Lawmakers in Washington were busily drafting legislation on Sunday after Joe Biden and the House Republican speaker, Kevin McCarthy, reached a deal in principle on Saturday night to raise the federal government’s $31.4tn debt ceiling, with just days left before America was expected to default.
There was a slim chance that a bill could be finalized as early as Sunday and be presented on Capitol Hill, where it is expected to have a stormy passage in a divided Congress.
Biden on Saturday called the agreement “an important step forward,” and characterised it as a compromise that nevertheless protected Democrats’ key priorities.
“The agreement represents a compromise, which means not everyone gets what they want,” he said in a statement. “That’s the responsibility of governing.”
McCarthy said there was still “a lot of work to do”, but called it an agreement “worthy of the American people”.
Biden and McCarthy held a 90-minute phone call earlier on Saturday evening to discuss the deal.
Full details of the agreement remained unconfirmed, but it was reported that the deal would raise the debt limit for two years, averting any further standoffs until after the 2024 presidential election.
“It is an important step forward that reduces spending while protecting critical programs for working people and growing the economy for everyone”, Biden said, saying the legislative text was still being finalised, while urging Congress to pass the bill.
According to McCarthy there are no new taxes and the bill includes “historic reductions in spending, consequential reforms that will lift people out of poverty and into the workforce”.
“I expect to finish the writing of the bill, checking with the White House and speaking to the president again tomorrow afternoon, and then posting the text of it tomorrow, and then we vote on it on Wednesday,” McCarthy said.
The deal still needs to receive approval from the divided Congress, and McCarthy will probably need some support from Democratic members to get the proposal through the House, given Republicans’ narrow majority in the lower chamber.
The deal would avert an economically destabilising default which the treasury department warned would occur if the debt ceiling was not raised by 5 June.
Republicans who control the House of Representatives have pushed for steep cuts to spending and for funds to be stripped from the Internal Revenue Service, the US tax agency.
Both sides have suggested one of the main holdups had been a Republican effort to boost work requirements for recipients of food stamps and other federal aid programs, a longtime Republican goal that many Democrats have strenuously opposed.
Exact details of the final deal were not immediately available, but negotiators have agreed to cap non-defence discretionary spending at 2023 levels for two years, in exchange for a debt ceiling increase over a similar period, sources told Reuters earlier.
The two sides have to carefully thread the needle in finding a compromise that can clear the House, with a 222-213 Republican majority, and Senate, with a 51-49 Democratic majority.
The long standoff spooked financial markets, weighing on stocks and forcing the United States to pay record-high interest rates in some bond sales. A default would take a far heavier toll, economists say, likely pushing the nation into recession, shaking the world economy and leading to a spike in unemployment.
Biden for months refused to negotiate with McCarthy over future spending cuts, demanding that lawmakers first pass a “clean” debt-ceiling increase free of other conditions, and present a 2024 budget proposal to counter his issued in March. Two-way negotiations between Biden and McCarthy began in earnest on 16 May.
Democrats accused Republicans of playing a dangerous game of brinkmanship with the economy. Republicans say recent increased government spending is fueling the growth of the US debt, which is now roughly equal to the annual output of the economy.
McCarthy has vowed to give House members 72 hours to read the legislation before bringing it to the floor for a vote. That will test whether enough moderate members support the compromises in the bill to overcome opposition from both hard-right Republicans and progressive Democrats.
Then it will need to pass the Senate, where it will need at least nine Republican votes to succeed. There are multiple opportunities in each chamber along the way to slow down the process.