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    The Debt-Ceiling Deal Suggests Debt Will Keep Growing, Fast

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    The bipartisan deal to avert a government default this week featured modest cuts to a relatively small corner of the federal budget. As a curb on the growth of the nation’s $31.4 trillion debt load, it was a minor breakthrough, at best.It also showed how difficult — perhaps impossible — it could be for lawmakers to agree anytime soon on a major breakthrough to demonstrably reduce the nation’s debt load.There is no clear economic evidence that current debt levels are dragging on economic growth. Some economists contend that rising debt levels will hurt growth by making it harder for businesses to borrow money; others say spiraling future costs of government borrowing could unleash rapid inflation.But Washington is back to pretending to care about debt, which is poised to top $50 trillion by the end of the decade even after accounting for newly passed spending cuts.With that pretense comes the reality that the fundamental drivers of American politics all point toward the United States borrowing more, not less.The bipartisan agreement to suspend the debt ceiling for two years, which passed the Senate on Thursday, effectively sets overall discretionary spending levels over that period. The agreement cuts federal spending by $1.5 trillion over a decade, according to the Congressional Budget Office, by essentially freezing some funding that had been projected to increase next year and then limiting spending to 1 percent growth in 2025.But even with those savings, the agreement provides clear evidence that the nation’s overall debt load will not be shrinking anytime soon.Republicans cited that mounting debt burden as a reason to refuse to raise the limit, risking default and financial crisis, unless Mr. Biden agreed to measures to reduce future deficits. But negotiators from the White House and House Republican leadership could only agree to find major savings from nondefense discretionary spending.That’s the part of the budget that funds Pell grants, federal law enforcement and a wide range of domestic programs. As a share of the economy, it is well within historical levels, and it is projected to fall in the coming years. Currently, base discretionary spending accounts for less than one-eighth of the $6.3 trillion the government spends annually.The deal included no major cuts to military spending, which is larger than base nondefense discretionary spending. Early in the talks, both parties ruled out changes to the two largest drivers of federal spending growth over the next decade: Social Security and Medicare. The cost of those programs is expected to soar within 10 years as retiring baby boomers qualify for benefits.While Republicans at first balked when Mr. Biden accused them of wanting to cut those politically popular programs, they quickly switched to blaming the president for taking them off the table.Asked on Fox News on Wednesday why Republicans had not targeted the entire budget for cuts, Speaker Kevin McCarthy replied, “Because the president walled off all the others.”“The majority driver of the budget is mandatory spending,” he said. “It’s Medicare, Social Security, interest on the debt.”Negotiators for Mr. McCarthy effectively walled off the other half of the debt equation: revenue. They rebuffed Mr. Biden’s pitch to raise trillions of dollars from new taxes on corporations and high earners, and both sides wound up agreeing to cut funding for the Internal Revenue Service that was expected to bring in more money by cracking down on tax cheats.Instead, Republicans attempted to frame mounting national debt as solely a spending problem, not a tax-revenue problem, even though tax cuts by both parties have added trillions to the debt since the turn of the century.Republican leaders now appear poised to introduce a new round of tax-cut proposals, which would likely be financed with borrowed money, a move Democrats decried during the floor debate over the debt-ceiling deal.“Before the ink is dry on this bill, you will be pushing for $3.5 trillion in business tax cuts,” Representative Gwen Moore, Democrat of Wisconsin, said shortly before the final vote on the Fiscal Responsibility Act, as it is called, on Wednesday.Those comments reflected a lesson Democrats took from 2011, when Washington leaders last made a big show of pretending to care about debt in a bipartisan deal to raise the borrowing limit. That agreement, between President Barack Obama and Speaker John Boehner, limited discretionary spending growth for a decade, helping to drive down budget deficits for years.Many Democrats now believe those lower deficits gave Republicans the fiscal and political space they needed to pass a tax-cut package in 2017 under President Donald J. Trump that the Congressional Budget Office estimated would add nearly $2 trillion to the national debt. They have come to believe that Republicans would happily do the same again with any future budget deals — putting aside deficit concerns and effectively turning budget savings into new tax breaks.At the same time, both parties have grown more wary of cuts to Social Security and Medicare. Mr. Obama was willing to reduce future growth of retirement benefits by changing how they were tied to inflation; Mr. Biden is not. Mr. Trump won the White House after promising to protect both programs, in a break from past Republicans, and is currently slamming his rivals over possible cuts to the programs as he seeks the presidency again.All the while, the total amount of federal debt has more than doubled, to $31.4 trillion from just below $15 trillion in 2011. That growth has had no discernible effect on the performance of the economy. But it is projected to continue growing in the next decade, as retiring baby boomers draw more government benefits. The budget office estimated last month that debt held by the public would be nearly 20 percent larger in 2033, as a share of the economy, than it is today.Even under a generous score of the new agreement, which assumes Congress will effectively lock in two years of spending cuts over the full course of a decade, that growth will only fall by a few percentage points.Groups promoting debt reduction in Washington have celebrated the deal as a first step toward a larger compromise to reduce America’s reliance on borrowed money. But neither Mr. McCarthy nor Mr. Biden has shown any interest in what those groups want: a mix of significant cuts to retirement programs and increases in tax revenues.Mr. McCarthy suggested this week that he would soon form a bipartisan commission to scour the full federal budget “so we can find the waste and we can make the real decisions to really take care of this debt.”The 2011 debt deal produced a similar sort of commission, which issued recommendations on politically painful steps to reduce debt. Lawmakers discarded them. There’s no evidence they’d do anything else today. More

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    Biden Praises Debt-Ceiling Deal in Address to the Nation

