White House to Start Budget Talks with GOP as Debt Ceiling Deadline Nears

The Washington Post / Tyler Pager, Jeff Stein, Liz Goodwin, Leigh Ann Caldwell

16:20 JST, May 10, 2023

WASHINGTON – President Biden and congressional leaders agreed Tuesday to start work this week on the federal budget, a potential step toward avoiding a calamitous default even as time runs short for lawmakers to raise the nation’s debt ceiling.

After an Oval Office meeting with House and Senate leaders, Biden appeared to rule out unilateral action on the debt ceiling, telling reporters he did not think invoking the 14th Amendment to circumvent Congress on the matter would resolve the issue.

Senate Majority Leader Charles E. Schumer and House Minority Leader Hakeem Jeffries, both New York Democrats, said lawmakers would begin working as soon as Tuesday evening on the budget. But the path to reaching any deal still seemed challenging. Republican leaders left the meeting and assailed Biden for refusing to negotiate on the debt ceiling or to agree to cut federal spending back to pre-pandemic levels.

The administration has repeatedly rejected GOP demands for spending cuts in exchange for a debt limit increase, but Biden aides have left open the possibility of a deal on government spending that also ends the impasse over the nation’s spending limit. This scenario would allow both sides to claim victory, with Republicans saying they secured cuts and White House officials maintaining they took the steps needed to avert a default.

“The president asked the people from all four of the leaders and himself to start sitting down as early as [Tuesday night], certainly [Wednesday], to see where we can come to an agreement on the budget and the appropriations process,” Schumer told reporters outside the White House.

House Speaker Kevin McCarthy (R-Calif.), though, expressed frustration with Biden. The House passed a bill last week that would raise the debt limit and cut spending back to fiscal 2020 levels, which would amount to more than $100 billion in budget reductions.

“Everybody in this meeting reiterated the positions they were at,” McCarthy said as he left the White House. “I didn’t see any new movement.”

White House aides insist that negotiating directly on the debt limit allows the U.S. government’s creditworthiness to become a political weapon.

“I asked him numerous times, ‘Are there some places we could find savings?’ He wouldn’t give me any. So I’m hopeful that we’ll be able to find them,” McCarthy said.

The president characterized the meeting differently, saying progress was made with three of the congressional leaders but not McCarthy. Biden also said he would consider canceling an upcoming trip to Japan and Australia to keep working on the problem.

“Three of the four participants [were] very measured and low key,” Biden said. “Occasionally there would be a little bit of an assertion that maybe was a little over the top from the speaker.”

McCarthy later told reporters he had snapped at Biden for suggesting that the House bill would require cuts to veterans’ benefits. He said he repeatedly expressed his irritation that the president had refused to meet with him until now.

Despite the rift with McCarthy, Biden appeared for the first time to rule out unilateral action in dealing with the debt ceiling. The president said that invoking the 14th Amendment may not be a solution because it would need to be examined by the courts, implying that the federal government would still lack sufficient funds to operate as the case was adjudicated. The amendment says the full faith and credit of the government shall not be questioned, and some legal experts have argued it could give the White House an answer.

“Meantime, without an extension, it would still end up in the same place,” Biden said.

He added of the 14th Amendment: “I don’t think that solves our problem now.”

Congressional and White House staff members will talk throughout the week, and the leaders and Biden will aim to meet again Friday, Biden and McCarthy said.

The Treasury Department warned last week that the government might not be able to meet all its payment obligations without borrowing more money by as early as June 1. Independent estimates for when the deadline will come range from June to August.

The meeting was also attended by White House Chief of Staff Jeff Zients, Office of Management and Budget Director Shalanda Young and top congressional aides.

After he returned to the Capitol, Schumer touted as “good news” that talks would start on the federal budget. Staffers could discuss potential “top-line” figures as soon as Tuesday night that set broad parameters for federal spending, according to one person familiar with the matter who spoke on the condition of anonymity to describe private matters.

Ahead of the meeting, McCarthy told reporters that lawmakers may need an agreement in principle by next week to lift the debt ceiling before the government runs into financial trouble – a highly condensed timetable for talks that may only be starting now.

“I think we need it by next week,” McCarthy said.

