A breakthrough agreement between House Speaker Kevin McCarthy and President Joe Biden on raising the debt ceiling promises significant ramifications for student loan borrowers, beneficiaries of food stamps, and potentially the job market as a whole.
After months of a standstill with both parties grappling over the best method to raise the debt ceiling, McCarthy and Biden finally struck a deal on Saturday night. With the looming possibility of a national default as early as June 5, this agreement couldn’t have come at a more crucial time.
The two factions took diverging stances on the deal; Biden pushed for a clean increase without any attached spending cuts, while McCarthy stood firm on warding off default without slicing into several Democratic priorities.
What has emerged from these negotiations is a compromise that has the potential to cut spending by an estimated $136 billion through to fiscal year 2025, according to an analysis by The New York Times. While falling short of McCarthy’s initial proposal of a whopping $4.5 trillion spending cut, this deal carries notable provisions. It introduces new work requirements on several government programs and effectively signs off on ending the pause on student-loan payments, which is set to expire either 60 days post-June 30 or after the Supreme Court’s final decision on Biden’s student-debt relief plan.
Another prominent feature of the deal includes modifications to the Supplemental Nutrition Assistance Program (SNAP) work requirements for adults aged 18-54 without children and who are capable of work. To qualify for SNAP, these individuals now need to either be working or engaged in job training for a minimum of 80 hours per month. Interestingly, the agreement also broadens access to SNAP for certain marginalized groups, like veterans and individuals experiencing homelessness.
While the consensus may stave off immediate economic calamity, forecasts from Moody’s Analytics suggest that these spending cuts could culminate in a decrease of approximately 120,000 jobs by the end of 2024. Furthermore, the new work requirements for income support programs could result in the loss of tens of thousands of jobs.
However, despite the impending fiscal restraint amidst an already fragile economy, Mark Zandi from Moody’s Analytics tweeted that these changes should be “manageable”. This sentiment was echoed by experts speaking to The Times, who stated that while the deal could be a setback for Americans dependent on government programs, the economy as a whole should not be significantly impacted.
Reflecting back on 2011 when a similar agreement was reached between then-President Barack Obama and former Speaker John Boehner, economists believe that the current deal won’t significantly disrupt the economy, even in its present form. In the view of Harvard economist Jason Furman, while the 2011 debt deal had resulted in stagnant economic growth, the upcoming cuts in government spending could serve to control rising interest rates that have been reacting to escalating inflation.
According to Furman, “The economy still needs cooling off, and this takes the pressure off interest rates in accomplishing that cooling off.”
It’s now up to Congress to act swiftly and sign this legislation into law before the government exhausts its financial reserves. The week ahead promises to be a decisive one for lawmakers, some of whom have expressed dissatisfaction with the compromise that birthed the final agreement. The need for raising the debt ceiling, however, remains urgent – a default could potentially plunge the nation into recession, putting millions more jobs at risk.
This agreement offers a compelling study for entrepreneurs and investors, underscoring the critical interplay of politics and economy, and how policy changes can potentially affect the broader business landscape.