The leadership of President Biden and House Speaker Kevin McCarthy will be put to the test Tuesday, with both men under intense pressure not to back down from the debt limit standoff that threatens a U.S. default on financial obligations as early as June 1.
At stake is an “economic calamity” in the U.S. if they don’t strike a deal in time, said Treasury Secretary Janet Yellen, warning of a stock market nosedive and jarringly higher interest rates for consumer loans for homes and cars.
“It’s widely agreed that financial and economic chaos will ensue,” Ms. Yellen said Sunday on ABC’s “This Week.”
The Biden-McCarthy showdown centers on the president’s demand for a “clean” bill that increases the $31.4 trillion debt limit with no strings attached and Republicans’ demands to rein in government spending to slow the ballooning debt.
“They’re trying to hold the debt hostage to us to agree to some draconian cuts, magnificently difficult and damaging cuts,” Mr. Biden said Friday.
Mr. McCarthy said on Twitter: “House and Senate Republicans agree: raising the debt limit without getting spending under control would be irresponsible.”
Mr. Biden’s team has been floating the idea of a short-term debt limit hike to give the two sides more time to negotiate a broader deal.
“I’m sure one of the things on the table we will have to work through is how long. I’m not going to take anything off the table,” said Shalanda Young, director of the Office of Management and Budget. “I would love to be in that part of the conversation. Because we’re at least in the positive — default is off the table.”
A senior Republican leadership aide told The Washington Times that a short-term deal might be accepted only if Mr. Biden signals that he is serious about entering negotiations on cutting spending.
“We’ve been asking the White House to negotiate for months,” said the aide. “There’s a feeling the president isn’t taking this seriously and is hoping the GOP will blink in the face of pressure.”
Republicans are worried that if they agree to a short-term hike, Mr. Biden will take the move as a sign of weakness and refuse to negotiate, setting up another fiscal crisis. Democrats say there might not be enough time to hold a proper negotiation.
“Negotiating a giant budget cut like Republicans want, that would be really hard to get done in a few weeks even if we wanted to do it,” said Rep. Glenn Ivey, Maryland Democrat. “We know that because it took House Republicans three months to draft their proposal. A clean debt ceiling bill is the only way.”
The sit-down at the White House also will include Senate Minority Leader Mitch McConnell, Kentucky Republican, and Senate Majority Leader Charles E. Schumer and House Minority Leader Hakeem Jeffries, both New York Democrats.
Mr. McConnell has pledged full support for Mr. McCarthy’s firm stance on tying a debt limit increase to spending cuts.
Mr. McConnell has added his name to a Republican letter addressed to Mr. Schumer. The letter warns that Senate Republicans are “united behind the House Republican Conference in support of spending cuts and structural budget reform as a starting point for negotiations on the debt ceiling.”
The letter was signed by 43 Republican senators, and two other Republicans have indicated that they will vote with the party to block any measure that raises the borrowing limit without spending cuts and other fiscal reforms.
Ms. Yellen recently moved up the deadline to June 1 for Congress to raise the statutory limit on how much the federal government can borrow to meet expenses. The new deadline prompted Mr. Biden to schedule the meeting for Tuesday.
Evidence is already emerging that investors’ confidence in public debt is shrinking.
On Thursday, the U.S. Treasury sold $50 billion of four-week securities at an interest rate of 5.84%. That was the highest interest rate on sales of U.S. debt since 2000.
The $50 billion bonds are set to mature on June 6, five days after a potential default. Last week, the Treasury sold bonds set to mature on May 30 at a rate of 3.83%.
“We are in a game of chicken, and it may very well blow up the economy,” said Sen. Jeff Merkley, Oregon Democrat.
House Republicans have offered their opening bid in the debt limit negotiations. They recently passed legislation raising the debt ceiling by $1.5 trillion until May 2024 in exchange for $4.8 trillion in spending cuts.
Apart from raising the debt limit, the Republican bill would cut federal spending by $130 billion for the upcoming fiscal year and limit budget growth to 1% annually over the next decade. It also rescinds at least $90.5 billion in unspent pandemic relief, imposes new work requirements on welfare, cancels Mr. Biden’s student loan forgiveness program and scraps $200 billion in green energy tax credits.
Democrats say the House Republicans’ bill is a non-starter. Mr. Biden is expected to pitch Mr. McCarthy on “initiating a separate process” to negotiate spending levels ahead of the government funding deadline at the end of September.
Sen. Tim Kaine, an administration ally, said that even without the debt limit, Republicans would be in a good position to negotiate fiscal cuts by the very nature of their control of the House.
“I think the right answer is still to raise the debt ceiling and then have a really tough budget negotiation,” said Mr. Kaine, Virginia Democrat.
That position is unacceptable to Republicans. They say their leverage would be diminished once the debt ceiling was raised. They note that spending overhauls were tied to the debt limit under previous administrations.
“In the eleven times that we’ve increased the debt limit since 1985, it’s been tied to fiscal reforms,” said House Ways and Means Committee Chairman Jason Smith, Missouri Republican. “It’s reckless not to negotiate to bring fiscal sanity back to Washington, D.C.”
• Haris Alic can be reached at halic@washingtontimes.com.
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