On Wednesday, Biden will travel to New York to take his pressure campaign on the road, targeting moderate House Republicans who could be key in a compromise on the debt ceiling. The president will hold a campaign-style event in Westchester County, near the district of Rep. Michael Lawler (R-N.Y.), an area that backed Biden over President Donald Trump in 2020.

The standoff is in some ways a familiar one in Washington, as a Republican-controlled House refuses to lift the debt ceiling unless a Democratic president agrees to spending cuts. Similar episodes played out in 2011 and 2013 under President Barack Obama, when Biden was vice president and last-minute deals were struck.

But the political landscape has changed significantly since then, leaving both sides jittery. McCarthy has a thin majority of 222-213, including a faction of volatile hard-liners who could challenge his speakership if he makes compromises they oppose. Some Democrats and Republicans worry that this time the stalemate could drag beyond the deadline, triggering catastrophic economic consequences.

Biden says that raising the debt ceiling, necessary to fund items that have already been approved by Congress over the years, is a shared obligation that should not be subject to conditions by one side. Republicans say spending is out of control and that declining to raise the borrowing limit without securing cuts is reasonable.

“House and Senate Republicans agree: Raising the debt limit without getting spending under control would be irresponsible,” McCarthy tweeted recently.

The White House in recent days has emphasized that Biden is willing to discuss spending cuts as long as they are not tied to the debt ceiling increase.

The terms of a potential deal have remained elusive, although some congressional aides and outside observers say they are beginning to see possible contours of an agreement.

McCarthy’s bill to raise the debt limit, passed by the House last month, would cut federal spending by $4.8 trillion over 10 years. The White House has rejected that proposal, but Biden aides have recognized that they need to reach an agreement with House Republicans on government spending levels, regardless of the debt limit’s resolution.

Some analysts argue that lawmakers should find a middle ground on these domestic spending numbers, clearing the way to both cut spending and raise the debt limit. Under that plan, GOP leaders could say the two moves are linked and the White House could insist they are not.

“There is a solution staring lawmakers in the face,” said Brian Riedl, a policy analyst at the Manhattan Institute, a libertarian-leaning think tank. “Just come up with something in the middle and call it a day.”

Yet that may be more difficult in practice than on paper. House Republicans have not said which federal programs they would cut, and it’s not clear they could reach consensus. Beyond that, enormous gaps remain between the spending cuts the GOP is demanding and the levels Biden would accept.

“What looks good on paper for the purposes of House Republicans’ budget politics does not look good when they have to explain what that means to programs that matter for the American people,” said Charlie Ellsworth, a former Schumer aide who is at Pioneer Public Affairs.

Some on Capitol Hill have suggested that as a temporary measure, the debt limit could be raised through the end of the fiscal year on Sept. 30, when the current federal budget expires. That way a new budget, including spending cuts, could be approved along with a debt limit increase.

But so far, at least, neither the GOP nor the White House has shown interest in that idea, though Biden did not rule it out.

In its latest estimate, the Bipartisan Policy Center on Tuesday predicted the U.S. government could reach the “x-date” when it can’t pay all its bills without borrowing sometime between June and August, cautioning that the range again reflects the “unpredictability of cash flows.”

The next few weeks of May are critical, since a strong showing in tax receipts could buy more time for Washington, opening the door for the Treasury Department to take additional “extraordinary measures” next month that could push the deadline into July.

A group of Wall Street executives who have served on the committee that advises Treasury on managing the federal debt also released a letter Tuesday highlighting the devastating consequences of a default.

Financial markets have begun reacting to the standoff, if mildly so far. Yields on one-month Treasury bills have spiked as investors demand a higher return on government debt viewed as increasingly uncertain. Investors are also bidding up the price of credit default swaps, which insure against a federal default.

Still, Wall Street has mostly ignored the political situation, as investors continue to expect lawmakers to reach a deal before any default. Stocks largely held steady on Tuesday before dipping near the close of trading, with the Nasdaq composite index falling by close to 0.7 percent. Analysts are more likely to attribute price fluctuations in the bond market over the past few weeks to the Federal Reserve’s rate increases than to concerns about the debt limit.

“People are thinking overall that it’s too awful, too catastrophic, to try and even prepare for,” said Chris Rupkey, a financial analyst at FwdBonds. He added of investors, “They feel that just like all other times, we’ll get through this and both sides will eventually sign off.”