Happy Monday! President Joe Biden is set to meet with the “Big Four” congressional leaders tomorrow. Here’s where things stand as the debt limit deadline approaches.
McCarthy Says Debt Limit Negotiators Still ‘Far Apart’
President Biden, House Speaker Kevin McCarthy and the three other top congressional leaders are set to meet again Tuesday as they try to work out a deal to raise the debt limit and avoid an economically devastating default.
Negotiators continued their talks over the weekend and on Monday. The package being discussed reportedly could involve new caps on federal spending for a yet-to-be-determined length. Republicans want the limits to last for 10 years while Democrats are closer to two years. The two sides are also considering energy permitting reforms and clawing back some $60 billion in unspent pandemic aid funding.
Treasury Secretary Janet Yellen reiterated Monday that the deadline could be as soon as June 1 (see more below). On Saturday, she told The Wall Street Journal that she is “hopeful” that the talks could result in a deal. “I’m told they have found some areas of agreement,” she said. The president sounded similarly upbeat on Sunday. “I remain optimistic because I’m a congenital optimist,” Biden said. “But I really think there’s a desire on their part as well as ours to reach agreement. I think we’ll be able to do it.”
Biden shouted “no” when asked by reporters Monday if he had any updates on the debt talks.
McCarthy offered a fairly dire take. He told reporters that the talks were nowhere near a conclusion and that the staff-level sessions were “not productive at all” and had not produced “agreement on anything,” according to Bloomberg. “I still think we’re far apart,” McCarthy told NBC and CNN. “It doesn’t seem to me yet that they want a deal, it just seems like they want to look like they are in a meeting but they’re not taking anything serious.”
Republicans reject closing tax loopholes: The White House recently offered up about a dozen proposals to help cut the deficit by closing tax loopholes. “Republican negotiators rejected every item,” The Washington Post’s Jeff Stein reports, citing three sources familiar with the matter. “The GOP’s rejection of the White House proposals — which has not previously been reported — reflects the near-unanimous opposition among congressional Republicans to using higher revenue to rein in the federal debt.”
Rep. Dusty Johnson of South Dakota has told reporters that the GOP has three red lines for any deal: the package can’t include a “clean” increase in the debt limit, can’t involve tax increases and must reduce the deficit.
The White House, meanwhile, has reportedly rejected the idea of rescinding elements of the Inflation Reduction Act passed by Democrats last year. The House GOP plan passed last month would eliminate billions in clean-energy tax subsidies enacted as part of the 2022 law and would also slash billions of dollars in additional funding for the IRS, money intended to help the agency crack down on tax cheats. The White House reportedly has also pushed to protect Biden’s plan to forgive billions in student loan debt.
Biden may be open to some tougher work requirements: The president indicated Sunday that he might be willing to accept GOP demands for more stringent work requirements for some federal benefit programs — but not for Medicaid. “I voted for tougher aid programs that’s in the law now, but for Medicaid it's a different story,” he said. “And so I’m waiting to hear what their exact proposal is.”
Scheduling issues ahead: Biden is slated to depart Wednesday on a trip to meet with G7 leaders in Japan. The Senate is scheduled to leave D.C. Thursday until after Memorial Day. McCarthy indicated that at least a short-term deal is necessary within days if lawmakers are to have time to pass the legislation. “I think we’ve got to have a deal done by this weekend,” he said.
Estimating the X-Date
In a new letter to Congress, Treasury Secretary Janet Yellen reaffirmed her previous warning that the U.S. could run out of cash as soon as the beginning of June. “With additional information now available, I am writing to note that we still estimate the Treasury will likely no longer be able to satisfy all the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1.”
The exact timing of the so-called X-date is a bit fuzzy since it depends on the daily flow of revenues received and payments made by the department. Bloomberg rounded up the best guesses from analysts at major banks and research firms, some of which are alarmingly close.
JPMorgan: The X-date will arrive by June 9.
Morgan Stanley: The banks’ analysts say it’s a coin toss between the X-date arriving June 7-14 or July 21-28.
Deutsche Bank: The X-date is most likely to occur in late July, though there is a risk it could occur in early June.
Barclays: The cash balance at the Treasury will fall to about $50 billion between June 5 and June 14 but it will have enough money on hand until late July.
Donald Schneider, a former congressional staffer who analyses federal policy at Piper Sandler, said Monday that the Treasury’s cash balance is deteriorating, and he expects the department to have just $27 billion on hand by June 2. “Historically, Treasury doesn't dip below $25bn,” he tweeted, which suggests that June 2 could be seen as the X-date. Schneider provided the chart below, which shows how little room for error the Treasury may have by early June.