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    President Biden hailed a rare example of bipartisan cooperation in Washington on Friday, saying in his first prime-time address from the Oval Office that this week’s legislative budget deal averts economic calamity from a default on the nation’s debt.The legislation, known as the Fiscal Responsibility Act, passed the Senate late Thursday after receiving broad support in the House earlier in the week. The bill suspends the debt ceiling for two years and cuts back on spending.Seated behind the Resolute Desk, Mr. Biden said he would soon sign the measure into law and sought to reassure Americans that robust job growth — the economy added 339,000 jobs in May alone — would not be sidetracked by global fears about whether the United States is willing to pay its bills.“Essential to all the progress we’ve made in the last few years is keeping full faith and credit of the United States,” Mr. Biden said, adding: “Passing this budget agreement was critical. The stakes could not have been higher.”The speech was designed to double down on Mr. Biden’s longtime brand as a political deal-maker who is able to reach compromise with his rivals. His advisers believe that reputation is critical to his ability to win a second term in the White House.But Mr. Biden also used his remarks, which lasted about 12 minutes, to highlight achievements by his administration that are fiercely opposed by Republicans, and vowed to continue pushing a Democratic agenda that includes higher taxes on the wealthy, more spending on climate change and veterans and no cuts to health care or the social safety net.“No one got everything they wanted, but the American people got what they needed,” he said. He added that “we protected important priorities from Social Security to Medicare to Medicaid to veterans to our transformational investments in infrastructure and clean energy.”Mr. Biden went out of his way to praise House Speaker Kevin McCarthy, his chief Republican rival.“He and I, we and our teams, we were able to get along, get things done,” Mr. Biden said. “We were straightforward with one another, completely honest with one another and respectful with one another. Both sides operated in good faith.”The president said he would sign the bill on Saturday, two days before the so-called X-date, when the Treasury secretary said the government would run out of cash to pay its bills, a situation that economists have predicted would cause global uncertainty and turmoil.Presidents often reserve the Oval Office for addresses to the nation about war, economic crises or natural disasters. President Ronald Reagan delivered somber remarks from there after the space shuttle Challenger exploded in 1986. President Donald J. Trump announced pandemic restrictions from the Oval Office in early 2020.Mr. Biden’s decision to use the same venue on Friday underscores how close he believes the nation veered toward economic disaster.Mr. Biden and lawmakers had expressed optimism for weeks that they would reach an accord to avoid that outcome, but the deep disagreements between Democrats and Republicans kept the country — and the rest of the world — on edge until the votes were cast in both chambers.In the House, conservative Republicans initially revolted against Mr. McCarthy for failing to win more spending concessions from the president. Several threatened Mr. McCarthy’s speakership, but backed down amid robust support for the speaker from other Republicans.Some Democrats in the House and Senate also resisted the compromise, but the White House made the decision to largely keep quiet as the votes proceeded this week, hoping to avoid inflaming the conservative opposition and making Mr. McCarthy’s job harder.Mr. Biden has said on several occasions that he hoped to find a way to avoid a similar crisis over the debt ceiling in the future and has mentioned the 14th Amendment to the Constitution, which says the debt of the United States “shall not be questioned.”Some legal experts believe that a president could use that passage to ignore the statutory debt limit, thereby avoiding the regular clashes between the parties. Mr. Biden said last month that he hoped to “find a rationale to take it to the courts to see whether or not the 14th Amendment is, in fact, something that would be able to stop it.”On Sunday, he said, “That’s another day.”Before the Oval Office speech, Mr. Biden was faced with anger among some progressives in his party that he had agreed to too many Republican demands during the negotiations.Some Democratic lawmakers voted against the debt ceiling legislation because of new work requirements that it imposes on some recipients of food assistance. White House officials have argued that the legislation removes work requirements for others, including the homeless and veterans.The president also angered some environmentalists by agreeing to approve construction of a natural gas pipeline through West Virginia and Virginia. Critics say the 300-mile Mountain Valley Pipeline will hurt wildlife and the environment as it cuts across the Appalachian Trail.For Mr. Biden, the debt ceiling deal helps to avoid undercutting the strong economy, which is a key selling point for his campaign.But his political advisers also have to be concerned about maintaining support from the coalition of voters who put him in office in 2020, some of whom have been disappointed with his achievements in climate, criminal justice and other areas. More

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    Here’s What’s in the Debt Ceiling Deal

