The US House of Representatives has inked a deal to allow the country to borrow more money, just days before the biggest global economy white-knuckled the descent to defaulting on its debt.
The House passed the 99-page bill on Wednesday with a vote of 314 to117, with 149 Republicans and 165 Democrats supporting the measure. Seventy-one Republicans and 46 Democrats voted against it.
It must now be approved by the Senate before President Joe Biden signs it into law, a measure he deemed a “a critical step” in protecting the US’s economic recovery, as he urged the Senate to pass the motion “as quickly as possible”.
Here is what we know about the debt ceiling deal:
What was agreed?
The bill effectively allows the US to borrow more money than the previously stated congressional limit, while capping government spending.
It is essentially a measure to permit Congress to borrow more to pay its bills, which cover costs including the military, social security, Medicare pay for federal employees and tax refunds, and interest on the national debt. It is a bi-partisan act, which means the major political parties, Republicans and Democrats, are in agreement.
The current US debt ceiling is $31.4trn (£25trn), which the government hit in January. Since then, the Treasury has been forced to use “extraordinary measures”, which involves moving funds around to make cash available for the government in the short term.
The new agreement, reached by Mr Biden and US House Speaker, Kevin McCarthy, on Sunday, would suspend the debt ceiling for two years, avoiding glacial pace negotiations taking place during the presidential election next year.
The bill would also cap some government spending over the next two years. The agreement would keep non-defence spending roughly flat in the 2024 financial year and increase it by 1 per cent the following year, and end the pause in student loan repayments by the end of August.
The White House estimates the plan would reduce government spending by at least $1trn overall, but official calculations have not yet been released.
What do politicians think about the bill?
Mr Biden is hugely in favour. “This agreement is good news for the American people and the American economy,” he said.
“It protects key priorities and accomplishments from the past two years, including historic investments that are creating good jobs across the country.
“And, it honours my commitment to safeguard Americans’ health care and protect Social Security, Medicare, and Medicaid.”
However, the bill has received some fierce objections. Senator Bernie Sanders, the longest serving non-partisan politician in Congressional history, has been vocal in his concerns about the measure.
“At a time of massive wealth and inequality I cannot, in good conscience, vote for a bill that takes vital nutrition assistance away from women, infants, children and seniors, while refusing to ask billionaires who have never had it so good to pay a penny more in taxes,” he said.
“The best thing to be said about the current deal on the debt ceiling is that it could have been much worse.”
The bill has also been opposed by hard-line Republicans, who argue the spending cuts do not go far enough. Members of the far-right House Freedom Caucus, led by Scott Perry of Pennsylvania, tried to block the deal.
He tweeted: “President Biden is happily sending Americans over yet another fiscal cliff, with far too many swampy Republicans behind the wheel of a ‘deal’ that fails miserably to address the real reason for our debt crisis: SPENDING.”
Mr Biden expects to have the deal signed, sealed and delivered before the 5 June deadline this Monday, which was imposed by Treasury Secretary, Janet Yellen. The date was chosen because it was felt the federal government could be out of funds to pay its bills, which includes interest payments on government bonds.
What does the US avoiding a default mean?
A default describes when a borrower fails to fulfil its obligations to the creditor.
It has ramifications for the rest of the world – a default could have led to a huge crisis of faith in the US economy and Washington would be under severe pressure to keep making payments on US bonds, which underpin the global system.
Missing a payment could trigger a Wall Street collapse, and distrust could needle America’s economic prospects, undermining the value of stocks, house prices and commercial real estate. Interests rates would likely skyrocket and the country would be on a downward trajectory into a recession.
The US has come close to defaulting before, notably in 2011, which saw a similar divide in Washington with then Democratic president Barack Obama and a Republican-majority House.
A Republican Victory?
As part of the bill, Republicans had urged the return of unspent Covid funds, which stopped with the end of the public health emergency in May. The Congressional Budget Office estimated clawing back funds will amount to about $30bn, but many Democrats said other health schemes would be affected.
Republicans had also sought to overhaul how welfare benefits are distributed, meaning healthy and able-bodied recipients would have to work to get healthcare support, a measure Democrats were strongly against.
Medicaid, the US public health insurance programme for low income families, will not be amended under the bill, but the Supplemental Nutrition Assistance Programme and Temporary Assistance for Needy Families may be reviewed.
Democrats had wanted to target wealthy Americans for new tax increases, but there are no such measures in the bill.
Republicans had also wanted to repeal central points of the Inflation Reduction Act’s clean energy but it was not changed, and the deal leaves Mr Biden’s green-energy measures almost unscathed.
Dr Thomas Gift, associate professor of political science at University College London, said the passage of bill would be “a triumph for moderates”.
“For all the talk of hyper-polarisation in Washington, and for all the lamenting of how gridlock has become the defining feature of American politics, the centre looks to be holding,” he told i.
“It belies two narratives simultaneously – one, that Biden is too feeble and ineffectual to navigate the complexities of a high-stakes legislative deal with his political opposition; and two, that the House speaker’s grip on his leadership is so tenuous that he can’t corral members of his own party to govern.
“The fact that so many on both the far-left and the far-right are dissatisfied with the deal – but it looks destined to pass anyway – is probably the best evidence that it is in fact a reasonable compromise.”
Dr Christopher Phelps, associate professor of American history at the University of Nottingham, said that while both sides could “claim victory” in the deal, the bill favoured the Republicans.
“Biden and the Democrats prevented a US debt default which would have been economically disastrous,” he said.
“Given that the Senate and White House are controlled by Democrats, however, the deal is on balance primarily a victory for the House leader, Republican Kevin McCarthy.”
He added that despite criticism of Mr McCarthy from some far-right Republican representatives, mostly for compromising on their total agenda, he “protected the military against any cuts while forcing reductions to education, environmental protection and other aspects of domestic discretionary spending”.
“There is no doubt that the House Republicans used debt-limit brinksmanship – a very dangerous game – to leverage major concessions from the Biden administration,” he said.