Biden and McCarthy Set to Resume Negotiations on Debt Limit

 

Biden and McCarthy Set to Resume Negotiations on Debt Limit

 

Discussions aimed at avoiding a default have bogged down as Republicans press their demand for spending caps, work requirements for public benefit programs and other proposals in exchange.

 

Jim Tankersley Catie Edmondson

By Jim Tankersley and Catie Edmondson

Jim Tankersley reported from Hiroshima, Japan, and Catie Edmondson from Washington.

https://www.nytimes.com/2023/05/21/us/politics/biden-debt-limit.html

May 21, 2023

 

President Biden and Speaker Kevin McCarthy agreed on Sunday to meet on Monday afternoon to try to jump-start talks aimed at averting a default on the nation’s debt, capping a tumultuous stretch of negotiations that faltered over the weekend as the two sides clashed over Republicans’ demands to cut spending in exchange for raising the debt limit.

 

Mr. McCarthy announced the meeting — his third with Mr. Biden this month, scheduled for after the president’s return from the Group of 7 summit in Hiroshima, Japan — after he concluded a call with the president on Sunday sounding more sanguine than before about the prospects for a deal.

 

The speaker said House G.O.P. and White House negotiators would continue talks at the Capitol on Sunday to lay the groundwork. White House negotiators left the Capitol on Sunday night after a two-and-a-half-hour bargaining session with their Republican counterparts but said they intended to keep working before Monday’s session.

 

Mr. Biden “walked through some of the things that he’s still looking at, he’s hearing from his members; I walked through things I’m looking at,” Mr. McCarthy said. “I felt that part was productive. But look — there’s no agreement. We’re still apart.”

 

Negotiators are working against a punishing clock. The debt ceiling, the statutory limit on the government’s power to borrow to pay its obligations, is projected to be reached as soon as June 1.

 

Mr. Biden and Mr. McCarthy are negotiating over a fiscal package that would raise the limit, which Republicans have refused to do without spending cuts. They remain far apart on key issues, including on caps for federal spending, new work requirements for some recipients of federal antipoverty assistance and funding meant to help the I.R.S. crack down on high earners and corporations that evade taxes.

 

Mr. Biden said on Sunday that he believed he had the power to challenge the constitutionality of the nation’s borrowing limit, but that he did not believe such a challenge could succeed in time to avoid a default on federal debt if lawmakers did not raise the limit soon.

 

“I think we have the authority,” Mr. Biden said at a news conference in Hiroshima. “The question is could it be done and invoked in time.”

 

Mr. Biden added that after the current crisis is resolved, he hopes to “find a rationale and take it to the courts” to decide whether the debt limit violates a clause in the 14th Amendment stipulating that the United States must pay its debts. He also said that, while meeting with world leaders, he had not been able to assure them that America would not default on its debt — an event that economists say could set off a financial crisis that would sweep the globe.

 

“I can’t guarantee that they will not force a default by doing something outrageous,” Mr. Biden said, referring to congressional Republicans who have insisted on deep cuts to federal spending in exchange for raising the borrowing limit.

 

What is the debt ceiling? The debt ceiling, also called the debt limit, is a cap on the total amount of money that the federal government is authorized to borrow via U.S. Treasury securities, such as bills and savings bonds, to fulfill its financial obligations. Because the United States runs budget deficits, it must borrow huge sums of money to pay its bills.

 

The limit has been hit. What now? America hit its technical debt limit on Jan. 19. The Treasury Department will now begin using “extraordinary measures” to continue paying the government’s obligations. These measures are essentially fiscal accounting tools that curb certain government investments so that the bills continue to be paid. Those options could be exhausted by June.

 

What is at stake? Once the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt and pay its bills. The government could wind up defaulting on its debt if it is unable to make required payments to its bondholders. Such a scenario would be economically devastating and could plunge the globe into a financial crisis.

 

Can the government do anything to forestall disaster? There is no official playbook for what Washington can do. But options do exist. The Treasury could try to prioritize payments, such as paying bondholders first. If the United States does default on its debt, which would rattle the markets, the Federal Reserve could theoretically step in to buy some of those Treasury bonds.

 

Why is there a limit on U.S. borrowing? According to the Constitution, Congress must authorize borrowing. The debt limit was instituted in the early 20th century so that the Treasury would not need to ask for permission each time it had to issue debt to pay bills.

 

“The numbers are foundational here,” Representative Garret Graves, Republican of Louisiana and one of Mr. McCarthy’s lead negotiators, said on Sunday. “The speaker has been very clear: A red line is spending less money and unless and until we’re there, the rest of it is really irrelevant.”

 

Treasury Department officials estimate that there are just over two weeks before the government could lose its ability to pay its bills on time, forcing a default. Both Mr. Biden and Mr. McCarthy had expressed rising optimism last week that they could reach an agreement that would pave the way for Congress to raise the borrowing limit while also reducing some federal spending.

 

But on Friday, Republicans abruptly halted the talks, leading to a weekend of stop-and-start negotiations that left things in limbo and Mr. McCarthy insisting that Mr. Biden reinsert himself.

 

Treasury Secretary Janet L. Yellen is expected to provide another update to Congress on the government’s cash balance this week. On Sunday, Ms. Yellen indicated that her projections that the United States could be unable to pay all of its bills on time as soon as June 1 had not changed.

