President Biden and House Speaker Kevin McCarthy said Monday that they have made progress in negotiations on the debt ceiling — but remain far apart on some aspects of a deal as the country closes in on a catastrophic default.
“We reiterated once again that default is off the table and the only way to move forward is in good faith toward a bipartisan agreement,” Biden said in a statement following the Monday evening meeting.
Biden added that the talks were “productive,” with McCarthy saying, “I believe we can still get there.” McCarthy has dismissed White House proposals to cut into the deficit by raising taxes on wealthier Americans and closing loopholes for corporations.
The debt ceiling has been around since the early 20th century. It was, for many decades, raised on a bipartisan basis with little drama. Because the government spends more than it takes in, the debt ceiling must be raised periodically to allow it to borrow enough to meet its current obligations.
But Republicans have said they will not raise it this year without significant cuts to government spending. Democrats have noted that Republicans voted to raise the debt ceiling without preconditions three times under former President Trump.
House Republicans passed a bill last month that would raise the debt ceiling but also cut numerous other social spending programs. The GOP bill would institute work requirements for recipients of Medicaid and SNAP benefits (food stamps), slash tax incentives designed to fight climate change, cut funding to the Internal Revenue Service and block Biden’s student debt relief plan.
Biden has insisted that he won’t negotiate any spending cuts with GOP leaders until the debt limit is raised. Republicans, having passed their spending bill already, say that Biden’s refusal to discuss spending cuts has made the impasse difficult to resolve.
A looming economic catastrophe
If the debt ceiling isn’t raised or the White House fails to find a workaround before the government runs out of funds, experts say it would cause a financial catastrophe. In March testimony to Congress, Moody’s Analytics chief economist Mark Zandi estimated it would cost 7 million jobs, raise the unemployment rate to 8% and wipe out a fifth of the stock market’s value — eliminating about $10 trillion in household wealth.
According to estimates by the Bipartisan Policy Center, if the government runs out of money, it could affect payments tied to Social Security benefits, Medicaid, salaries for federal employees and benefits for veterans and SNAP recipients.
When will the government run out of money?
The so-called X-Date — which is the day when the government runs out of money to pay for its current obligations — may be impossible to know for certain. Treasury Secretary Janet Yellen reiterated Monday that June 1 is the deadline for Congress to strike a deal. Other estimates range from mid-June all the way until August.
Republicans have expressed skepticism about Yellen’s projection, with Rep. Ralph Norman, R-S.C., telling CNN Tuesday that “everybody knows [the June 1 deadline] is false” and Rep. Matt Gaetz, R-Fla., calling on Yellen to show her work.
The Washington Post reported Tuesday that the Treasury Department was asking agencies if there were any opportunities to defer payments until a later date.
The government is set to receive new tax revenue on June 15, which could push the potential default into July. That would then open up the possibility of more ways to keep pushing the X-Date back.
There is also the possibility that Republicans and Democrats could agree to a short-term raise that buys them more time to come to a final agreement.
Are there any debt-ceiling backup plans?
Some Democrats have urged Biden to strongly consider using the 14th Amendment to circumvent the debt ceiling by declaring it unconstitutional. The theory is based on a clause in the 14th Amendment that reads, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
Last week, a group of left-leaning senators wrote to Biden saying they were “urgently [requesting] that you prepare to exercise your authority under the 14th Amendment of the Constitution” in order to prevent “a global catastrophe.”
Dozens of members of the Congressional Progressive Caucus called on him to do the same, writing “We urge you to stay strong in your resolve to keep Democrats united behind our core democratic values and to refuse to reward Republicans’ reckless refusal to raise the debt ceiling without preconditions.”
Earlier this month, Biden said he was “considering” the option but had concerns about the time it would take to be litigated in the courts. And Yellen, who believes the debt ceiling should be abolished, has repeatedly said that using the 14 Amendment is not a plausible option.
Why some Democrats have regrets
Late last year when Democrats still had control of Congress, some lawmakers as well as liberal pundits urged the party to raise or eliminate the debt ceiling before the GOP took control of the House, in January. Republicans said they would tie spending cuts to raising the debt ceiling during last year’s midterm elections.
Sen. Tim Kaine, D-Va., told Politico last week that “If I could do one thing different” about the two years of united Democratic government, it would have been a late-2022 debt hike, adding, “And I was saying it at the time … ‘hey, we got the votes.’”
Democrats would have had to sway Sens. Joe Manchin and Kyrsten Sinema to their side to get to 50 votes, but that may have proven easier than negotiating with McCarthy.