US House passes bill to raise debt ceiling; proposal to face major Senate hurdle

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In a major development in the US debt ceiling battle, the United States House of Representatives on Wednesday passed a bill to raise the government’s debt ceiling and make drastic budget cuts over the next decade. 

According to Reuters, the mostly partisan vote of 217-215 represented a win for Republican House Speaker Kevin McCarthy, who now hopes to negotiate spending cuts with President Joe Biden. However, the bill is not expected to pass the Senate, and Biden would veto it if it did. 

“President Biden will never force middle class and working families to bear the burden of tax cuts for the wealthiest, as this bill does,” White House Press Secretary Karine Jean-Pierre said in a statement. 

If Congress does not act, the United States Treasury Department may run out of methods to pay its obligations in a matter of weeks, and financial markets are already worried.

The bill would increase borrowing permission by $1.5 trillion or until March 31, 2024, whichever comes first. The law would also reduce spending to 2022 levels, cap annual growth at 1 percent, eliminate renewable energy tax breaks, and tighten job requirements for anti-poverty programmes.

Democrats call the bill “dead on arrival” as negotiations loom

The bill’s passage in the House is significant given the 2011 standoff that led to a downgrade of the government’s credit rating and increased borrowing costs. If Congress fails to act, financial markets are already bracing for a similar outcome. However, Senate Democrats insist on a debt limit increase with no spending cuts attached, and Senate Majority Leader Chuck Schumer called the House bill “dead on arrival.”

The bill’s passing also follows the news of Treasury Secretary Janet Yellen’s warning to Congress regarding the urgency of raising the debt ceiling, stressing that the government could run out of money to pay its bills as soon as this summer. Yellen emphasized the potentially catastrophic impact of defaulting on the U.S. debt, which could trigger a financial crisis echoing the 2008 recession. 

The bill’s passage highlights the Biden administration’s political and economic challenges as it seeks to pass its sweeping infrastructure and social spending plans, which are expected to cost $4 trillion. The government aims to fund the ideas by raising taxes on corporations and the rich, but Republican resistance and fears about increasing inflation have cast doubt on these plans.

The possibility of a financial crisis looms as the deadline for lifting the debt ceiling approaches, putting pressure on both sides to find a solution.

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