USA: understand the agreement to increase the debt ceiling – 05/29/2023 – Market

After several days of negotiations, US President Joe Biden and Republicans reached an agreement to raise the country’s debt ceiling and avoid a catastrophic default.

Below are the key points of the agreement, which needs to be approved by the two chambers of a divided Congress, in a vote to be held next Wednesday (31).

Did any party win?

After days of long and difficult negotiations, the deal allows both sides to claim a victory of sorts. Biden called it a “compromise”, while Republican House Speaker Kevin McCarthy described the compromise as “worthy of the American people”.

The 99-page text was released on Sunday (28) night and will be the subject of analysis and debate in the coming days by both parties.

Some demands on both sides were not accepted, such as the elimination of certain tax loopholes, requested by the Democrats, and the revocation of clean energy tax credits, which was intended by the Republicans.

The axis of the question

Known formally as the Fiscal Responsibility Act of 2023, the bill proposes to eliminate the debt ceiling of US$ 31.4 trillion (R$ 156.8 trillion) for two years, which means that Biden will not need to negotiate it again before the 2024 presidential elections.

The deal also imposes limited restrictions on federal spending, which will please some Republicans, but does not offer the big cuts sought by more conservatives, which more progressive Democrats would have resisted.

Spending

The deal keeps non-military spending roughly flat for fiscal 2024 starting this year, and caps the increase at 1% for 2025, according to sources close to the talks. It also maintains the Biden administration’s plans to increase spending for active and retired military personnel, in line with inflation.

Tax entity reduction

The agreement also reduces the resources destined to the expansion of the IRS (Internal Tax Service). Last year, Congress approved US$ 80 billion (R$ 399.5 billion) for the IRS to boost the application and inspection of taxes. The debt ceiling deal would cut $10 billion (R$49.9 billion) from the budget for spending in other areas.

Money unspent due to Covid

The deal would also recoup some funds that Congress has earmarked for the pandemic but has not been used. In a statement, McCarthy’s office said the deal would wipe out “billions of unspent Covid relief funds,” but did not reveal details.

There will be no changes to Medicaid, the government’s health insurance program for underprivileged Americans.

work requirements

The deal sets work requirements for people receiving federal food stamps or family benefits, a victory for the Republican side.

An increase from 49 to 54 is planned for the required age for adults without children to work in order to qualify for food stamps. As a concession to Democrats, the deal is expected to ease requirements for retirees and the homeless.