US debt ceiling deal: Top 5 takeaways

A last-minute debt agreement between President Biden and House Speaker McCarthy has left the nation optimistic that the lawmakers will finally pass a deal in time to avoid an imminent catastrophic US default. But the deal might deliver less budget savings than Republicans have hoped for

Livemint
Updated2 Jun 2023, 02:45 AM IST
The proposed deal would raise the debt ceiling, allowing the Biden government to borrow more to pay its obligations, and it would also fund the government for the next two years
The proposed deal would raise the debt ceiling, allowing the Biden government to borrow more to pay its obligations, and it would also fund the government for the next two years

A last-minute debt agreement between President Joe Biden and House Speaker Kevin McCarthy has left the nation optimistic that the lawmakers will finally pass a deal in time to avoid an imminent catastrophic US default. But the deal might deliver less budget savings than Republicans have hoped for.

The bipartisan agreement ensures that President Biden will not have to grapple with another debt-ceiling showdown until after the November 2024 election. On the other hand Speaker McCarthy secured $1.3 trillion--which is less than the $4.8 trillion Republicans had initially sought--in spending cuts as part of his party's effort to scale back government and rein in the growth of US debt.

The proposed deal would raise the debt ceiling, allowing the Biden government to borrow more to pay its obligations, and it would also fund the government for the next two years. Here are the five takeaways: 

1. Budget savings

The debt ceiling agreement is likely to do little to bring down the national deficit, which is the gap between the government's income and its spending on a given year.

The agreement would cut spending by $1.5 trillion over the next 10 years. But those savings wouldn't balance out the country's largest expenses, which include Social Security, Medicare and the military, which weren't touched. In fact, the deal increases spending on defense and veterans' care.

The proposed spending caps are limited to "nondefense discretionary spending," that includes funding for education, national parks and scientific research, and makes up less than 15% of the $6.3 trillion the US spent in the last fiscal year. 

2. Student loan repayments

Student loan repayments have been on hold since March 2020, which is likely to resume in September costing the government roughly $5 billion a month in lost revenue. Some experts’ feel, if debt agreement is passed, would require some 43 million Americans to resume payments in September, slightly earlier than expected.

3. Food assistance/nutrition programs to take a hit

The deal includes changes to nutrition programs, including new work requirements for adults who receive help through Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP) that would lead to spending increases as well. The bill would require childless adults under 54 to look for work, up from 50 years old now. The deal also creates a spending cap on the Special Supplemental Nutrition Program for Women, Infants and Children.

4. Job market likely to soften a little

New spending caps could cost the economy about 150,000 jobs by the end of next year, estimates Moody's Analytics. It would push up the unemployment rate by about one-tenth of a percentage point. As a result, families would spend less, further weakening demand for goods and services.

5. US economy

Although parts of the debt agreement could weigh heavily on families and businesses, the deal is expected to have little, if any, fallout for the nation's economy. 

“The impacts will be negative but small,” CNN reported citing Mark Zandi, chief economist at Moody’s Analytics. “When you net it all out, it’s a modest headwind to a sluggish economy, but I don’t think it’s the thing that’s going to blow the economy over into a recession.”

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First Published:2 Jun 2023, 02:45 AM IST
HomeNewsworldUS debt ceiling deal: Top 5 takeaways

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