Good evening! The talks between President Joe Biden and House Speaker Kevin McCarthy over raising the debt limit are advancing to a new phase. Here’s the latest.
Biden and McCarthy Offer Hope for a Debt Deal
President Joe Biden and congressional leaders emerged from a White House meeting Tuesday afternoon sounding hopeful that a deal could be reached to fund the federal government and raise the national debt limit in time to avoid a potential economic disaster.
“We just finished another good, productive meeting with our congressional leadership about a path forward to make sure that America does not default on its debt,” Biden said afterward at a White House event. “There is still work to do, but I made it clear to the speaker and others that we’ll speak regularly over the next several days.”
A White House summary of the meeting said that, “while more work remains on a range of difficult issues,” Biden is “optimistic that there is a path to a responsible, bipartisan budget agreement if both sides negotiate in good faith and recognize that neither side will get everything it wants.”
The White House also said that Biden would cut short his planned trip to Asia and return home on Sunday, after the G7 summit in Hiroshima, Japan, so he can be back for further talks and ensure that the country can avoid a debt default.
“I think we set the stage to carry on further conversations,” House Speaker Kevin McCarthy told reporters outside the White House. McCarthy said that the two sides remain far apart, but he added: “It is possible to get a deal by the end of the week. It’s not that difficult to get to an agreement.”
Senate Majority Leader Chuck Schumer called the meeting productive and respectful. “What gave me the most hope,” Schumer added, “is that everyone, including the speaker, agreed we need to be bipartisan.”
With the deadline for raising the borrowing limit looming as soon as June 1 and McCarthy insisting that a deal must be done soon to allow for the House and Senate to pass it, the talks appear to be entering a new, more urgent and more focused phase.
“The president agreed to appoint a couple of people from his administration to sit down and negotiate directly with my team,” McCarthy said, “so I found that to be productive personally, but we’ve got a lot of work to do in a short amount of time.”
Office of Management and Budget Director Shalanda Young and presidential counselor Steve Ricchetti will reportedly lead the talks on the White House side, while Rep. Garret Graves, a close McCarthy ally, will work with the speaker’s staff on the GOP side.
The administration has long insisted that it will not negotiate over raising the debt limit, which it said Congress should do without conditions. Reporters on Tuesday suggested that the administration appears to be doing precisely what it said it would not do, though the White House insists that it is working on a budget deal, not a debt-limit hike. But some Biden aides reportedly admit privately that the lines are fuzzy and that the debt limit is a key part of ongoing talks.
“Democratic negotiators also acknowledge,” says The Washington Post, “that they will have to agree to more spending cuts if they want to secure a longer extension of the debt ceiling — an implicit recognition that lawmakers are bartering over the full faith and credit of the U.S. government, an approach Biden has repeatedly disavowed.”
Will Democrats stick together? McCarthy told reporters that new work requirements for federal benefit programs must be included in the deal. Biden this weekend seemed to leave the door open to some stiffer work requirements, though not for Medicaid, when he said that he had supported reforms as a senator. That set off alarms for some progressives, who fear that Biden might “cave” on GOP demands including long-term spending caps and stiffer work requirements for food stamps.
Biden and the White House have insisted that they won’t accept any proposal that causes people to lose their health coverage or drives Americans into poverty. The president tweeted Monday that the Republican “wish list would put a million older adults at risk of losing their food assistance and going hungry.”
But progressives worry that talks are heading in a troubling direction.
“I cannot support a deal that is only about hurting people,” Democratic Sen. Elizabeth Warren said, per The Washington Post. “If the Republicans are really serious about lowering the amount of the national debt then, by golly, let’s bring in some revenues.”
Dean Baker, an economist at the left-leaning Center for Economic Policy and Research, told the Post that there’s an important principle at stake: “If you accept the idea that you can, in essence, be held to blackmail with the debt ceiling, it will be done again and again. Not to be crass, but it’s essentially negotiating with terrorists who have taken hostages,” he said. “More and more people in progressive circles are becoming concerned with it.”
Will Republicans stick together? Senate Republicans have insisted that it’s up to McCarthy and Biden to work out a deal, but some are reportedly worried that House conservatives may balk at any agreement that Democrats would accept — and the parameters of the compromise reportedly being discussed by negotiators would fall well shy of the far-right wish list passed by House Republicans. Some House conservatives have since added their border security bill to the wish list. “We don’t want to default. At some point, we’re going to have to find a way through this,” Republican Sen. Shelley Moore Capito of West Virginia told Politico. “And it really hinges on the Republicans on the House side pulling together as much as they can.”
Alternatively, if McCarthy does suffer some defections from his most conservative members — or an outright rebellion seeking to end his speakership — moderate Democrats may be willing to come to the rescue, Politico reports. “A small group of moderate Democratic lawmakers has quietly reassured its House GOP counterparts that it can help protect McCarthy’s gavel if his right flank revolts over a debt agreement,” Sarah Ferris and Nicholas Wu write, citing two sources familiar with the discussions. “If conservatives responded to a McCarthy-Biden deal by forcing a full House vote on ousting the California Republican, Democrats say they have enough members to help block it — keeping him in power.”
A McCarthy spokesperson reportedly dismissed such talk to Politico, saying that the speaker “has never heard of this garbage.” Politico also notes that John Boehner wound up resigning rather than relying on a similar offer from some Democrats that could have let him keep his gavel.
