White House Leaves Door Open to Deal That Resolves Debt Ceiling Crisis

Washington Post photo by Matt McClain
Speaker Kevin McCarthy (R-Calif.) addresses the media after the House passed a bill that would raise the debt limit but also slash spending.

WASHINGTON – White House officials are leaving the door open to a compromise with House Republicans on government spending that also resolves the impasse over the federal debt ceiling – a strategy that could allow both parties to claim victory while averting a national economic catastrophe.

President Biden has been adamant that he will not acquiesce to Republicans’ proposed spending cuts to secure their support to raise the debt limit, arguing that he cannot reward the GOP for taking the U.S. economy hostage. But Speaker Kevin McCarthy (R-Calif.) has been equally adamant that the House won’t lift the debt limit without securing cuts. One way out of this logjam – widely discussed on both ends of Pennsylvania Avenue – would be reaching an agreement that each party then defines differently, with Biden claiming he gave up nothing for the debt limit hike and McCarthy claiming he won concessions on spending.

The potential for this “two-track” negotiation is coming into greater focus after the White House announced Monday that Biden had invited McCarthy and the other three top congressional leaders for a sit-down discussion next week. Treasury Secretary Janet L. Yellen also warned Congress on Monday that the United States risks default by as early as June 1 if the limit isn’t raised, sparking renewed urgency for talks to find a potential resolution.

For months, Biden has emphasized that he understands the need to negotiate over funding the government even as he rejects negotiations over the debt limit, spurring speculation about the potential for an implicit compromise.

“Biden could totally say, ‘We made a deal on spending, which we knew we were going to have to do,’ about the same deal where McCarthy also says, ‘We got them to give up this, that and the other thing for the debt ceiling,'” said Dean Baker, a liberal economist and White House ally. “They could say both things that are completely opposite and hope they can sell it to their base.”

White House press secretary Karine Jean-Pierre reiterated to reporters Tuesday that Biden remains willing to negotiate over government spending levels but won’t negotiate on whether the United States pays for programs and bills that it is already legally obligated to spend money on. Publicly, the administration is committed to its demand that House Republicans simply lift the debt ceiling without concessions.

Aides have also recognized that funding for federal agencies will run out separately in September, and they have acknowledged that they will need to negotiate with the GOP to avoid a government shutdown.

“The president said he’s happy to meet with McCarthy but not on whether or not the debt limit gets extended. That’s not negotiable,” Jean-Pierre said. “We’ve been very clear on what we will negotiate about, which is appropriations and the budget. But we’re just – we just are going to be very clear that they must act and do their constitutional duty on this.”

The line between negotiating over the debt limit and negotiating over spending might be a fine one. In the debt ceiling meeting, Jean-Pierre said, Biden would “discuss initiating a separate process to address the budget and appropriations.”

Asked for comment, White House spokesman Michael Kikukawa echoed Jean-Pierre’s message that Biden will use his meeting with leaders to “stress that Congress must take action to avoid default without conditions” while also seeking a “a separate process” to talk about the budget.

Yet major hurdles would remain even if both Biden and McCarthy agree to go along with this creative fiction.

The most difficult is that they would start the talks very far apart. A bill the House passed last week calls for more than $100 billion in cuts to next year’s federal budget – while the administration maintains there should be no reductions in spending. It is hard to see how that gulf could be bridged quickly, particularly since emboldened House conservatives are demanding even more aggressive cuts.

The House bill also would cancel Biden’s student loan forgiveness plan and rescind clean energy funding provided by last year’s Inflation Reduction Act.

It is possible that Biden and McCarthy could agree to an informal or handshake deal on government spending that resolves the immediate debt limit challenge without finalizing a full budget deal.

Without some kind of agreement on a new law to raise or suspend the limit, the U.S. government faces unprecedented failure, which economists say could spark a global financial panic and lead to a recession in the United States. The country has never defaulted on its debt.

By contrast, the appropriations process – undertaken by congressional lawmakers every year – sets the spending levels for federal agencies and other parts of the federal government. Disputes over spending levels can result in partial or complete government shutdowns, which are also damaging, but far less so than most analysts say a default would be.

Any deal still seems difficult to envision, at least before Biden sits down with the leaders from Congress next week.

“Even in the best-case scenario, where we get the ‘wink-wink, nudge-nudge’ two-track approach everyone is hoping for, even within that narrow structure you’re still incredibly far apart,” said Tobin Marcus, a former Biden policy adviser now at Evercore ISI, an investment advisory firm. “Even if everyone agrees to play this game, they’re hundreds of billions of dollars apart.”

With the state of negotiations unclear, House Democrats have begun taking steps to try to avert a cataclysm. In a letter Tuesday, House Minority Leader Hakeem Jeffries of New York announced that Democrats had introduced a bill earlier this year that could allow them to force debt limit legislation to the floor even over McCarthy’s objections. Using a House provision known as a discharge petition, any 218 members could bring the legislation to a vote. If every Democrat joins in, they would still need five Republicans to sign on. Lawmakers can start collecting signatures on the petition May 16, a week after the White House meeting.