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    Two years of spending caps, additional work requirements for food stamps and cuts to I.R.S. funding are among the components in the deal.The full legislative text of Speaker Kevin McCarthy’s agreement in principle with President Biden to suspend the nation’s borrowing limit revealed new and important details about the deal, which House lawmakers are expected to vote on this week.The centerpiece of the agreement remains a two-year suspension of the debt ceiling, which caps the total amount of money the government is allowed to borrow. Suspending that cap, which is now set at $31.4 trillion, would allow the government to keep borrowing money and pay its bills on time — as long as Congress passes the agreement before June 5, when Treasury has said the United States will run out of cash.In exchange for suspending the limit, Republicans demanded a range of policy concessions from Mr. Biden. Chief among them are limits on the growth of federal discretionary spending over the next two years. Mr. Biden also agreed to some new work requirements for certain recipients of food stamps and the Temporary Aid for Needy Families program.Both sides agreed to modest efforts meant to accelerate the permitting of some energy projects — and, in a surprise move, a fast track to construction for a new natural gas pipeline from West Virginia to Virginia that has been championed by Republican lawmakers and a key centrist Democrat.Here’s what the legislation would do:Temporarily suspends the debt limitThe deal suspends the nation’s $31.4 trillion borrowing limit until Jan. 2025. Suspending the debt limit for a period of time is different than setting it at a new fixed level. It essentially gives the Treasury Department the latitude to borrow as much money as it needs to pay the nation’s bills during that time period, plus a few months after the limit is reached, as the department employs accounting maneuvers to keep up payments.That’s different than the bill passed by House Republicans, which raised the limit by $1.5 trillion or through March 2024, whichever came first.Under the new legislation, the debt limit will be set at whatever level it has reached when the suspension ends. For political reasons, Republicans tend to prefer suspending the debt limit rather than raising it, because it allows them to say they did not technically green-light a higher debt limit.The suspension will kick the next potential fight over the nation’s debt load to 2025 — past the next presidential election.Caps and cuts spendingThe bill cuts so-called nondefense discretionary, which includes domestic law enforcement, forest management, scientific research and more — for the 2024 fiscal year. It would limit all discretionary spending to 1 percent growth in 2025, which is effectively a budget cut, because that is projected to be slower than the rate of inflation.The legislative text and White House officials tell different stories about how big those cuts actually are.Some parts are clear. The proposed military spending budget would increase to $886 billion next year, which is in line with what Mr. Biden requested in his 2024 budget proposal, and rise to $895 billion in 2025. Spending on veterans’ health care, including newly approved measures to assist veterans exposed to toxic burn pits, would also be funded at the levels of Mr. Biden’s proposed budget.Legislative text suggests nondefense discretionary outside of veterans’ programs would shrink in 2024 to about last year’s spending levels. But White House officials say a series of side deals with Republicans, including one related to funding for the Internal Revenue Service, will allow actual funding to be closer to this year’s levels.Although Republicans had initially called for 10 years of spending caps, this legislation includes just 2 years of caps and then switches to spending targets that are not bound by law — essentially, just suggestions.The White House estimates that the agreement will yield $1 trillion in savings over the course of a decade from reduced discretionary spending.A New York Times analysis of the proposal — using White House estimates of the actual funding levels in the agreement, not just the levels in the legislative text — suggests it would reduce federal spending by about $55 billion next year, compared with Congressional Budget Office forecasts, and by another $81 billion in 2025. If spending then returned to growing as the budget office forecasts, the total savings over a decade would be about $860 billion.Speaker Kevin McCarthy has said he believes a majority of his conference would vote for the deal.Haiyun Jiang for The New York TimesClaws back I.R.S. fundingThe legislation takes aim at one of President Biden’s biggest priorities — bolstering the I.R.S. to go after tax cheats and ensure companies and rich individuals are paying what they owe.Democrats included $80 billion to help the I.R.S. hire thousands more employees and update its antiquated technology in last year’s Inflation Reduction Act. The debt limit agreement would immediately rescind $1.38 billion from the I.R.S. and ultimately repurpose another $20 billion from the $80 billion it received through the Inflation Reduction Act.Administration officials said on Sunday that they had agreed to reprogram $10 billion of extra I.R.S. money in each of the 2024 and 2025 fiscal years, in order to maintain funding for some nondefense discretionary programs.The clawback will eat into the tax collection agency’s efforts to crack down on rich tax cheats. It is also a political win for Republicans, who have been outraged by the prospect of a beefed up I.R.S. and approved legislation in the House to rescind the entire $80 billion.Still, because of the leeway that the I.R.S. has over how and when it spends the money, the clawback might not affect the agency’s plans in the next few years. Officials said in a background call with reporters that they expected no disruptions whatsoever from the loss of that money in the short term.That’s likely because all of the $80 billion from the 2022 law was appropriated at once, but the agency planned to spend it over eight years. Officials suggested the I.R.S. might simply pull forward some of the money earmarked for later years, then return to Congress later to ask for more money.New work requirements for government benefitsThe legislation would impose new work requirements on older Americans who receive food stamps through the Supplemental Nutrition Assistance Program and who receive aid from the Temporary Assistance for Needy Families Program.The bill imposes new work requirements for food stamps on adults ages 50 to 54 who don’t have children living in their home. Under current law, those work requirements only apply to people age 18 to 49. The age limit will be phased in over three years, beginning in fiscal year 2023. And it includes a technical change to the T.A.N.F. funding formula that could cause some states to divert dollars from the program.The bill would also exempt veterans, the homeless and people who were children in foster care from food-stamp work requirements — a move White House officials say will offset the program’s new requirements, and leave roughly the same number of Americans eligible for nutrition assistance moving forward.Still, the inclusion of new work requirements has drawn outrage from advocates for safety net assistance, who say it punishes vulnerable adults who are in need of food.“The agreement puts hundreds of thousands of older adults aged 50-54 at risk of losing food assistance, including a large number of women,” Sharon Parrott, president of the Center on Budget and Policy Priorities, said in a statement.President Biden also agreed to some new work requirements for certain recipients of food stamps.Pete Marovich for The New York TimesPermitting reformThe agreement includes new measures to get energy projects approved more quickly by creating a lead agency to oversee reviews and require that they are completed in one to two years.The legislation also includes a win for Senator Joe Manchin III of West Virginia, a Democratic centrist, by approving permitting requests for the Mountain Valley Pipeline, a natural gas project in West Virginia. The $6.6 billion project is intended to carry gas about 300 miles from the Marcellus shale fields in West Virginia across nearly 1,000 streams and wetlands before ending in Virginia.Environmentalists, civil rights activists and many Democratic state lawmakers have opposed the project for years.The bill declares that “the timely completion of construction and operation of the Mountain Valley Pipeline is required in the national interest.”Mr. Manchin said on Twitter that he is proud to have secured the bipartisan support necessary to “get it across the finish line.” Republican members of the West Virginia delegation also claimed credit.Student loans and unspent Covid moneyThe bill officially puts an end to Mr. Biden’s freeze on student loan repayments by the end of August and restricts his ability to reinstate such a moratorium.It does not move forward with the measure that House Republicans wanted to include that would halt Mr. Biden’s policy to forgive between $10,000 and $20,000 in student loan debt for most borrowers. That initiative, which the Biden administration rolled out last year, is currently under review by the Supreme Court and could ultimately be blocked.The bill also claws back about $30 billion in unspent money from a previous Covid relief bill signed by Mr. Biden, which had been a top Republican priority entering negotiations. Some of that money will be repurposed to boost nondefense discretionary spending.According to an administration official, the deal leaves intact funding for two key Covid programs: Project NextGen, which aims to develop the next generation of coronavirus vaccines and treatments, and an initiative to offer free coronavirus shots to the uninsured.Preventing a government shutdownThe agreement only sets parameters for the next two years of spending. Congress must fill them in by passing a raft of spending bills later this year. Large fights loom in the details of those bills, raising the possibility that lawmakers will not agree to spending plans in time and the government will shut down.The agreement between Mr. Biden and Mr. McCarthy attempts to prod Congress to pass all its spending bills and avoid a shutdown, by threatening to reduce spending that is important to both parties. If lawmakers have not approved all 12 regular funding bills by the end of the year, the agreement tightens its spending caps. Nondefense discretionary spending would be set at one percent below current year levels, and it is possible that the I.R.S. would not see its $10 billion in funding for next year repurposed for other programs.The same levels would apply to defense and veterans’ spending — which would be, in effect, a significant cut to those programs compared to the agreed-upon caps. Democrats see the looming military cuts as a particularly strong incentive for Republicans to strike a deal to pass appropriations bills by the end of the year.What’s not in the billThe final agreement includes far less reduction in future debt than either side proposed.Republicans wanted much deeper spending cuts and stricter work requirements. They also wanted to repeal hundreds of billions of dollars in tax incentives signed by Mr. Biden to accelerate the transition to lower-emission energy sources and fight climate change. Mr. Biden wanted to raise taxes on corporations and high earners, and to take new steps to reduce Medicare’s spending on prescription drugs. None of those made it into the deal. More

