Economy, Trade and Finance: Round 3/USA: ‘Shutdown’ avoided

Washington At the last minute, the US Congress initially prevented government business from being out of action for about two months. A few hours before the midnight deadline, the House and Senate passed a transition budget through December 3 on Thursday (local time), which US President Joe Biden later signed. However, some problems remain unresolved at the moment: for the first time in the country’s history, the US government is threatened with default in mid-October. The struggle also continues for two major investment packages, which are central projects of the Biden presidency.

For example, the vote scheduled for Thursday in the House of Representatives on a trillion-dollar infrastructure plan (about 863.8 billion euros) was initially postponed by one day. According to media reports, the reason was differences within the ranks of Democrats. White House spokeswoman Jen Psaki said late Thursday night that an agreement is closer than ever. “But we’re not there yet, so we need more time to finish the job.” They want to continue this on Friday.

The budget regulation now adopted guarantees that federal authorities will spend until December 3. At the end of the deadline, Congress must approve a fiscal year budget that begins on Friday or another transition budget. Otherwise, the “closure” threatens again. Some state employees will have to be placed on compulsory leave or work temporarily without pay. These “closures” occur more often in the United States. But Biden certainly wants to prevent that from happening to him.

But with the adoption of the transition budget, only one crisis has been averted for now. The debt ceiling problem remains the biggest at the moment. According to Treasury Secretary Janet Yellen, if Congress does not raise or suspend this limit, the US government is in danger of defaulting in mid-October. Yellen warned Thursday that confidence in the country’s creditworthiness would be damaged and that the financial crisis and recession would threaten.

The House voted last week on a regulation on temporary government funding with Democrats’ votes. However, Senate Republicans resisted because it also provided for the debt ceiling to be suspended for the time being – which they reject. In the end, Democrats had to separate the two questions in order to avoid a “shutdown” and get the Senate budget bill. With the help of a special procedure (“reconciliation”), Democrats can push the Senate to raise the debt limit — but they get in the way.

The infrastructure package, which will modernize roads, bridges and other transportation and energy networks in the United States, passed the Senate in August after long negotiations — with the support of Republicans. The final House vote is still missing. About $550 billion in new infrastructure investment is scheduled over the next few years. In total, including previously budgeted funds, the package is worth more than a trillion dollars.

The second package provides a significant expansion of social benefits. For example, Biden wants to invest more in education and childcare, give families more support and tax breaks, and allocate money to fight the climate crisis. To date, this package is worth $3.5 trillion, also spread over several years. It will be funded by tax increases for higher earners and more consistent collection of taxes owed.

Since Republicans don’t want to keep up, Democrats plan to use a special parliamentary procedure to get this second package through Congress themselves. However, they only have a narrow majority in both houses, and their plans are also controversial. Some moderate Democrats criticize high spending, while some progressive Democrats would like more. The latter threatened to disrupt the infrastructure package unless the second, larger package was also secured. Intensive negotiations continued for days to organize a majority for both.