What’s in the Debt Deal

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America is closer to averting an economic crisis of its own making.

President Biden and Speaker Kevin McCarthy, the Republican leader of the House of Representatives, announced yesterday that they have reached an agreement to increase the amount of money the government can borrow. The deal includes limits on federal spending, additional work requirements for food stamps and welfare, and reforms to build energy projects faster. All in all, this is the type of spending deal that Democrats and Republicans have agreed to many times over the past few decades.

But the agreement is remarkable given how close the country is to this disaster. The Treasury Department has warned that the US will run out of money from June 5 – just days away. At that point, the federal government could be forced to default on its debt, which could lead to a global financial crisis (as this newsletter has explained).

Passage of the bill in Congress is not guaranteed. Today’s newsletter will explain the deal that Biden and McCarthy made – and the main things that could still go wrong.

The final agreement was a compromise. Many Republicans want steep cuts, and many Democrats want no cuts at all. A deal was struck between them. “I don’t think everyone is going to be happy at the end of the day,” McCarthy said Friday. “That’s not how this system works.”

First, the deal would extend the debt limit for two years. This moves the future debt limit fight after the 2024 election.

The spending limits amid the agreement target federal programs other than Social Security, Medicare, Medicaid and the military — such as education, scientific research and border security. The capitalization will not reduce spending, but aim to grow more slowly than inflation and the economy. This arrangement allows both sides to claim a win of sorts: Republicans can call it a spending cut, since spending will grow more slowly than it might have been used. And Democrats can say that prevents real cuts.

The deal would also eliminate some funds previously allocated to the Internal Revenue Service to crack down on tax fraud by the wealthy. Under the deal, some of the IRS funds could be used to offset other spending cuts. That shows the bipartisan nature of the negotiations, with both sides getting a win: Republicans want to claim they succeeded in cutting IRS funding, and Democrats want to use the money to soften other cuts they never wanted.

Additionally, the reforms allowed in the agreement could enable cleaner energy projects, a Democratic priority, but also more oil and gas projects, favored by Republicans.

The big question now: Will the deal pass? On the right side of the House Republicans have said a lot. Those lawmakers have a history of doing everything they can to block unapproved spending deals. He could do it again, and had enough power to kill the deal because McCarthy only had a nine-vote majority.

McCarthy had tried to avoid rebellion by involving some of the most conservative members in the debt limit negotiations and putting them in leadership positions. But there’s no guarantee he’ll stick with them — especially if he believes he’s too far in his concessions to the White House.

There are two main scenarios. In one, right-leaning Republicans voted against the deal, but it passed, and McCarthy secured the necessary votes from Democratic lawmakers willing to support compromise legislation with Biden. The result would be a testament to McCarthy’s approach to the speaker: By bringing the most conservative members into the fold, he would prevent them from taking more drastic measures.

In another scenario, the far-right Republicans essentially tank the agreement. They can call a vote whether to oust McCarthy as speaker and, because the House Republicans have a narrow majority, McCarthy can lose. (Note: It took McCarthy 15 ballots to win the speakership in the first place.)

Conservative Republicans may have backed away from the move to avoid being blamed for the consequences, says my friend Carl Hulse, a Washington Times correspondent. If the federal government rejects the debt and economic disaster, it will be clear that the hard right is allowed to happen by blocking the deal that the majority of the lawmakers are ready for.

With that scenario, conservative Republicans can deliver a deal even if they don’t vote.

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Our editors’ picks: The novel “Ascension,” about the rise of a mountain larger than Everest, and eight other books.

According to the Book: In 2018, Tina Turner wants to invite Dante to a dinner party.

Best selling times: Samantha Irby’s new collection of essays “The Silence of the Enemy” is on the paperback nonfiction list.

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Read the full issue.

  • Tomorrow is Memorial Day in the US.

  • DeSantis will hold a presidential campaign event on Tuesday in Des Moines, Iowa.

  • The Scripps National Spelling Bee finals will be held Thursday.

  • Monthly US employment numbers will be released on Friday.

The recipes in this edition of Five Weeknight Dishes, Emily Weinstein’s newsletter, all work well for Memorial Day weekend gatherings and the days that follow. This stovetop barbecue chicken makes a cookout favorite without the grill; orecchiette salad uses halloumi, a cheese that sears well, for croutons; and dry-brined salmon Kenji López-Alt calls for salting the fish beforehand – a trick that results in crisper skin and juicier meat.

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