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    How to Enforce a Debt Deal: Through ‘Meat-Ax’ Cuts Nobody Wants

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    The debt-limit legislation includes a provision meant to force both sides to pass additional bills following through on their deal: the threat of automatic cuts if they fail to do so.The bipartisan legislation Congress passed this week to suspend the debt ceiling and impose spending caps contains an arcane but important provision aimed at forcing both sides to follow through on the deal struck by President Biden and Speaker Kevin McCarthy.The 99-page measure suspends the $31.4 trillion borrowing limit until January 2025. It cuts federal spending by $1.5 trillion over a decade, according to the Congressional Budget Office, by effectively freezing some funding that had been projected to increase next year and then limiting spending to 1 percent growth in 2025.But it also contains a number of side deals that never appear in its text but that were crucial to forging the bipartisan compromise, and that allowed both sides to claim they had gotten what they wanted out of it. To try to ensure that Congress abides by the agreement, negotiators used a time-tested technique that lawmakers have turned to for decades to enforce efforts to reduce the deficit: the threat of automatic, across-the-board spending cuts if they do not finish their work.Here’s how it works.A 1 percent cut unless spending bills are passed.Congress is supposed to pass 12 individual spending bills each year to keep the government funded. But for decades, lawmakers, unable to agree on those measures, have lumped them together into one enormous piece of legislation referred to as an “omnibus” spending bill and pushed them through against the threat of a shutdown.The debt-limit agreement imposes an automatic 1 percent cut on all spending — including on military and veterans programs, which were exempted from the caps in the compromise bill — unless all dozen bills are passed and signed into law by the end of the calendar year. Mandatory spending on programs such as Medicare and Social Security would be exempt.A wrinkle is that, because the fiscal year that drives Congress’s spending cycle ends before the calendar year does — on Sept. 30 — Congress would still need to pass a short-term bill to fund the government from October through December to avoid a shutdown.Republicans and Democrats both dread the cuts.The measure is a version of a plan offered by Representative Thomas Massie, Republican of Kentucky, a key vote to advancing the bill through the Rules Committee, who said he believed it would help avoid the Democratic-controlled Senate using the specter of a shutdown to force the House to swallow a bloated spending bill at the end of the year.“You get threatened and ransomed with a shutdown,” Mr. Massie said in an interview in late April describing the plan. “They’ll tell you, ‘If you don’t pass the Senate bill, there’s going to be a shutdown.’ I think we need to take that leverage away from anybody who would risk a shutdown to get more spending. Just take that off the table.”Some Republicans, including defense hawks, are livid about the measure, arguing that it would subject the Pentagon to irresponsible cuts. Senator Susan Collins of Maine, the top Republican on the Appropriations Committee and its defense subcommittee, called it a “harmful” provision that would leave a “threat hanging over” the Defense Department.“It would trigger an automatic, meat-ax, indiscriminate, across-the-board cut in our already inadequate defense budget and in the domestic, discretionary nondefense funding,” Ms. Collins said.Democrats, too, have a major incentive to avoid the cuts, since they have resisted reducing funding for federal programs all along.Without spending bills, major parts of the debt deal will die.Both parties stand to lose victories gained through handshake agreements during negotiations if Congress cannot pass its appropriations bills. Neither the White House nor House Republicans have published a full accounting of the agreements that do not appear in legislative text, but some have become clear.The deals allow Republicans to claim they are making deep cuts to certain spending categories while letting Democrats mitigate the pain of those cuts in the funding bills.One unwritten but agreed-upon compromise allows appropriators to repurpose $10 billion a year in 2024 and 2025 from the I.R.S. — a key priority of Republicans, who had opposed the additional enforcement funding championed by Mr. Biden and Democrats.Another side agreement, sought by Democrats, that would evaporate if the spending bills were not written designated $23 billion a year in domestic spending outside military funding as “emergency” spending, basically exempting that money from the caps in the deal.Jim Tankersley More

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    House Set to Vote on Debt Ceiling Bill Amid Republican Resistance

