By Dominic Hogan For Mailonline

Published: 04:27 EDT, 14 August 2023 | Updated: 08:45 EDT, 14 August 2023

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U.S. President Joe Biden and top congressional Republican Kevin McCarthy have reached a deal to raise the federal government’s $31.4 trillion debt ceiling, ending a months-long stalemate.

The deal would avert an economically destabilizing default, so long as they succeed in passing it through the narrowly divided Congress before the Treasury Department runs short of money to cover all its obligations, which it warned Friday will occur if the debt ceiling is not raised by June 5.

House Speaker Kevin McCarthy came out of negotiations to address the press on Saturday night at 9:15pm.

‘We have reached agreement in principle – a deal worthy of the American people to lift people out of poverty with no new taxes or government overreach programs,’ McCarthy explained.

‘I expect to finish the writing of the bill and then post the text of it tomorrow for it to be voted upon on Wednesday,’ he said without taking any questions from reporters.

‘Big, thorny issues remain,’ one of the top negotiators, Rep. Patrick McHenry, R-N.C., told reporters in the evening. Some of those outstanding issues, McHenry said then, ‘the president and speaker have to resolve at that level.’

President Biden also released a statement late on Saturday night.

‘Earlier this evening, Speaker McCarthy and I reached a budget agreement in principle. It is an important step forward that reduces spending while protecting critical programs for working people and growing the economy for everyone. 

‘And, the agreement protects my and Congressional Democrats’ key priorities and legislative accomplishments,’ Biden said.

‘The agreement represents a compromise, which means not everyone gets what they want. That’s the responsibility of governing. And, this agreement is good news for the American people, because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost. 

‘Over the next day, our negotiating teams will finalize legislative text and the agreement will go to the United States House and Senate. I strongly urge both chambers to pass the agreement right away,’ the president said.

McCarthy also tweeted on Saturday evening in which he couldn’t resit a dig at Biden: ‘I just got off the phone with the president a bit ago. After he wasted time and refused to negotiate for months, we’ve come to an agreement in principle that is worthy of the American people.’ 

Republicans who control the House of Representatives have pushed for steep cuts to spending and other conditions, including new work requirements on some benefit programs for low-income Americans and for funds to be stripped from the Internal Revenue Service, the U.S. tax agency.

The GOP later held a members call at 9:30pm after McCarthy and Biden spoke on the phone earlier in the night for about 90 minutes, according to sources familiar with the negotiations.

With the outlines of a deal in place, the legislative package could be drafted and shared with lawmakers in time for votes early next week in the House and later in the Senate. 

McCarthy said once a deal is reached, he will give legislators 72 hours before bringing the bill to a vote. He noted on Saturday morning that the bill would not be lengthy, likely around 150 pages.

The dreaded June 5 deadline is four days later than a previous X-date, but still guarantees that – even with a deal this weekend – it will be a frantic race to get a bill through Congress in less than 10 days.

Republicans said they want to slow the growth of the U.S. debt, which is now roughly equal to the annual output of the country’s economy.

Exact details of the final deal were not immediately available, but negotiators have agreed to cap non-defense discretionary spending at 2023 levels for two years, in exchange for a debt ceiling increase over a similar period.

The two sides have to carefully thread the needle in finding a compromise that can clear the House, with a 222-213 Republican majority, and Senate, with a 51-49 Democratic majority.

Their new discussion Saturday by phone came after Treasury Secretary Janet Yellen told Congress that the United States could default on its debt obligations by June 5 – four days later than previously estimated – if lawmakers do not act in time to raise the federal debt ceiling. 

Economists have spent months raising the prospect of economic catastrophe should the government default, but both the White House and Republican leadership insist they are negotiating in good faith and are confident a deal will be reached in time.

The debt ceiling raise is an annual accounting maneuver that usually passes with little notice. It simply allows the government to keep borrowing money to pay for bills already incurred through the budget.

This year, the increasingly hard-right Republican Party has decided to turn the debt ceiling into leverage to force Biden to roll back favorite Democratic spending priorities.

The extended ‘X-date’ gives the two sides a bit of extra time as they scramble for a deal. But as another day dragged on with financial disaster looming closer, it had appeared some of the problems over policy issues that dogged talks all week remained unresolved. 

Both sides said one of the main holdups was a GOP effort to expand existing work requirements for recipients of food stamps and other federal aid programs, a longtime Republican goal that Democrats have strenuously opposed.

The White House said the Republican proposals were ‘cruel and senseless.’ 

There was also some laboring over a compromise on federal permit changes that would ease regulations for developing oil, gas and renewable energy projects and foster new transmission line connections. 

The long standoff spooked financial markets, weighing on stocks and forcing the United States to pay record-high interest rates in some bond sales. 

A default would take a far heavier toll, economists say, likely pushing the nation into recession, shaking the world economy and leading to a spike in unemployment.

Failure to lift the borrowing limit, now $31 trillion, to pay the nation’s incurred bills, would send shockwaves through the U.S. and global economy. 

Yellen said failure to act by the new date would ’cause severe hardship to American families, harm our global leadership position and raise questions about our ability to defend our national security interests.’ 

Anxious retirees and others were already making contingency plans for missed checks, with the next Social Security payments due next week. 

Biden for months refused to negotiate with McCarthy over future spending cuts, demanding that lawmakers first pass a ‘clean’ debt-ceiling increase free of other conditions, and present a 2024 budget proposal to counter his issued in March. Two-way negotiations between Biden and McCarthy began in earnest on May 16.

Democrats accused Republicans of playing a dangerous game of brinksmanship with the economy. Republicans say recent increased government spending is fueling the growth of the U.S. debt, which is now roughly equal to the annual output of the economy.

The last time the nation got this close to default was in 2011, when Washington also had a Democratic president and Senate and a Republican-led House.

Congress eventually averted default, but the economy endured heavy shocks, including the first-ever downgrade of the United States’ top-tier credit rating and a major stock sell-off.

This time around, House Speaker McCarthy had strengthened his hand by overseeing passage of an April bill that paired $4.8 trillion in spending cuts with a $1.5 trillion debt-ceiling hike. 

The bill had no chance of passing the Democrat-controlled Senate, but showed that McCarthy had the ability to hold together his thin majority just four months into his top leadership role.

Biden and McCarthy had seemed to be narrowing on a two-year budget-cutting deal that would also extend the debt limit into 2025 past the next presidential election.

 The contours of the deal have been taking shape to cut spending for 2024 and impose a 1% cap on spending growth for 2025.

The Republican proposal on work requirements would save $11 billion over 10 years by raising the maximum age for existing standards that require able-bodied adults who do not live with dependents to work or attend training programs.

Current law applies those standards to recipients under the age of 50. The GOP plan would raise the age to include adults 55 and under. It would lower the number of exemptions that states can grant to some recipients subject to those requirements.

Biden has said the work requirements for Medicaid would be a nonstarter. He initially seemed potentially open to negotiating minor changes on food stamps, now known as the Supplemental Nutrition Assistance Program, or SNAP, but his position has appeared to harden.