Biden, McCarthy Reach ‘Agreement in Principle’ to Raise Debt Ceiling as Default Looms

The Washington Post / Tony Romm, Theodoric Meyer, Leigh Ann Caldwell

16:37 JST, May 28, 2023

President Biden and House Speaker Kevin McCarthy (R-Calif.) reached an “agreement in principle” to raise the debt ceiling and cap federal spending, clinching a critical first step toward preventing a government default that could be nine days away.

The agreement offers Congress a road map for averting a fiscal crisis: It preserves the country’s ability to borrow money into 2025, freezes the budgets at a broad swath of federal agencies and institutes new work requirements on some Americans who receive federal nutrition assistance known as food stamps.

Some contours of the emerging deal reflect Republicans’ initial demands after party lawmakers assumed control of the House in January and plotted a strategy to leverage the debt ceiling to achieve their policy agenda – ignoring repeated warnings that their brinkmanship could plunge the country into a recession. McCarthy is expected to brief his party members on a conference call at 9:30 p.m.

But in the hours before Biden and McCarthy unveiled their plan, some Democrats and Republicans already had started to condemn its size and scope – underscoring the difficult task the two leaders face to muscle legislation through the pitfall-prone, narrowly divided House and Senate with roughly a week to spare.

Conservatives on Saturday appeared on the verge of revolt, with some faulting McCarthy for failing to extract the same level of spending cuts that the GOP-led House adopted last month with no Democratic support. On Saturday, the far-right House Freedom Caucus tweeted that the initial reports of the deal were “unacceptable,” and one member – Rep. Dan Bishop (R-N.C.) – predicted it could mean “war.”

Democrats, meanwhile, at times have offered rare, public criticism of their own president over the past week, questioning whether Biden might have given up too much in discussions that he never should have entertained in the first place.

But the two sides nevertheless must now find the political will – and the requisite number of votes – to send legislation to Biden’s desk soon. Otherwise, the U.S. government could run out of cash on June 5, the Treasury Department warned on Friday, unleashing untold economic havoc that rattles markets globally, displaces millions of Americans from their jobs and disrupts critical federal services, including seniors’ Social Security checks.

If Congress adopts the agreement, it would extend the debt ceiling beyond the next presidential election, though the exact date is unclear. It would keep funding “roughly flat” at federal health, education, science, labor and other domestic agencies in the 2024 fiscal year, while spending on defense and veterans would increase. In 2025, nondefense spending would see a 1 percent hike, according to a person familiar with the matter, who requested anonymity to describe the sensitive negotiations.

The cuts would have been deeper, but Biden and McCarthy agreed to offset further reductions by clawing back and redirecting other money, including money set aside to help the IRS pursue unpaid taxes, which Republicans long have opposed, according to two other sources, who similarly requested anonymity to describe the sensitive negotiations.

Biden and McCarthy also agreed to several new rules to ease permitting around energy projects. And they brokered a deal that imposes new work requirements on low-income Americans who receive food assistance under the program known as SNAP, one of the sources said. The new rules would apply to recipients up to age 54 who do not have dependents, raising the current limit of age 49. However, the bill would include some new exemptions for former military service members and people who are homeless.

But the emerging compromise did not make any changes to programs including Medicaid, as Republicans initially demanded, although the full range of the newly proposed new work requirements is not entirely clear.

The potential deal could relieve Congress from the worst fiscal showdown in more than a decade. A similar stalemate in 2011 saw the conservative tea party movement in the House seize on the nation’s borrowing for political leverage, forcing Democrats to accept a decade of spending cuts and caps – reductions that they say devastated federal health, education, science and labor programs.

While the nation at the time did not default, the debate alone still sank the stock market and brought about a rare downgrade in U.S. credit, raising the specter this year that Republicans’ renewed sense of brinkmanship could carry its own economic consequences. In recent days, Wall Street once again has started to panic, and credit-ratings agencies have warned they could lower their evaluations of U.S. debt, a move that could raise borrowing costs for the government as well as citizens and businesses.

Biden and McCarthy clinched their agreement roughly one month after the House adopted a GOP bill to couple a shorter-term increase in the debt ceiling with even greater spending cuts. The measure, dubbed the Limit, Save, Grow Act, also would have rescinded some of the president’s top priorities and accomplishments, including his programs to cancel college students’ debts and boost clean energy technology.