 

“I certainly haven’t changed my assessment, so I think that that’s a hard deadline,” Ms. Yellen said on NBC’s “Meet the Press.”

 

Ms. Yellen noted that the government was expecting to receive substantial tax payments on June 15 that could extend the so-called X-date later into the summer. But she cautioned that the odds of making it that far were “quite low.”

 

The Treasury secretary, who warned last week that a default would “generate an economic and financial catastrophe,” said she was not exaggerating the gravity of the looming crisis.

 

“There will be hard choices to make if the debt ceiling isn’t raised,” Ms. Yellen said, explaining that if the United States ran out of money to pay all its bills, some would have to go unpaid.

 

Hopes had dimmed at least slightly in the last few days. Mr. Biden’s aides accused Republicans of backsliding on key areas of negotiation, and Republicans accused the White House of refusing to budge on top priorities for conservatives.

 

Mr. Biden criticized Republicans on Sunday for not considering raising additional tax revenue to reduce future budget deficits as part of the negotiations. He said he had proposed a discretionary spending cap that would save $1 trillion over a decade compared with baseline projections.

 

“It’s time for Republicans to accept there is no budget deal to be made solely on their partisan terms,” he said.

 

Representative Jodey C. Arrington, Republican of Texas and the chairman of the Budget Committee, on Sunday flatly ruled out Republicans’ accepting any tax increases as part of a debt-limit deal.

 

“It’s not on the table for discussion,” Mr. Arrington said on ABC’s “This Week.” “This is not the time to put a tax on our economy or on working families.”

 

Some of the barbs that have been traded by the parties appeared to be meant to shore up their bases. Hard-line spending hawks in the House have urged Mr. McCarthy to demand far greater concessions from Mr. Biden. Some progressive Democrats have pushed Mr. Biden to cut off negotiations and instead act unilaterally to challenge the debt limit on constitutional grounds.

 

A clause in the 14th Amendment, adopted after the Civil War, stipulates that “the validity of the public debt” issued by the U.S. government “shall not be questioned.” Some legal scholars say the limit is constitutional. But others contend that the clause requires the government to continue issuing new debt to pay bondholders, effectively overriding the nation’s statutory borrowing limit, which is controlled by Congress.

 

The two sides have found some agreement in talks in the last week, including on clawing back some unspent funds from previously approved Covid relief legislation. They have also agreed in broad terms to some sort of cap on discretionary federal spending for at least the next two years. But they are hung up on the details of those caps, including how much to spend overall next fiscal year on discretionary programs — and how to divide that spending among the military and other programs.

 

The latest White House offer would hold both military spending and other spending — which includes education, scientific research and environmental protection — constant from the current fiscal year to next fiscal year, according to a person familiar with both sides’ proposals. That move would not reduce nominal spending before adjusting for inflation, which Republicans are pushing hard to do. Asked by a reporter on Sunday, Mr. Biden said the spending reduction he had proposed would not cause a recession.

 

A bill that Republicans passed last month that paired spending cuts with a debt-limit increase would bring net savings of about $5 trillion over a decade compared with current projections.

 

Republicans’ latest proposal includes a nominal drop in total discretionary spending next year. But that cut is not evenly distributed; in their plan, military spending would continue to rise, while other programs would face deeper cuts.

 

Mr. Biden’s offer would set spending caps for two years. Republicans would set them for six years.

 

Republicans have also proposed several efforts to save money that White House officials have objected to. They include new work requirements for recipients of Medicaid and the Temporary Assistance for Needy Families program. They would also make it harder for states to seek waivers for work requirements for certain recipients of federal food assistance who live in areas of sustained high unemployment — a proposal that was not in the Republican debt-limit bill that passed the House.

 

Republicans are also continuing to seek a reduction in enforcement funding for the I.R.S., a move that the Congressional Budget Office estimates would increase the budget deficit by decreasing future federal tax receipts. And they have sought to include some provisions from a stringent immigration bill that recently passed the House, according to a person familiar with the proposal.

 

“We are all concerned about deficits and fiscal responsibility, but deficits can be addressed both through changes in spending and through changes in revenue,” Ms. Yellen said, adding that she was “greatly concerned” about Republican proposals to cut funding for the I.R.S.

 

Mr. Biden insisted on Sunday that he was willing to cut spending. He also suggested that some Republicans were trying to crash the economy by not raising the borrowing limit, in order to hurt Mr. Biden’s hopes of winning re-election.

 

If the nation were to default, Mr. Biden said, “I would be blameless” on the merits — meaning that it would be Republicans’ fault. But, he said, “on the politics of it, no one would be blameless.”

 

“I think there are some MAGA Republicans in the House who know the damage that it would do to the economy, and because I am president, and the president’s responsible for everything, Biden would take the blame,” he said.

 

Alan Rappeport, Carl Hulse and Chris Cameron contributed reporting.

 

Jim Tankersley is a White House correspondent with a focus on economic policy. He has written for more than a decade in Washington about the decline of opportunity for American workers, and is the author of "The Riches of This Land: The Untold, True Story of America's Middle Class." @jimtankersley

 

Catie Edmondson is a reporter in the Washington bureau, covering Congress. @CatieEdmondson