Debt ceiling deal reached!
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After months of wrangling, Congressional leaders and the White House finally reached an agreement late yesterday to increase the debt ceiling and cut spending. The agreement comes less than two days before the August 2 deadline set by the Treasury Department. However, while there is an agreement on paper, it still must be voted on by both houses of Congress and signed by the President before the measures can go into effect.
The deal allows the debt ceiling to be increased in a few installments – immediately by $400 billion, followed by a $500 billion increase, which Congress can block. The $900 billion increase is paired with spending cuts of nearly $1 trillion. The joint committee then is tasked with finding ways to cut the deficit by up to $1.5 trillion. If they don’t find a way forward, automatic spending cuts take effect. Regardless of the committee’s findings or automatic spending cuts, the President can request a further debt limit increase of $1.2 to $1.5 trillion.
The agreement was initially met positively and drove stocks up, but markets fell shortly after the early gains. And the drama isn’t quite over yet. Many rank and file members of both parties are unhappy with the deal and it remains unclear whether the agreement currently has enough support to pass.
For now, we see this as simply a start. The twists and turns to get to this point are testaments of a dysfunctional system. Even as Americans, economic experts, world leaders and nearly everybody in between called for swift action to come to an agreement and restore some semblance of certainty to the economy, Washington continued to play the age old game of partisan politics. Amidst apocalyptic warnings from the Treasury Department, Wall Street, credit ratings agencies, and others Congressional leaders still waited until the last minute to produce the framework for a deal.
And while on some level it’s encouraging they did reach an agreement, there is much more work to be done; Congress still hasn’t produced a budget, we’re in the midst of the appropriations process that will determine funding levels for agencies for this fiscal year, and the nation is still standing face to face with $14.3 trillion in debt and forecasts of trillions in annual deficits for the foreseeable future. It is important now more than ever for Congress to capitalize on their momentum and work to address our long-term fiscal imbalances.