How the Two Sides Differ on Discretionary Spending
As the White House and congressional Republicans haggle over the debt limit and federal spending, Reuters’ David Lawder provided a useful breakdown of some key differences between the two sides, comparing proposals from President Biden’s $6.8 trillion budget request, which includes nearly $3 trillion in deficit reduction over a decade, and the House GOP’s “Limit, Save and Grow Act,” which would cut $4.8 trillion in spending over 10 years.
We’ll focus here on discretionary spending, which covers everything outside of mandatory programs like Social Security and Medicare. It’s the category at the center of the debate between the two sides, since they have both said that major entitlement programs are off-limits in the current talks. The Biden budget proposes $1.9 trillion in discretionary spending for fiscal year 2024, a 9.4% boost, followed by annual increases averaging 1% over the next 10 years. “The discretionary spending proposals would add $2.23 trillion to deficits over 10 years, offset by tax increases,” Lawder notes.
Republicans, meanwhile, want to cut 2024 spending to the 2022 level, $1.664 trillion, and cap annual increases at 1% for a decade. “The cumulative 10-year savings would be $3.2 trillion, according to the Congressional Budget Office,” Lawder writes. “But the bill does not specify how this 4.1% cut from the 2023 level of $1.736 trillion would be allocated among programs.”
For a comparison of the two plans on deficits, taxes and other areas, read more at Reuters.
Quote of the Day: Yawning at Default?
“Global investors and Americans more generally appear largely unruffled by the fast-approaching X-date. The stock market remains firm as does the value of the U.S. dollar and much of the bond market. I suspect the key reason for the blasé attitude toward the debt limit is everyone thinks they’ve seen this movie before many times over the years and now know the ending. … That financial markets are calm raises the odds that lawmakers won’t act in time, as it likely will take some turmoil in markets to generate the political will necessary to get lawmakers to act.”
− Moody’s Analytics Chief Economist Mark Zandi, speaking to NBC News Monday.
IRS Plans to Test Free Filing System
The IRS has developed a system that would allow Americans to file their taxes for free online and plans to start testing the system on a small number of people early next year, Jacob Bogage of The Washington Post reported Monday.
The tax-filing prototype was developed in conjunction with the U.S. Digital Service, a little-known unit of the executive branch created in 2014 that aims “to deliver better government services to the American people through technology and design,” according to its website.
Although the majority of Americans qualify to use a free-filing option provided by a consortium of for-profit firms, less than 3% actually do so. Not coincidentally, the tax-filing industry collects more than $14 billion a year in fees from tax filers. As Bogage notes, a free direct file system would threaten the industry, which has been resisting the development of a free alternative.
- Debt-Limit Talks Are Far From Over, McCarthy Says Ahead of Biden Meeting – Bloomberg
- GOP Rejected White House Effort to Close Tax Loopholes in Debt Ceiling Talks – Washington Post
- Social Security Advocates Brace for U.S. Debt Default With Payments to Beneficiaries at Stake – NBC News
- 7 Doomsday Scenarios if the U.S. Crashes Through the Debt Ceiling – Washington Post
- The End of Ukraine Aid Is Rapidly Approaching. Reupping It Won’t Be Easy – Politico
- Social Security COLA to Drop Significantly in 2024, Senior Group Predicts – The Hill
- DeSantis Signs Bill to Defund DEI Programs at Florida’s Public Colleges – Washington Post
Views and Analysis
- The Big Problem With Trying to Cut Spending in a Debt Ceiling Bill – Sahil Kapur, NBC News
- The Case for Violating the Debt Limit Is Dangerous Nonsense – Michael W. McConnell, New York Times
- What Happens if President Biden Caves on the Debt Ceiling? – Ryan Cooper, American Prospect
- Kevin McCarthy’s Idea of Austerity: $115 Billion for Tax Cheats and Oil Companies – Timothy Noah, New Republic
- Republicans Are Right to Demand a ‘Dirty’ Debt Limit Bill – Brian Riedl, Daily Beast
- The Debt Ceiling Standoff: Americans Pay the Price – Chicago Sun-Times Editorial Board
- Avoiding Default Is Hard. Avoiding a Downgrade Is Harder – Sam Sutton, Politico
- For Biden, Negotiating the Debt Ceiling May Be the Safest Option – Douglas E. Schoen, The Hill
- A Debt Ceiling Debacle Might Actually Be Good for Treasuries – Robin Wigglesworth, Financial Times