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WASHINGTON – Exiting the White House in February, House Speaker Kevin McCarthy sounded a hopeful note, describing his roughly hour-long conversation with President Biden as a “good first meeting” on fiscal issues.
Ninety-seven days later, the two men are finally set to sit down again Tuesday under starkly different terms – as an intensifying political standoff threatens the nation with the once-unthinkable prospect of default.
As few as three weeks remain before the United States could breach the debt ceiling – the legal maximum it can borrow to pay its bills – touching off a calamity that could hurtle the economy into a crippling recession. On Capitol Hill, Republicans in recent days have hardened in their refusal to act unless the president first agrees to spending cuts, defying Biden, who has accused GOP lawmakers of holding the nation’s credit hostage.
The long-simmering stalemate took on new urgency last week, after the Treasury Department warned that the government might be unable to cover its financial obligations as soon as June 1. The ominous update spooked lawmakers and prompted Biden to invite McCarthy (R-Calif.) and his congressional counterparts – 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.) – to a meeting at the White House.
This time, the conversation carries even greater stakes: A failure to show some progress toward a debt ceiling deal could rattle the stock market at a moment when investors already are skittish – and debt-ratings agencies have warned they could downgrade U.S. credit in the face of persistent dysfunction.
“I think the markets are going to get jittery relatively quickly” if a resolution seems out of reach, predicted Sen. Chris Van Hollen (D-Md.), a top lawmaker on the chamber’s appropriations panel. “I hope the president will say, ‘Take your finger off the detonator.'”
Top Biden administration officials have signaled in advance that the president plans to tell Republicans that he is willing to discuss spending cuts – just not as part of the debt ceiling debate. Instead, Biden hopes to shift the conversation toward the fall, when Congress typically must act to fund federal agencies before Oct. 1, preventing a government shutdown.
“If you buy a car, you are expected to pay the monthly payments. If you buy a home, you are expected to pay the mortgage every month. That is the expectation,” White House press secretary Karine Jean-Pierre said at a briefing with reporters Monday, stressing that the debt ceiling reflects money that both parties have already spent. “So we’re telling them or saying to them, do your job, pay for something that you’ve already spent on. That’s it.”
But Republican leaders have only grown more resolute in their campaign to wield the debt ceiling as political leverage. Rep. Chip Roy (R-Texas), a top member of the far-right House Freedom Caucus, stressed that there is no GOP support for a “clean debt ceiling,” as he championed a bill adopted by the chamber last month that couples a short-term increase in borrowing authority with spending cuts and other priorities.
With the clock ticking, Roy said Republicans are not inclined to accept a short-term extension, either, unless the White House agrees to some concessions.
“There’s going to be some cost to that,” he said.
In the meantime, Washington remains rife with uncertainty, since the exact day that the United States could breach the debt ceiling isn’t entirely clear. Treasury Secretary Janet L. Yellen warned Congress last week that the deadline could come “potentially as early as June 1,” though she and others – in government and the private sector – have acknowledged that the exact date hinges on federal tax receipts that so far have proved to be lower than expected.
“The Treasury Department is understandably in a position that even if the risk is small … they are going to flag a small risk,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, predicting that the government’s warning would “accelerate conversations” on Capitol Hill.
Under President Donald Trump, Republicans repeatedly acted to avert a default without making any demands to reduce borrowing, even as Trump enacted a tax overhaul in 2017 that added to the federal debt. Since Biden has taken office, though, Republicans have seized on the so-called “x-date” to advance their agenda – drawing the ire of Democrats, who see the strategy as risky and hypocritical.
Last month, House Republicans put their latest gambit into motion: The chamber adopted a bill that would increase the debt ceiling into next year while cutting federal spending by more than $3.5 trillion over the coming decade. The bill also would repeal some of Biden’s top priorities, including his plan to cancel some of students’ debts, and would impose new work requirements on Americans who receive Medicaid and food stamps.
McCarthy described the measure as an attempt to force Democrats to the “negotiating table.” But the president threatened to veto the bill, dubbed the Limit, Save, Grow Act, while Schumer proclaimed that his chamber would not consider it. Democratic leaders instead called for an increase in the debt ceiling without conditions, which Republicans universally have rejected.