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    A bipartisan coalition was set to push through the compromise struck by Speaker Kevin McCarthy and President Biden, even as lawmakers in both parties signaled their displeasure with the plan.The House on Wednesday was poised to push through legislation negotiated by President Biden and Speaker Kevin McCarthy to suspend the debt ceiling and set federal spending limits, as a bipartisan coalition lined up to cast a critical vote to pull the nation back from the brink of economic catastrophe.The bill would defer the federal debt limit for two years — allowing the government to borrow unlimited sums as necessary to pay its obligations — while imposing two years of spending caps and a string of policy changes that Republicans demanded in exchange for allowing the country to avoid a disastrous default. The vote, expected Wednesday night, was coming days before the nation was projected to exhaust its borrowing power, and after a marathon set of talks between White House negotiators and top House Republicans.With both far-right and hard-left lawmakers in revolt over the deal, congressional leaders cobbled together a coalition of Republicans and Democrats willing to drag the bill over the finish line, throwing their support behind the compromise in an effort to break the fiscal stalemate that has gripped Washington for weeks.It nearly collapsed on its way to the House floor, when hard-right Republicans sought to block its consideration, and in a suspenseful scene, Democrats waited several minutes before swooping in to supply their votes for a procedural measure that allowed the plan to move ahead.Representative Dan Bishop of North Carolina, along with other hard-right House Freedom Caucus members, tried to block the procedure to advance the debt deal to a vote on Wednesday.Haiyun Jiang for The New York TimesThe deal would suspend the $31.4 trillion borrowing limit until January 2025. It would cut federal spending by $1.5 trillion over a decade, according to the Congressional Budget Office, by effectively freezing some funding that had been projected to increase next year and then limiting spending to 1 percent growth in 2025, which is considered a cut because it would be at a lower level than inflation. The legislation would also impose stricter work requirements for food stamps, claw back some funding for I.R.S. enforcement and unspent coronavirus relief money, speed the permitting of new energy projects and officially end Mr. Biden’s student loan repayment freeze.The compromise was structured with the aim of enticing votes from both parties, allowing Republicans to say that they succeeded in reducing some federal spending — even as funding for the military and veterans’ programs would continue to grow — while allowing Democrats to say they spared most domestic programs from significant cuts.Ahead of the series of votes on Wednesday, Mr. McCarthy urged his members to support the bill, framing it as a “small step putting us on the right track,” and promoting the spending cuts and work requirements Republicans won in the deal.“Everybody has a right to their own opinion,” he said. “But on history, I’d want to be here with this bill today.”In the Senate, both Democratic and Republican leaders said they would quickly take up the legislation and push to get the package to Mr. Biden as swiftly as possible, with Senator Chuck Schumer, Democrat of New York and the majority leader, warning that lawmakers would need to approve the bill without changes to meet the June 5 deadline when the Treasury Secretary Janet L. Yellen has said the government would default without action by Congress.“I cannot stress enough that we have no margin for error,” Mr. Schumer said. “Either we proceed quickly and send this bipartisan agreement to the president’s desk or the federal government will default for the first time ever.”Senator Chuck Schumer, Democrat of New York and the majority leader, warned that lawmakers would need to approve the bill without changes to meet a June 5 deadline to avert a default.Haiyun Jiang for The New York TimesPassage of the deal would be a major victory for Mr. McCarthy, a California Republican who faced a massive challenge in shepherding a debt-ceiling increase through a narrowly divided chamber populated by Republicans who have long refused to raise the borrowing limit. Few had expected that Mr. McCarthy would be able to unite his fractious conference around any such measure, much less one negotiated with Mr. Biden, without prompting an attempt by his right flank to oust him.As of Wednesday, no such effort had materialized, thought there still may be political consequences ahead for Mr. McCarthy. Representative Dan Bishop, Republican of North Carolina and a member of the ultraconservative Freedom Caucus, has publicly said that he considered the debt and spending deal grounds for removing Mr. McCarthy from his post. Another member of the group, Representative Ken Buck, Republican of Colorado, told CNN that its members would have “discussions about whether” to try to oust him.“I’m not suggesting the votes are there to remove the speaker, but the speaker promised that we would operate at 2022 appropriations levels when he got the support to be speaker,” Mr. Buck said. “He’s now changed that to 2023 levels plus one percent. That’s a major change for a lot of people.”Under the rules House Republicans adopted at the beginning of the year that helped Mr. McCarthy become speaker, any single lawmaker could call for a snap vote to depose him, a move that would require a majority of the House.Hard-right lawmakers were nonetheless furious over the compromise, savaging the bill and Mr. McCarthy’s handling of the negotiations as a betrayal.“No one sent us here to borrow an additional $4 trillion to get absolutely nothing in return,” said Representative Chip Roy, Republican of Texas, who promised “a reckoning about what just occurred.”In a dramatic display of their displeasure, 29 conservative Republicans took the unusual step of breaking ranks on a procedural vote to take up the legislation, normally a formality that passes entirely along party lines.In a dramatic tableau on the House floor, as the Republican defections piled up, imperiling the deal, Representative Hakeem Jeffries of New York, the minority leader, finally raised a green voting card in the air, signaling to fellow Democrats that it was time go ahead and bail Republicans out. A stream of centrist and veteran lawmakers — 52 in all — crowded into the well of the House and voted “yes,” rescuing the deal from collapse.After a pause on the floor when Republicans came up short on votes, Representative Hakeem Jeffries, the New York Democrat and minority leader, gave the assent to a group of Democrats to help move toward a vote on the deal.Kenny Holston/The New York TimesMr. Jeffries had gathered Democrats in the Capitol on Wednesday morning, along with top White House officials who had helped broker the deal, and urged them to back the compromise. He argued that Mr. Biden had successfully fended off the worst of Republicans’ demands, and reiterated that allowing the nation to default was not an option.“I made clear that I’m going to support legislation that is on the floor today,” Mr. Jeffries told reporters at a news conference after the meeting. “And I support it without hesitation or reservation or trepidation.”But progressive Democratics bristled at the package, and said they could not support new work requirements for safety net programs or incentivize Republicans from weaponizing the debt ceiling as a political cudgel.“Republicans need to own this vote,” said Representative Alexandria Ocasio-Cortez, Democrat of New York, who took particular aim at changes to the Supplemental Nutrition Assistance Program and a measure to expedite production of a gas pipeline. “This was their deal, this was their negotiations. They’re the ones trying to come in and cut SNAP, cut environmental protections, trying to ram through an oil pipeline through a community that does not want it.”“Republicans need to own this vote,” said Representative Alexandria Ocasio-Cortez, Democrat of New York, one of a group of Democrats displeased with Republican provisions in the bill.Kenny Holston/The New York Times“This has been a hostage situation,” Representative Greg Casar, Democrat of Texas, said. “We’re going to get out of the hostage situation. I appreciate the president negotiating down the ransom payment for the hostage. But I think it’s appropriate for progressives to say we never want to be in this situation again.”Adding to progressive discontent are provisions in the deal that claw back some unspent money from a previous pandemic relief bill, and reduce by $10 billion — to $70 billion from $80 billion — new enforcement funding for the I.R.S. to crack down on tax cheats. Other measures in the bill include a provision meant to speed the permitting of certain energy projects and a provision meant to force the president to find budget savings to offset the costs of a unilateral action, like forgiving student loans — though administration officials could circumvent that requirement.The deal also includes measures meant to avert a government shutdown later this year.Carl Hulse More

