Amid Growing Bank Strains, GOP, Dems Spar Over Budget

On Wednesday, the U.S. Senate Budget Committee haggled over President Joe Biden’s $6.8 trillion budget proposal. At the same time, new financial pressures at Credit Suisse threatened to raise further the stakes in a partisan standoff over debt and spending.

The president’s proposal is an early move in the negotiations over 2024 fiscal year spending with Republicans currently in control of the House of Representatives, who confirm they will refuse to raise the nation’s $31.4 trillion debt ceiling unless Dems agree to steep spending cuts.

The failure to raise the debt ceiling and make cuts could lead to an extraordinary default by the federal government which could shake the global markets and economy, which have been unsteady after the collapse of Signature Bank and Silicon Valley Bank.

Shalanda Young, White House budget director, testified before the budget committee about the president’s plan, which calls for almost $5 trillion in tax increases on large corporations and the wealth to help shore up Medicare and offset the deficit.

“The budget more than fully pays for its investments, cutting deficits by nearly $3 trillion over the next decade,” said Young to the panel.

“The president’s economic plan is rebuilding America’s infrastructure, promoting workers, and fueling a manufacturing boom that is strengthening parts of the country that have long been left behind,” Young said.

Senator Sheldon Whitehouse, Democrat chairman of the committee, described the president’s budget as “a bright contrast” to the GOP House proposals that he maintained would “attack popular programs that promote economic growth” and protect the wealthy.

GOP members rejected President Biden’s proposal. Last week, the conservative House Freedom Caucus issued a counterproposal that includes an end to several Biden programs along with a near-halt on discretionary spending.

“The president’s budget proposal continues to take our nation down a path of fiscal and economic ruin,” the panel’s top Republican, Senator Chuck Grassley, said.

“President Biden is proposing levels of debt, deficits, and spending previously reserved for times of world war or depression. President Biden’s vision for the future is job-killing tax hikes, cradle-to-grave entitlement proposals.”

The hearing happened during a sell-off in global stocks after Credit Suisse’s biggest investor said it could not provide any further assistance for the bank.

Both parties say no cuts to Social Security, Medicare

While they disagree on spending, leaders from both parties say they will not cut Medicare and Social Security, which often account for around a third of the federal budget.

The GOP, who control the House of Representatives, continue to work to release their budget in the upcoming weeks. However, lawmakers have said the budget could contain as much as $150 billion in budget cuts for domestic, non-defense spending. Republicans are set on avoiding tax hikes to preserve tax cuts implemented by former President Donald Trump.

Forecasters warned Tuesday that the bank collapses would move the deadline to raise the debt ceiling sooner to avoid default. Experts recently stated that the Treasury could delay a default until sometime between June and September, depending on the cash balances of the federal government.