The myriad disagreements loom large over the Tuesday meeting, as Biden and his invited quartet of congressional leaders race to pull back the country from the fiscal brink. The president and House speaker come to the new talks as fierce political foes, lacking any sort of relationship that might help them strike a deal under a tight time frame. Adding to the challenge, lawmakers are expected to be in session only sparingly this month, meaning their leaders have only a small window to resolve a crisis that may be weeks away.
“You have a very short fuse to find a way forward here,” said Rep. Josh Gottheimer (D-N.J.), a co-chair of the moderate, bipartisan Problem Solvers Caucus, adding that Congress and the White House “need to show progress and strong signals we’re willing to work together.”
A government default could unleash economic havoc, potentially disrupting Social Security and other federal services, casting millions of Americans out of their jobs, sending shock waves through the global financial system and tipping the United States into the worst downturn since the pandemic began. Even the mere prospect of a default has already troubled Wall Street, upending bond markets and prompting a credit-ratings agency – Scope Ratings, a major firm in Europe – to signal Friday that it could downgrade the United States if it fails to avert a default. It was the second such threat over the past month.
“It just depends a lot on what happens in Congress,” said Michael Pugliese, a director and senior economist with Wells Fargo’s Corporate and Investment Bank. “If there’s progress toward a resolution, whatever that resolution looks like … then I think more turbulence can be avoided.”
On Capitol Hill, Republicans in recent days still have encouraged their leaders to stand their ground over the debt ceiling.
“I get it, the guys who day trade may get a little skittish, but we have got to make the hard decisions that drive us toward fiscal responsibility,” said Rep. Dusty Johnson (R-S.D.), chairman of the Republican Main Street Caucus, calling on Biden to engage in a “real negotiation.”
“We cannot avoid a crisis without a deal, and we cannot cut a deal without a partner,” he said.
Many Republicans signaled ahead of the meeting that they are unwilling to decouple the debt ceiling from the fight over spending cuts, as Biden prefers. Rep. David Joyce (R-Ohio), a moderate who serves on key appropriations panels, said such a move only amounts to “buying time for more bad policies,” adding: “We’re taking back the purse strings.”
In the face of staunch resistance, some Democrats have tried to devise their own solutions. In the House, party lawmakers took the first procedural step last week toward forcing a vote on a bill that would raise the debt ceiling without immediate spending cuts. But the effort, announced by Jeffries, still faces tall odds because it requires a handful of Republicans to lend their support.
Still another proposal – put forward by the roughly 60 centrist Democrats and Republicans in the Problem Solvers Caucus – would increase the debt ceiling until the end of the year to allow the budget and appropriations process to play out. Gottheimer said lawmakers are at work turning that blueprint into legislation, which would create a special commission to study and recommend long-term spending cuts. It could then be grafted on top of the bill that House Democratic leaders are trying to force onto the chamber floor, the congressman said.
Schumer also positioned the Senate last month to act on what could be a two-year increase in the debt ceiling. But his efforts similarly hinge on Republican defections, since Democrats need at least nine GOP votes to overcome any filibuster. That prospect seemed unlikely, after 43 Republicans led by Sen. Mike Lee (Utah) signaled on Saturday that they would not support debt ceiling legislation unless it included “substantive spending and budget reforms.”
McConnell, meanwhile, publicly has signaled that he is unwilling to intervene, disappointing Democrats who had hoped he might be able to broker a deal with Biden. At a news conference last week, McConnell repeated his belief that Biden and McCarthy “need to reach an agreement to get us past this impasse,” adding: “There is no solution in the Senate.”
White House officials and top congressional Democrats have exhibited little interest in a short-term extension that might offer lawmakers more time to craft a deal. Jeffries, speaking Sunday on NBC’s “Meet the Press,” said lawmakers should not “kick the can down the road” and expressed hope that the meeting at the White House on Tuesday might help them devise “a way forward to do what is necessary.”
As the fears of a federal default have grown, some White House aides have also discussed the possibility of invoking the 14th Amendment, which could allow them to disregard the debt ceiling in the event of congressional inaction, according to two people who spoke on the condition of anonymity to reflect internal talks. But the sources said that there are some in the administration who believe it could backfire, triggering lawsuits, scaring investors and raising the costs of borrowing.
Yellen on Sunday did not explicitly rule out the move, but she said there are “no good options” – other than congressional action.
