US debt ceiling deal: What's in it and why is the country not out of trouble yet?

On Monday, the US House approved the debt ceiling package by an overwhelming 314-117.

That came a day after US president Joe Biden and House Speaker Kevin McCarthy made the deal to avoid a looming default.

But what’s in the deal? Which side is happier? And what happens next?

 Let’s take a closer look:

What’s in the deal?

 The agreement slightly cuts government spending and suspends the debt ceiling till 2025.

 According to BBC, the bill gives non-defence spending a one per cent rise in 2025.

Meanwhile,  defence spending has been given a three per cent hike.

 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, and guts new money for Internal Revenue Service agents.

 Raising the nation’s debt limit, now $31 trillion, ensures treasury can borrow to pay already incurred US debts.

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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 McCarthy insisted his party was working to “give America hope” as he launched into a late evening speech extolling the bill’s budget cuts, which he said were needed to curb Washington’s “runaway spending.”

Amid deep discontent from Republicans who said the spending restrictions did not go far enough, McCarthy said it is only a “first step.”

Liberal discontent, though, ran strong as nearly four dozen Democrats also broke away, decrying the new work requirements for older Americans, those 50-54, in the food aid program.

Some Democrats were also incensed that the White House negotiated into the deal changes to the landmark National Environmental Policy Act and approval of the controversial Mountain Valley Pipeline natural gas project. The energy development is important to Sen. Joe Manchin, D-W.Va., but many others oppose it as unhelpful in fighting climate change.

House Democratic Whip Katherine Clark described the vote as a “ransom” the Republicans had exacted by offering Americans “devastating cuts or we lose eight million jobs overnight.”

“It’s hard to take in because it is so cartoon villain-like. But unlike a cartoon, the American people won’t snap back up when you drop that economic anvil on their head,” she said.

 Which side is happier?

Neither side is happy – a sign typical of a compromise – but the Republicans are far unhappier than the Democrats.

According to BBC, the Republicans were demanding that Biden’s student debt relief plan be done away with but it remained in the final package.

While Democrats had demanded the richest pay their fare share, no new taxes have been levied on the wealthiest.

While the Republicans had wanted key provisions of the Inflation Reduction Act’s clean energy and climate provisions repealed, they remained unscathed.

According to NBC, during the house Freedom Caucus on Monday night a representative brought up forcing a vote to remove McCarthy.

The member, Colorado’s Ken Buck, called it the “elephant in the room,” a source told the outlet.

“The unity we had is gone,” another member said darkly.

 “I was asking my colleagues in the House Freedom Caucus whether they were considering a motion to vacate as a result of a broken promise,” Buck said. “Scott Perry, the chairman of the House Freedom Caucus, told me it’s premature: ‘Let’s get through this battle and decide if we want another battle.’”

Why it isn’t over yet?

Now that the bill has cleared the House, the deal now moves to the US Senate where the Democrats have a majority of 51 seats.

The Upper House of the Congress is expected to clear the bill by Friday with Republican Senate leader Mitch McConnell, who largely deferred to McCarthy in the negotiations, expected to provide at least a dozen votes.

Passage in the Senate requires 60 votes.

Swift passage later in the week by the Senate would ensure government checks will continue to go out to Social Security recipients, veterans and others.

Democratic Majority Leader Chuck Schumer has said there is “no room for error”

“We are going to do everything we can to move the bill quickly,” Schumer told ABC News. “We cannot send anything back to the House. Plain and simple.”

“We must avoid default, we must,” he added.

Meanwhile, Senate Republican leader Mitch McConnell told ABC, “I can tell you what I hope happens – is that those who have amendments, if given votes, will yield back time so that we can finish this Thursday or Friday and soothe the country and soothe the markets.”

However, it isn’t quite that simple.

Already senators Jeff Merkley and Bernie Sanders – a Democrat and an independent who votes with the party – released separate statements saying they could not “in good conscience” back a bill cutting key federal programs while increasing military spending and demanding no extra tax dollars from billionaires.

According to ABC, if any changes are made to the bill then then it will have to be returned to the House.

Keep in mind that the US treasury department has said the country will run short of money to pay its debts on Monday.

Failure by the Senate to pass the bill could see the US default and cause a global meltdown.

With inputs from agencies

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