White House and Congress reach deal on debt ceiling
The White House has struck a two-year deal with Democratic leaders in Congress to raise the US’s $22tn borrowing limit, removing the threat of a debt default and significantly raising federal spending.
The deal — crafted by Democrat Nancy Pelosi, Speaker of the House of Representatives, and Steven Mnuchin, the Treasury secretary — increases the so-called debt ceiling until the middle of 2021, meaning the next big budgetary stand-off would occur after next year’s presidential election.
“This was a real compromise in order to give another big victory to our Great Military and Vets!” Mr Trump wrote on Twitter.
In a joint statement, Ms Pelosi and Senate Democratic leader Chuck Schumer said the agreement would “enhance our national security and invest in middle class priorities that advance the health, financial security and wellbeing of the American people”.
The Democratic leadership said the agreement “permanently” ended the threat of sequestration, or automatic cuts to federal spending.
Mr Mnuchin had warned earlier this month that the US government was at risk of running out of money to pay its bills as soon as September, triggering a rush to strike a compromise before lawmakers head to their home for the August recess.
Many economists, as well as officials at the Federal Reserve, had pointed to the threat of a US debt default as a key “downside” risk hanging over the US and global economy.
The Washington Post reported that it would raise spending levels in both defence and non-defence areas by a total of $320bn, while cutting spending by about $77bn, much less than the $150bn in offsetting reductions sought by the Trump administration.
“While the bipartisan deal represents a compromise, I am proud that this agreement . . . It thoroughly rejects the president’s reckless slash-and-burn budget proposal,” said Democrat Nita Lowey, chair of the powerful House appropriations committee.
For decades, US lawmakers had routinely raised America’s borrowing limit without much debate over the need for the government to meet payments it had already signed off on.
But starting in 2011, when Barack Obama was faced with a new batch of Tea Party Republicans in Congress, the US borrowing limit became a source of hand-wringing and brinkmanship, occasionally leading the US to the edge of default — and on one occasion triggering a debt downgrade.
The eleventh-hour agreement shows that neither Mr Trump nor Democrats on Capitol Hill had the stomach for a fight over the budget, which could damage the economy heading into the 2020 election season.
Under Mr Trump, the US budget deficit has risen sharply due to the passage of his 2017 tax cuts, and his reluctance to pursue countervailing cuts to popular spending programmes — a lack of concern for fiscal discipline that is at odds with traditional Republican thinking.