Democrats vehemently opposed the measure, and Biden at the time threatened to veto it, as he called on Republicans to raise the debt ceiling without delay or added conditions. In the Senate, Majority Leader Charles E. Schumer (D-N.Y.) refused to consider the bill, though he could not advance his own alternative, since his narrow majority relies on GOP votes to sidestep a filibuster.

Privately, the House vote last month stunned some Democrats, including the White House, where aides did not expect a raucous, fractured House GOP conference to pass a bill at all. McCarthy seized on the outcome to press Biden anew on talks, which the president had resisted for months, arguing that the risks were too great for Republicans to try to haggle over the debt ceiling.

But the debate dramatically shifted after the Treasury Department initially warned the debt ceiling deadline could arrive as soon as June 1 – far sooner than many in Washington initially expected. Hours later, Biden invited congressional leaders to the White House for the first face-to-face talks over the debt ceiling since the president met directly with McCarthy in early February.

The May 9 gathering ultimately proved to be unproductive and acrimonious. The president and House speaker almost immediately returned to hurling insults at each other in public, with Biden taking to the road the next day – appearing in a GOP-held congressional district in Upstate New York – to attack the party for its brinkmanship.

At various turns, the discussions appeared on the precipice of collapse. Just over one week before clinching the deal, the top GOP negotiators – Rep. Garret Graves (La.) and Patrick T. McHenry (N.C.), two McCarthy confidants – stormed out of a meeting at the Capitol, citing a lack of progress. Only after Biden and McCarthy spoke by phone as the president returned from a trip in Japan later that weekend did the negotiations get back on track.

The following Monday, the two men found themselves again in the Oval Office, this time trying to project an air of calm and optimism to the public – and to the increasingly skittish markets. Exiting later in the evening, they both heralded progress, only to see their respective parties once again erupt in furor not even 24 hours later.

Conservatives faulted the White House for failing to make enough concessions. They took special exception to a plan from the president’s negotiators to freeze federal spending at levels adopted in the 2023 fiscal year and add tax increases targeting the wealthy.

Republicans said the cuts were insufficient, and the tax increases were a nonstarter. Some members in the powerful, ultraconservative House Freedom Caucus also faulted the president’s push to raise the debt ceiling for more than a year, as the House bill originally prescribed.

“Now what we’re talking about, allegedly, is $3.5 trillion to $4 trillion debt ceiling increase, for a whole lot less of those things. So yes, my antenna is up,” said Rep. Chip Roy (R-Tex.), an influential member of the House Freedom Caucus.

Even as the president and his team revised their offers, some members of the bloc began to signal they might not be able to support any compromise with the White House. Some far-right Republicans predicted there could be a sharp drop-off in support, posing a challenge to McCarthy, who has a 222-vote majority – and can only afford to lose four members unless Democrats join in support of the measure.

“The 20 of us who stood up to McCarthy in January will not stand for that,” said Rep. Ralph Norman (R-S.C.), a caucus member, referring to the objections Republicans raised during McCarthy’s 15-vote marathon to become speaker. Asked if he would vote against such a bill, Norman replied: “Not only me but it’s going to be the 19 others and many more.”

But Democrats in recent days have shared their own misgivings. On Thursday, House Minority Leader Hakeem Jeffries (D-N.Y.) snapped back that it was Republicans who had been unreasonable because McCarthy would probably need to rely on Democrats’ help to get a deal through the House and Senate. He described the GOP approach as “driving us down a dangerous road of default.”

And Jeffries touted anew his party’s own political gambit: a parliamentary maneuver to force the House to consider a debt ceiling increase without spending cuts, amassing 213 of the 218 signatures he would need to bypass McCarthy and force a vote to approve the legislation.

“It will take only five reasonable Republicans to end this madness to avoid the economy from crashing, to prevent a job-killing recession by joining us,” the minority leader said at a news conference.

Some of the most liberal lawmakers in Congress stepped up their own criticism of the president, as they urged him to take historic, unilateral action to bypass the Hill and raise the debt ceiling – a move Biden had resisted out of fear it could be challenged in court.

“I do believe that they’ve made a miscalculation in assuming the Republicans were serious,” said Rep. Mark Pocan (D-Wis.), a top member of the left-leaning Congressional Progressive Caucus, adding that “Republicans are not serious on this because of their own internal problems.”

In the meantime, the Senate largely sat out of the discussions, as Senate Minority Leader Mitch McConnell (R-Ky.) – a veteran of debt ceiling battles with a history of working out such deals with Biden – refused to engage out of a belief the president should deal directly with McCarthy.