Prof. ST Hsieh
Director, US-China Energy Industry Forum
June 1, 2023
As expected, the US Senate approved a deal raising debt ceiling tonight, averting US default, with four days to spare. The impact of a US default would be so disastrous that the US economy would be destroyed and
many did NOT see any US politicians have enough guts to let it happen.
Finally, it boiled down to a game of chicken between President Biden (D) and Speaker of the House, McCarthy (R). But the battle lines are broader than just the dollar amounts, even energy policy and many other contentious issues were addressed.
The bill named, appropriately, the Fiscal Responsibility Act, after it is signed by President Biden over the weekend, does avert a default on June 6, 2023.
But it does not resolve the deficit challenge at all, the next default challenge is due January 1, 2025. The fundamental cause of the deficit: the U.S. consistently runs large annual deficits is still an accepted practice in DC.
However, this bipartisan compromise does give political candidates some space till the next general election is over in November 2024. The show goes on and the world is watching!
Senate Approves Deal Raising Debt Ceiling, Averting U.S. Default
Bill now goes to President Biden’s desk ahead of June 5 deadline.
WASHINGTON—The Senate passed wide-ranging legislation Thursday that suspends the $31.4 trillion debt ceiling while cutting federal spending, backing a bipartisan deal struck by President Biden and House Speaker Kevin McCarthy to avert an unprecedented U.S. default.
The 63-36 vote reflected support from both Democrats and Republicans, with backers saying the need to raise the nation’s borrowing limit outweighed concern about provisions related to military and domestic spending and energy policy, among other contentious issues.
The measure now goes to the president for his signature with several days to spare before June 5, when the Treasury Department has said that the government will run out of money to pay all of its bills.
“America can breathe a sigh of relief, because in this process, we are avoiding default,” Senate Majority Leader Chuck Schumer (D., N.Y.) said in announcing the planned vote. “The consequences of default would be catastrophic. It would almost certainly cause another recession. It would be a nightmare for our economy and millions of American families.”
The bill’s passage closed out a relatively smooth final chapter in Congress’s efforts to tackle the debt ceiling after months of finger-pointing.
The Senate vote Thursday came after the House approved the measure late Wednesday. A strong majority of House Democrats and Republicans voted in favor of the bill, despite angry objections from conservatives that the measure didn’t do enough to control spending and protests from liberals about new work requirements.
Under an agreement to allow the Senate to fast-track the vote, senators agreed to consider 11 amendments, related to issues including balancing the budget and a provision expediting the approval of the Mountain Valley Pipeline, a natural-gas pipeline. All were rejected, as leaders warned that passage of any of them would require the bill to be sent back to the House, which has already left town, and force a delay in passage.
The bill, the Fiscal Responsibility Act, would suspend the debt ceiling through Jan. 1, 2025, pushing the issue beyond the 2024 elections, in exchange for trims for unspecified domestic programs and a 3% cap on increases for military spending in fiscal 2024.
It doesn’t touch major programs such as Medicare and Social Security, showing how lawmakers are reluctant to address the biggest drivers of U.S. debt and have confined their fights to the narrow space of the discretionary budget, which accounts for almost a third of spending, leaving major programs off the table.
The legislation would reduce government deficits by about $1.5 trillion over a decade compared with the baseline forecast, according to the Congressional Budget Office.
Because the U.S. consistently runs large annual deficits, the debt limit must regularly be addressed. Once the limit is reached, lawmakers must raise or suspend the ceiling before the Treasury Department can issue more debt.
The Senate’s debate Thursday provided the clearest glimpse into tensions, particularly among Senate Republicans, that had been largely muffled. The negotiations were held largely between McCarthy and Biden, with Senate Minority Leader Mitch McConnell (R., Ky.) staying out of the fray.
The fight has reignited demands from some Democrats to defuse permanently the debt ceiling as a political weapon. In recent weeks, liberals said Biden had the power under the 14th Amendment of the Constitution, which says public debt authorized by law “shall not be questioned,” to unilaterally pay the nation’s debts. Biden has said that he was examining the matter but that it would face likely legal challenges.
Using the debt ceiling as a cudgel “has been institutionalized,” said Sen. Peter Welch (D., Vt.), who wants to eliminate it. “This was a serious threat to have us default.”
Andrew Duehren contributed to this article.