US Speaker McCarthy proposes $1.5tn debt limit increase

President Joe Biden asks Republicans to have 'serious, detailed conversation' in latest part of budget saga

US House Speaker Kevin McCarthy, a Republican from California, on Capitol Hill in Washington. AFP

US Speaker Kevin McCarthy on Wednesday released a bill that would raise the debt limit for about a year and cut federal spending — a highly anticipated proposal in a battle between the new leader of the House of Representatives and President Joe Biden.

The plan would increase the debt ceiling by $1.5 trillion, enough to stave off a US payments default until March 2024 at the latest. It also includes a host of proposals that are non-starters with congressional Democrats and the White House.

The McCarthy plan would bring discretionary spending back to 2022 levels — a $130 billion cut — with future increases capped at a 1 per cent annual rate in the coming decade.

The reductions “are not draconian, they are responsible”, the Republican Speaker said.

“If Washington wants to spend more, it will have to come together and find savings elsewhere, just like every single household in America.”

The plan would also rescind unspent Covid-19 funds and impose tougher work requirements for anti-poverty benefits.

Also on the chopping block is Mr Biden’s student debt relief plan and tax breaks for clean energy projects.

Mr McCarthy estimated that the bill would cut budget deficits by $4.5 trillion over a decade.

The Speaker hopes that Mr Biden will engage in talks to resolve the ongoing stalemate over raising the $31.4 trillion debt limit if the House passes the bill — which the President has said he is open to, but with a no-strings increase or suspension of the ceiling.

The two leaders continue to point fingers, saying the other would take blame for a debt default.

“If he fails, the American people will be devastated not just 10 or 20 years from now, but today,” Mr Biden said of Mr McCarthy at an event on Wednesday.

Mr McCarthy has accused the President of “ignoring the debt crisis”, claiming that Mr Biden is “playing partisan political games” that could result in “the first default in our nation’s history”.

Without an increase or suspension of the ceiling, the US would default on payment obligations as soon as June — an event Treasury Secretary Janet Yellen has warned would cause economic and financial collapse.

It is unknown if Mr McCarthy has the support of the 218 Republicans needed to pass the bill.

Mr Biden has released his own $7 trillion budget proposal that would reduce deficits by $3 trillion over a decade compared with current law, mostly through tax increases.

“Take default off the table and let's have a real serious, detailed conversation about how to grow the economy, lower costs and reduce the deficit,” he said.

Bloomberg contributed to this report