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    Debt Ceiling Deal Would Reinstate Student Loan Payments

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    The legislation would prevent President Biden from issuing another last-minute extension on the payments beyond the end of the summer.Follow for live updates as the House prepares for a vote on the debt limit deal.For millions of Americans with federal student loan debt, the payment holiday is about to end.Legislation to raise the debt ceiling and cut spending includes a provision that would require borrowers to begin repaying their loans again by the end of the summer after a yearslong pause imposed during the coronavirus pandemic.President Biden had already warned that the pause would end around the same time, but the legislation, if it passes in the coming days, would prevent him from issuing another last-minute extension, as he has already done several times.The end of the pause will affect millions of Americans who have taken out federal student loans to pay for college. Across the United States, 45 million people owe $1.6 trillion for such loans — more than Americans owe for any kind of consumer debt other than mortgages.The economic impact of the pandemic has faded since President Donald J. Trump first paused student loan payments in March 2020. Many Americans lost their jobs at the outset of the public health crisis, undercutting their ability to repay their loans on time. The number of jobs in the United States now exceeds prepandemic levels.Promoting the debt ceiling legislation over the weekend, Speaker Kevin McCarthy said on “Fox News Sunday” that it would end the pause on student loan payments “within 60 days of this being signed.”In fact, the legislation would follow the same timeline that the Biden administration had previously outlined, ending the pause on payments on Aug. 30 at the latest.A spokesman for Mr. McCarthy did not respond to an email seeking comment.Even with the pause ending, some borrowers may still see some relief if the Supreme Court allows Mr. Biden to move forward with a plan to forgive up to $20,000 in debt for some people with outstanding balances.Mr. Biden’s plan would cancel $10,000 of federal student loan debt for those who make under $125,000 a year. People who received Pell grants for low-income families could qualify for an additional $10,000 in debt cancellation.But the plan was challenged in court as an illegal use of executive authority, and during oral arguments in February, several justices appeared skeptical of the program. A ruling from the court could come at any time but is expected next month.White House officials have said repeatedly that they are confident in the legality of the president’s plan. But the debate about the plan, and the broader issue of student loans, has been fierce in Congress.Republicans have vowed to block the president’s plan if the courts do not. But they have so far failed to make good on that promise, despite repeated attempts.Last month, House Republicans passed a bill to raise the debt ceiling that would have blocked the student debt cancellation plan and ended the temporary pause on payments. That bill was shelved after negotiations began with the White House on the debt ceiling and spending cuts.Last week, the House passed a resolution that would use the Congressional Review Act to overturn the president’s debt cancellation plan. But the Senate has not taken up the measure, and Mr. Biden has said he would veto it.Instead, the compromise debt ceiling legislation now under consideration by lawmakers only requires ending the pause on payments — a move that the president had already said he would make. It would not block the debt cancellation plan.In addition, White House officials said the legislation would not deny the Biden administration the ability to pause student loan payments during a future emergency, as Republicans had sought to do.A spokesman for the White House said the president was pleased that Republicans had failed to block his debt cancellation plan in the debt ceiling legislation.“House Republicans weren’t able to take away a single penny of relief for the 40 million eligible borrowers, most of whom make less than $75,000 a year,” the spokesman, Abdullah Hasan, said. “The administration announced back in November that the current student loan payment pause would end this summer — this agreement makes no changes to that plan.” More

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    Why the Debt Limit Spending Cuts Likely Won’t Shake the Economy

