After a 90-minute phone call, US officials made a breakthrough in raising the public debt ceiling.

On May 27, US media reported that President Joe Biden and Republican lawmakers reached a preliminary agreement on raising the public debt ceiling.

US President Joe Biden and US House Speaker Kevin McCarthy on May 22 at the White House. (Source: Reuters)

The White House and negotiators have reached an agreement in principle to avert a default, according to people familiar with the matter. President Biden and House Speaker McCarthy held a 90-minute phone call on May 27 to discuss the deal.

If approved by Congress, the deal would help the United States avoid default before the Treasury runs out of money to cover its expenses on June 5.

Under the agreement, non-defense spending will remain unchanged for the current fiscal year and fiscal 2024, the sources said. There is no budget cap beyond 2025. Negotiators are still working to finalize the agreement.

The breakthrough came after a frantic negotiation ahead of the June deadline to reach an agreement on raising the debt ceiling. Previously, both sides had taken a hard line on the issue.

Republicans have proposed $130 billion in spending cuts, capping spending next year at 2022 levels, as a condition for reaching an agreement to raise the debt ceiling. They argue that the debt ceiling cannot be raised without drastic measures to reduce the budget deficit, such as cutting spending on Social Security and limiting access to Medicaid, the program that subsidizes health care services for the poor.

The Biden administration has opposed the measures, instead proposing to cut some spending and raise taxes on the wealthiest people and corporations that currently enjoy large tax breaks.

On May 26, US Treasury Secretary Janet Yellen warned that the Treasury Department estimates it will no longer have the resources to meet the government's obligations if Congress does not raise the public debt ceiling (currently at $31,400 billion) before June 5.

White House press secretary Karine Jean-Pierre warned that a US default would be catastrophic, leading to a series of other risks such as millions of unemployed people, affected pension benefits and an economic recession that would also shake world markets...

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