U.S. debt ceiling must be raised or suspended by June, Treasury says
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President Biden on Monday invited House Speaker Kevin McCarthy (R-Calif.) and other congressional leaders to the White House next week to discuss the debt ceiling, as Washington scrambles over new fears that the government could default by as soon as June 1. Wp Get the full experience. Choose your plan ArrowRight The request for talks arrived on the same day that the Treasury Department offered its jarring new projection of a truncated timeline, warning that a failure to act — in as few as about four weeks — could tip the fragile U.S. economy into another recession.
The debt ceiling — set at about $31 trillion — is the legal maximum the U.S. government can borrow to pay its bills. Since January, the Biden administration has adopted special budgetary maneuvers to safeguard the country’s credit, finance federal agencies, and buy time for lawmakers to raise or suspend the cap.
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But Congress so far has been unable to address the problem. Republican lawmakers — who took over the House in January — have tried to seize on the looming deadline to extract spending cuts and other policy concessions from the White House. Last week, GOP lawmakers adopted a sprawling bill that would couple a short-term increase in the debt ceiling with staggering cuts to federal spending and the repeal of some of Biden’s recent legislative accomplishments, prompting the president to threaten a veto.
Biden, for his part, has called on Congress to increase the debt ceiling without conditions, while maintaining a refusal to haggle with Republicans over an issue that poses such immense risks to the economy. But the president on Monday still set in motion a plan to hold talks on May 9, personally calling McCarthy as well as Senate Majority Leader Charles E. Schumer (D-N.Y.), Senate Minority Leader Mitch McConnell (R-Ky.) and House Minority Leader Hakeem Jeffries (D-N.Y.), according to a White House official, who spoke on the condition of anonymity to describe private conversations.
It remained unclear into late Monday if such talks actually might occur.
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The Treasury Department, meanwhile, sounded its own, urgent alarm about the need for haste: In a letter to lawmakers, Secretary Janet L. Yellen said that the agency may be “unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1.”
Yellen cautioned that the projection is imprecise, given the variability of federal tax receipts, which have come in lower than anticipated in recent months. But she exhibited no doubt about the economic consequences of inaction, warning it could cause “severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.”
“I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible,” Yellen said.
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With time running out, the flurry of activity seemed to evince a growing sense of fear and panic in Washington. Few debates carry such high political and economic stakes as the debt ceiling, since a failure to preserve the country’s ability to borrow would trigger a first-ever federal default, sending shock waves through the entire global financial system.
Adding to the uncertainty, the federal government and private economists have offered mixed, and sometimes conflicting, estimates as to the actual debt ceiling deadline, known in the nation’s capital as the “x-date.” In its own projection, the nonpartisan Congressional Budget Office on Monday reported there is now a “significantly greater risk” that the U.S. runs out of funds in early June, after initially finding that lawmakers had as late as September to act.
Previously, Republicans have raised the debt ceiling without issuing demands. Three times, they addressed the borrowing cap under President Donald Trump without including fiscal reforms. Each time, Democrats serving in the minority also supplied their votes in a bid to avert a crisis.
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Yet the GOP under Biden has adopted a more aggressive posture, aiming to use the threat of a fiscal crisis as a political tool while blaming Democrats for a burgeoning debt. In reality, policies supported by both parties have contributed to an imbalance that could exceed $50 billion over the next 10 years.
In a bill adopted last week, House Republicans spelled out their demands: They seek billions of dollars in spending cuts, the repeal of federal funds to fight climate change and pursue tax cheats, a set of new work requirements on welfare recipients and an end to Biden’s plan to cancel student debts. Heralding the outcome at a brief news conference, McCarthy portrayed the so-called Limit, Save, Grow Act as a tool meant to force Biden to negotiate.
“The sad part here is, now the Democrats need to do their job,” McCarthy said immediately after the vote. “The president can no longer ignore [it] by not negotiating.”
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For the past three months, though, the two men have not met. The president has said he is open to discussing other fiscal issues with the House speaker, but only if the GOP produces a budget, which the party has not yet done.
Even Monday, as Biden invited lawmakers to new discussions, he again slammed House Republicans for their legislation, saying “their extreme MAGA plan would cut critical funding for education, public safety, including cut 60,000 public schoolteachers, take health care and food assistance away from millions of working families.” The president also blamed Trump and his predecessors for incurring “200 years of debt,” adding: “We’re not paying for what we’re spending right now.”
Responding to Biden’s invite while on an official visit to Israel, McCarthy attacked Biden in a statement for having “refused to do his job” and “threatening to bumble our nation into its first default.”
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“After three months of the Biden administration’s inaction, the House acted, and there is a bill sitting in the Senate as we speak that would put the risk of default to rest. The Senate and the President need to get to work — and soon,” McCarthy said.
In the Senate, meanwhile, Schumer has signaled the chamber has no plans to consider the House GOP bill. On Monday, he promised that lawmakers instead would hold hearings that “expose the true impact of this reckless legislation on everyday Americans.” And the majority leader later in the day took the first procedural steps toward ensuring the Senate could act swiftly on legislation to increase the debt ceiling, including potentially a two-year increase.
But some Senate Democrats offered a pessimistic note about the potential, upcoming talks at the White House, holding firm to the idea that Biden should not negotiate over the debt ceiling given the immense risks to the U.S. economy.
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“There’s no deal to cut here,” Sen. Brian Schatz (D-Hawaii) said on Monday, before the news of the president’s calls. “The premise here is that there should be no policy concessions in exchange for preventing default.”
And some Senate Republicans similarly appeared unenthusiastic about Biden's outreach, reiterating their unwillingness to get involved in what they believe should be a negotiation solely between Biden and McCarthy.
“What we’ve said all along is the only thing that can get 60 votes in the Senate is something that’s negotiated between the president and the House Republican leadership,” said Sen. John Thune (R-S.D.), McConnell’s deputy. “And so I’m not sure at this point what Schumer or McConnell add to the debt conversation.”
More than a decade ago, Republicans similarly engaged in such brinkmanship: Their push to tie an increase in the debt ceiling to spending cuts spooked the stock market and triggered a downgrade in the country’s credit rating, which ultimately cost taxpayers an estimated $1 billion in higher interest rates on government bonds.
This year, investors already have started to hedge against the potential for another disruption, shifting away from bonds that mature around the date of the debt ceiling deadline. In another ominous sign, Fitch Ratings, which evaluates debt, warned last week that persistent dysfunction could result in another U.S. credit downgrade.
Paul Kane and Leigh Ann Caldwell contributed to this report.
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Source: The Washington Post
