Although the agreement in principle means that economically disastrous consequences will be avoided, Moody’s Analytics estimate that the cuts in spending could lead to a reduction in employment by 120,000 jobs by the end of 2024. The financial intelligence agency added that the new work requirements for income support programs could additionally result in tens of thousands of lost jobs.
“Not the greatest timing for fiscal restraint as the economy is fragile and recession risks are high,” Mark Zandi, who runs the Moody’s Analytics Econ Twitter account, wrote on Friday.
—MoodysAnalytics ECON (@economics_ma) May 26, 2023
Zandi noted, however, that the changes would be “manageable.” And while the deal is a blow to some everyday Americans relying on government programs, experts who spoke with the Times agreed.
Unlike in 2011, when a similar deal was struck between then-President Barack Obama and former Speaker John Boehner to cut down trillions in government spending over a decade, economists say the deal is not aggressive enough to completely tank the economy — even as it currently stands.
Jason Furman, a Harvard economist, told the Times that while the 2011 debt deal resulted in stagnant economic growth for a country recovering from the 2008 recession, the cuts in government spending could help control interest rates, which have been rising in response to skyrocketing inflation.
“The economy still needs cooling off, and this takes the pressure off interest rates in accomplishing that cooling off,” Furman told the Times.
Now, Congress needs to act quickly to get this legislation signed into law before the government runs out of money to pay its bills. This signals a consequential week ahead for lawmakers — especially as some Democrats and Republicans are not thrilled with the compromise that resulted in the final agreement. Still, it’s vital a bill to raise the debt ceiling gets signed into law because a default could mean a recessions — and millions more jobs lost as a result.
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