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    With low unemployment and above-trend inflation, the economy is well positioned to absorb the modest budget cuts that President Biden and Republicans negotiated.The last time the United States came perilously close to defaulting on its debt, a Democratic president and a Republican speaker of the House cut a deal to raise the nation’s borrowing limit and tightly restrain some federal spending growth for years to come. The deal averted default, but it hindered what was already a slow recovery from the Great Recession.The debt deal that President Biden and Speaker Kevin McCarthy have agreed to in principle is less restrictive than the one President Barack Obama and Speaker John Boehner cut in 2011, centered on just two years of cuts and caps in spending. The economy that will absorb those cuts is in much better shape. As a result, economists say the agreement is unlikely to inflict the sort of lasting damage to the recovery that was caused by the 2011 debt ceiling deal — and, paradoxically, the newfound spending restraint might even help it.“For months, I had worried about a major economic fallout from the negotiations, but the macro impact appears to be negligible at best,” said Ben Harris, a former deputy Treasury secretary for economic policy who left his post earlier this year.“The most important impact is the stability that comes with having a deal,” Mr. Harris said. “Markets can function knowing that we don’t have a cataclysmic debt ceiling crisis looming.”Mr. Biden expressed confidence earlier this month that any deal would not spark an economic downturn. That was in part because growth persisted over the past two years even as pandemic aid spending expired and total federal spending fell from elevated Covid levels, helping to reduce the annual deficit by $1.7 trillion last year.Asked at a news conference at the Group of 7 summit in Japan this month if spending cuts in a budget deal would cause a recession, Mr. Biden replied: “I know they won’t. I know they won’t. Matter of fact, the fact that we were able to cut government spending by $1.7 trillion, that didn’t cause a recession. That caused growth.”The agreement in principle still must pass the House and Senate, where it is facing opposition from the most liberal and conservative members of Congress. It goes well beyond spending limits, also including new work requirements for food stamps and other government aid and an effort to speed permitting for some energy projects. But its centerpiece is limits on spending. Negotiators agreed to slight cuts to discretionary spending — outside of defense and veterans’ care — from this year to next, after factoring in some accounting adjustments. Military and veterans’ spending would increase this year to the amount requested in Mr. Biden’s budget for the 2024 fiscal year. All those programs would grow by 1 percent in the 2025 fiscal year — which is less than they were projected to.A New York Times analysis of the proposal suggests it would reduce federal spending by about $55 billion next year, compared with Congressional Budget Office forecasts, and by another $81 billion in 2025.The first back-of-the-envelope analysis of the deal’s economic impacts came from Mark Zandi, a Moody’s Analytics economist. He had previously estimated that a prolonged default could kill seven million jobs in the U.S. economy — and that a deep round of proposed Republican spending cuts would kill 2.6 million jobs.His analysis of the emerging deal was far more modest: The economy would have 120,000 fewer jobs by the end of 2024 than it would without a deal, he estimates, and the unemployment rate would be about 0.1 percent higher.President Biden expressed confidence that any deal would not spark an economic downturn.Doug Mills/The New York TimesMr. Zandi wrote on Twitter on Friday that it was “Not the greatest timing for fiscal restraint as the economy is fragile and recession risks are high.” But, he said, “it is manageable.”Other economists say the economy could actually use a mild dose of fiscal austerity right now. That is because the biggest economic problem is persistent inflation, which is being driven in part by strong consumer spending. Removing some federal spending from the economy could aid the Federal Reserve, which has been trying to get price growth under control by raising interest rates.“From a macroeconomic perspective, this deal is a small help,” said Jason Furman, a Harvard economist who was a deputy director of Mr. Obama’s National Economic Council in 2011. “The economy still needs cooling off, and this takes pressure off interest rates in accomplishing that cooling off.”“I think the Fed will welcome the help,” he said.Economists generally consider increased government spending — if it is not offset by increased tax revenues — to be a short-term boost for the economy. That’s because the government is borrowing money to pay salaries, buy equipment, cover health care and provide other services that ultimately support consumer spending and economic growth. That can particularly help lift the economy at times when consumer demand is low, such as the immediate aftermath of a recession.That was the case in 2011, when Republicans took control of the House and forced a showdown with Mr. Obama on raising the borrowing limit. The nation was slowly climbing out of the hole created by the 2008 financial crisis. The unemployment rate was 9 percent. The Federal Reserve had cut interest rates to near zero to try to stimulate growth, but many liberal economists were calling for the federal government to spend more to help bolster demand and accelerate job growth.The budget deal between Republicans and Mr. Obama — which was hammered out by Mr. Biden, who was then the vice president — did the opposite. It reduced federal discretionary spending by 4 percent in the first year after the deal compared with baseline projections. In the second year, it reduced spending by 5.5 percent compared with forecasts.Many economists have since blamed those cuts, along with too little stimulus spending at the recession’s outset, for prolonging the pain.The deal announced on Saturday contains smaller cuts. But the even bigger difference today is economic conditions. The unemployment rate is 3.4 percent. Prices are growing by more than 4 percent a year, well above the Fed’s target rate of 2 percent. Fed officials are trying to cool economic activity by making it more expensive to borrow money.Michael Feroli, a JPMorgan Chase analyst, wrote this week that the right way to assess the emerging deal was in terms of “how much less work the Fed needs to do in restraining aggregate demand because fiscal belt-tightening is now doing that job.” Mr. Feroli estimated the agreement could function as the equivalent of a quarter-point increase in interest rates, in terms of helping to restrain inflation.While the deal will only modestly affect the nation’s future deficit levels, Republicans have argued that it will help the economy by reducing the accumulation of debt. “We’re trying to bend the cost curve of the government for the American people,” Representative Patrick T. McHenry of North Carolina, one of the Republican negotiators, said this week.Still, the spending reductions from the deal will affect nondefense discretionary programs, like Head Start preschool, and the people they serve. New work requirements could choke off food and other assistance to vulnerable Americans.Many progressive Democrats warned this week that those effects will amount to their own sort of economic damage.“After inflation eats its share, flat funding will result in fewer households accessing rental assistance, fewer kids in Head Start and fewer services for seniors,” said Lindsay Owens, the executive director of the liberal Groundwork Collaborative in Washington.Catie Edmondson More

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    Yellen’s Debt Limit Warnings Went Unheeded, Leaving Her to Face Fallout

