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US Senate avoids default in vote on debt ceiling and spending cuts

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The US Senate has avoided a government default by passing a bill to lift the debt ceiling and introduce spending cuts days before its Monday deadline.

Fending off a US default, the Senate gave final approval late Thursday to a debt ceiling and budget cuts package, grinding into the night to wrap up work on the bipartisan deal and send it to President Joe Biden’s desk to become law before the fast-approaching deadline.

The compromise package negotiated between Biden and House Speaker Kevin McCarthy leaves neither Republicans nor Democrats fully pleased with the outcome. But the result, after weeks of hard-fought budget negotiations, shelves the volatile debt ceiling issue that risked upending the US and global economy until 2025 after the next presidential election.

Approval in the Senate on a bipartisan vote, 63-36, somewhat reflected the overwhelming House tally the day before, relying on centrists in both parties to pull the Biden-McCarthy package to passage — though Democrats led the tally in both chambers.

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Senate Majority Leader Chuck Schumer said ahead of voting that the bill’s passage means “America can breathe a sigh of relief.”

Afterwards he said, “We’ve saved the country from the scourge of default.”

Biden said in a statement following passage that senators from both parties “demonstrated once more that America is a nation that pays its bills and meets its obligations — and always will be.”

He said he would sign the bill into law as soon as possible. “No one gets everything they want in a negotiation, but make no mistake: this bipartisan agreement is a big win for our economy and the American people,” the president said. 

The White House said he would address the nation about the matter at 7 pm EDT Friday.

Fast action was vital if Washington hoped to meet next Monday’s deadline, when the Treasury has said the US will start running short of cash to pay its bills, risking a devastating default. Raising the nation’s debt limit, now $31.4 trillion, would ensure the Treasury could borrow to pay already incurred US debts.

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In the end, the debt ceiling showdown was a familiar high-stakes battle in Congress, a fight taken on by McCarthy and powered by a hard-right House Republican majority confronting the Democratic president with a new era of divided government in Washington.

Refusing a once routine vote to allow the nation’s debt limit to be lifted without concessions, McCarthy brought Biden’s White House to the negotiating table to strike an agreement that forces spending cutbacks aimed at curbing the nation’s deficits.

Overall, the 99-page bill restricts spending for the next two years, suspends the debt ceiling into January 2025 and changes some policies, including imposing new work requirements for older Americans receiving food aid and greenlighting an Appalachian natural gas line that many Democrats oppose.

It bolsters funds for defence and veterans, cuts back new money for Internal Revenue Service agents and rejects Biden’s call to roll back Trump-era tax breaks on corporations and the wealthy to help cover the nation’s deficits. It imposes automatic 1% cuts if Congress fails to approve its annual spending bills.

After the House overwhelmingly approved the package late Wednesday, Senate Republican leader Mitch McConnell signalled he too wanted to waste no time ensuring it became law.

Touting its budget cuts, McConnell said Thursday, “The Senate has a chance to make that important progress a reality.”

Having remained largely on the sidelines during much of the Biden-McCarthy negotiations, several senators insisted on debate over their ideas to reshape the package. But making any changes at this stage would almost certainly derail the compromise and none were approved.

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Instead, senators dragged through rounds of voting late into the night rejecting the various amendments but making their preferences clear. Conservative Republican senators wanted to include further cut spending, while Democratic Sen. Tim Kaine of Virginia sought to remove the Mountain Valley Pipeline approval.

The energy pipeline is important to Sen. Joe Manchin, and he defended the development running through his state, saying the country cannot run without the power of gas, coal, wind and all available energy sources.

But, offering an amendment to strip the pipeline from the package, Kaine argued it would not be fair for Congress to step into a controversial project that he said would also course through his state and scoop up lands in Appalachia that have been in families for generations.

Defence hawks led by Sen. Lindsey Graham of South Carolina complained strongly that military spending, though boosted in the deal, was not enough to keep pace with inflation — particularly as they eye supplemental spending that will be needed this summer to support Ukraine against the war waged by Russian President Vladimir Putin.

“Putin’s invasion is a defining moment of the 21st century,” Graham argued from the Senate floor. “What the House did is wrong.”

They secured an agreement from Schumer, which he read on the floor, stating that the debt ceiling deal “does nothing” to limit the Senate’s ability to approve other emergency supplemental funds for national security, including for Ukraine, or for disaster relief and other issues of national importance.

All told, most of the Democratic senators voted for the package, while most of the Republicans opposed it. The tally was 46 Democrats and 17 Republicans in favour; 31 Republicans along with four Democrats and one independent who caucuses with the Democrats opposed.

For weeks negotiators laboured late into the night to strike the deal with the White House, and for days McCarthy had worked to build support among sceptics.

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Tensions had run high in the House the night before as hard-right Republicans refused the deal. Ominously, the conservatives warned of possibly trying to oust McCarthy over the issue.

But Biden and McCarthy assembled a bipartisan coalition, with Democrats ensuring passage on a robust 314-117 vote. All told, 71 House Republicans broke with McCarthy to reject the deal.

“We did pretty dang good,” McCarthy said afterwards.

As for discontent from Republicans who said the spending restrictions did not go far enough, McCarthy said it was only a “first step.”

The White House immediately turned its attention to the Senate, its top staff phoning individual senators.

Democrats also had complaints, decrying the new work requirements for older Americans, those 50-54, in the food aid program, the changes to the landmark National Environmental Policy Act and approval of the controversial Mountain Valley Pipeline natural gas project they argue is unhelpful in fighting climate change.

The nonpartisan Congressional Budget Office said the spending restrictions in the package would reduce deficits by $1.5 trillion over the decade, a top goal for the Republicans trying to curb the debt load.

In a surprise that complicated Republicans’ support, however, the CBO said their drive to impose work requirements on older Americans receiving food stamps would end up boosting spending by $2.1 billion over the time period. That’s because the final deal exempts veterans and homeless people, expanding the food stamp rolls by 78,000 people monthly, the CBO said.

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