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    The Treasury secretary, who considered ways to contain the fallout of a default when she was a Fed official in 2011, had urged Democrats to raise the limit while they still had control of Congress.In the days after November’s midterm elections, Treasury Secretary Janet L. Yellen was feeling upbeat about the fact that Democrats had performed better than expected and maintained control of the Senate.But as she traveled to the Group of 20 leaders summit in Indonesia that month, she said Republicans taking control of the House posed a new threat to the U.S. economy.“I always worry about the debt ceiling,” Ms. Yellen told The New York Times in an interview on her flight from New Delhi to Bali, Indonesia, in which she urged Democrats to use their remaining time in control of Washington to lift the debt limit beyond the 2024 elections. “Any way that Congress can find to get it done, I’m all for.”Democrats did not heed Ms. Yellen’s advice. Instead, the United States has spent most of this year inching toward the brink of default as Republicans refused to raise or suspend the nation’s $31.4 trillion borrowing limit without capping spending and rolling back parts of President Biden’s agenda.Now the federal government’s cash balance has fallen below $40 billion. And on Friday, Ms. Yellen told lawmakers that the X-date — the point at which the Treasury Department runs out of enough money to pay all its bills on time — will arrive by June 5.Ms. Yellen has held her contingency plans close to the vest but signaled this week that she had been thinking about how to prepare for the worst. Speaking at a WSJ CEO Council event, the Treasury secretary laid out the difficult decisions she would face if the Treasury was forced to choose which bills to prioritize.Most market watchers expect that the Treasury Department would opt to make interest and principal payments to bondholders before paying other bills, yet Ms. Yellen would say only that she would face “very tough choices.”White House officials have refused to say if any contingency planning is underway. Early this year, Biden administration officials said they were not planning for how to prioritize payments. As the U.S. edges closer to default, the Treasury Department declined to say whether that has changed.Yet former Treasury and Federal Reserve officials said it was nearly certain that emergency plans were being devised.Christopher Campbell, who served as assistant Treasury secretary for financial institutions from 2017 to 2018, said that given the rapidly approaching X-date, “one would expect” that “there would be quiet conversations between the Treasury Department and the White House around how they would manage a technical default and perhaps prioritization of payments.”The Treasury Department has developed a default playbook from previous debt limit standoffs in 2011 and 2013. And Ms. Yellen has become quite familiar with those: During the last two significant standoffs — in 2011 and 2013 — she was a top Federal Reserve official contemplating how the central bank would try to contain fallout from a default.Ms. Yellen was briefed on the Treasury’s plans during those debates and engaged in her own contingency discussions about how to stabilize the financial system in the event that the United States could not pay all of its bills on time.According to the Fed’s transcripts, the Treasury Department did in fact plan to prioritize principal and interest payments to bondholders in the event that the X-date was breached. Although Treasury Department officials had trepidations about the idea, they had expressed to Fed officials that it could ultimately be done.Fed officials also discussed steps that they could take to stabilize money markets and to prevent failed Treasury auctions from prompting a default even if the Treasury Department was successfully paying creditors. Ms. Yellen said in both 2011 and 2013 that she was on board with plans to protect the financial system.“I expect that actions of this type might well prove unnecessary after the Treasury finally states that they do intend to pay principal and interest on time and we have finally issued our own set of policy statements,” Ms. Yellen said in 2011. “But if the stress nevertheless escalates, I’d support interventions to alleviate pressures on money market funds.”Ms. Yellen added that she was concerned about how vulnerable market infrastructure was in the event of a default and said officials should be thinking about ways to plan for a default in the future.Despite Ms. Yellen’s efforts to steer clear of the politics surrounding the debt limit, Republicans have been expressing doubts about her credibility. Haiyun Jiang/The New York Times“Given that we could face a similar situation somewhere down the road, I think it’s important for us to think about lessons learned so that we and markets will be better prepared if we face such a situation again,” Ms. Yellen said.Eric Rosengren, who was the president of the Federal Reserve Bank of Boston in 2011, said in an interview that he expected that Ms. Yellen, who is known for being rigorously prepared, was busy considering contingency plans as she did at the Fed more than a decade ago.“It would be irrational not to do some planning,” said Mr. Rosengren, adding that Ms. Yellen’s background of dealing with financial stability matters makes her well placed to be as ready as possible for the fallout of a default. “The last thing you want is to be completely unprepared and have the worst outcome.”As the debt ceiling standoff has intensified, Ms. Yellen has not been as involved in negotiations with lawmakers as her some of her predecessors.Mr. Biden tapped Shalanda Young, his budget director, and Steven J. Ricchetti, White House counselor, to lead the negotiations with House Republicans. Ms. Yellen has not attended the Oval Office meetings between Mr. Biden and Republicans.“It doesn’t look from the outside like Yellen is playing an active role in the budget negotiations,” said David Wessel, a senior economic fellow at the Brookings Institution who worked with Ms. Yellen at Brookings. “That may be that it’s not her comparative advantage, it may be that the White House wants to do it themselves, and it may be that they want to protect the credibility of Treasury predicting the X-date.”Ms. Yellen has taken a more behind the scenes role, briefing the White House on the nation’s cash reserves, calling business leaders and asking them to urge Republicans to lift the debt limit and sending increasingly regular letters to Congress warning when the federal government will be unable to pay all its bills.A White House official pointed out that Ms. Yellen has been the Biden administration’s primary messenger on the debt limit on the Sunday morning talk shows, and that she is coordinating on a daily basis with Jeffrey D. Zients, the White House chief of staff, and Lael Brainard, the director of the National Economic Council, to plot the administration’s strategy. Other officials have participated in the Oval Office meetings because the White House continues to view them as budget negotiations, the official added.The Treasury secretary also cut short a recent trip to Japan for a meeting of the Group of 7 finance ministers so she could return to Washington to deal with the debt limit.Despite Ms. Yellen’s efforts to steer clear of the politics surrounding the debt limit, Republicans have been expressing doubts about her credibility.Members of the House Freedom Caucus wrote a letter to Speaker Kevin McCarthy recently urging Republican leaders to demand that Ms. Yellen “furnish a complete justification” of her earlier projection that the U.S. could run out of cash as soon as June 1. In the letter, they accused her of “manipulative timing” and suggested that her forecasts should not be trusted because she was wrong about how hot inflation would get.The letter that Ms. Yellen sent on Friday provided a specific deadline — June 5 — and listed the upcoming payments that the federal government is required to make and explained why the Treasury Department would be unable to cover its debts beyond that date.Representative Patrick T. McHenry, a North Carolina Republican helping to lead the negotiations, said on Friday that there have been doubts about the X-date because it has been offered as a range. That, he said, is not what Americans experience when they do not have money to pay their mortgage bills on the day that they are due.“There was some skepticism of a date range — that you can pick whatever you want,” he said. “That is not how this works.”Republicans have also been targeting some of Ms. Yellen’s most prized policy priorities in the negotiations, such as rolling back some of the $80 billion that the Internal Revenue Service received as part of last year’s Inflation Reduction Act.The White House appears prepared to return $10 billion of those funds, which are intended to bolster the agency’s ability to catch tax cheats, in exchange for preserving other programs.In an interview on NBC’s Meet the Press this week, Ms. Yellen lamented that Republicans were targeting the money.“Something that greatly concerns me is that they have even been in favor of removing funding that’s been provided to the Internal Revenue Service to crack down on tax fraud,” she said.Whenever the debt limit standoff does subside, Democrats will most likely come under renewed pressure to overhaul the laws that govern the nation’s borrowing the next time they control the White House and Congress. Fearing that a fight over the debt limit would put her in the precarious position that she now faces, Ms. Yellen said in 2021 that she supported abolishing the borrowing cap.“I believe when Congress legislates expenditures and puts in place tax policy that determines taxes, those are the crucial decisions Congress is making,” Ms. Yellen said at a House Financial Services Committee hearing. “And if to finance those spending and tax decisions it is necessary to issue additional debt, I believe it is very destructive to put the president and myself, as Treasury secretary, in a situation where we might be unable to pay the bills that result from those past decisions.” More