Still, the chatter highlights the challenges involved in reaching a debt-limit agreement that can pass both chambers of Congress — and a reminder that things could still get very weird.
Extending the 2017 Tax Cuts Would Cost $3.5 Trillion: CBO
House Republicans are pushing for spending cuts to reduce the deficit in exchange for raising the debt ceiling, but they also hope to eventually extend the package of GOP tax cuts passed under then-President Donald Trump in 2017 — a move that would increase the deficit significantly.
House Speaker Kevin McCarthy told Fox News last fall that he wanted “to lock in those tax cuts that we got,” and Rep. Vern Buchanan of Florida introduced a bill in February backed by 72 fellow Republicans that would “make permanent tax cuts for individuals and small businesses originally enacted as part of the Tax Cuts and Jobs Act (TCJA) of 2017.”
In a new analysis published Tuesday that was prepared at the request of Democratic Sens. Sheldon Whitehouse and Ron Wyden, the Congressional Budget Office looked at how much it would cost to extend the 2017 tax cuts, many of which are scheduled to expire at the end of 2025, although some expire sooner. The total cost: nearly $3.5 trillion over 10 years.
The biggest expense is associated with extending the individual tax cuts, which end in 2025. The cost of extending those provisions is about $2.5 trillion from 2024 to 2033, CBO said. Higher interest costs on the resulting debt would add another $278 billion.
Extending the higher exemptions for gift and estate taxes, which were doubled in the 2017 legislation, would cost $126 billion over a decade, plus another $13 billion for debt service. Extending the bonus depreciation provision for businesses would cost $325 billion, plus another $59 billion in added interest. And extending a set of tax changes that apply to overseas business income would cost $150 billion, plus another $16 billion for debt service.
In a statement, Wyden pointed out the apparent contradiction between the GOP policy choices. “Republicans who say they’re worried about the deficit have brought our economy on the brink of default, and yet they want to run up the debt by locking in the Trump tax law that remains horribly skewed toward corporations and the wealthy,” he said.
Former Treasury official Steven Rattner, who provided the chart below, put it more succinctly. “So much for fiscal responsibility,” he tweeted.
‘Time Is Running Out’: Yellen Warns
Treasury Secretary Janet Yellen on Tuesday called on lawmakers to raise the debt ceiling as quickly as possible, while warning that there would be “widespread suffering” if Congress fails to act.
“Time is running out,” Yellen said Tuesday at a meeting of the Independent Community Bankers of America in Washington. “The U.S. economy hangs in the balance. The livelihoods of millions of Americans do too. There is no time to waste.”
Yellen said costs are already rising due to the showdown over raising the debt limit, with investors shying away from short-term U.S. debt that could be affected by a default, pushing interest rates higher. Consumer confidence is falling, businesses are wasting time hedging risks of a possible default, and the U.S. risks a downgrade to its credit as the X-date when the Treasury runs out of cash looms draws nearer.
Yellen cited an analysis by the White House Council of Economic Advisers of what would happen in the event of a default. “In its study, more than 7 million Americans lose their jobs. The unemployment rate surges to over 8 percent. And $10 trillion in household wealth is wiped out,” she said. “If that sounds catastrophic – that’s because it is.”
Reminding her audience that the debt ceiling has been raised about 80 times since 1960, Yellen asked Congress to prevent a crisis simply by raising or suspending the limit once again.
CEOs chime in: More than 100 business leaders sent an open letter Tuesday to President Biden and top Congressional leaders urging them to address the debt limit.
The signatories, who include James P. Gorman of Morgan Stanley, David M. Solomon of Goldman Sachs and Robin Hayes of JetBlue, said failing to act in time would produce “potentially disastrous consequences.”
“Although the American economy is generally strong, high inflation has created stresses in our financial system, including several recent bank failures,” they wrote, per CNN. “Much worse will occur if the nation defaults on our debt obligations, which would weaken our position in the world financial system.”
The CEOs noted that the U.S. received a credit downgrade as a result of the near default in 2011. “The stock market still lost 17% of its value for more than a year,” they wrote. “Moody’s reported that the heightened uncertainty from this crisis resulted in 1.2 million fewer jobs, a 0.7 percentage point higher unemployment rate, and a $180 billion smaller economy than it otherwise would have — dire impacts that occurred without an actual default.”
- Biden Appoints 2 Top Aides to Try and Get to the Finish Line on Debt Ceiling Talks – Politico
- McCarthy Says Debt Talks Far From Deal as Biden Cuts Overseas Trip Short – Bloomberg
- Biden Dives Into Debt Ceiling Talks, Causing Mini Panics Among His Base – Politico
- Yellen to Meet With Jamie Dimon and Other Bank CEOs on Thursday as Debt Ceiling Crisis Looms – CNN Business
- White House Memo Warns of Steep Cuts From GOP Spending Bills Ahead of Biden-McCarthy Meeting – The Hill
- Centrist Dems Are Plotting a Save-McCarthy Strategy for the Debt Fight – Politico
- Job Cuts, No Social Security Checks: How Consumers Could Be Pinched by a US Government Default – Associated Press
- Republicans Push Two-Step Deal on Energy Permits in Debt Talks – Politico
- Appeals Court Pauses Ruling That Threatened Free Preventive Health Care – New York Times
Views and Analysis
- Republicans Say They Want to Cut Debt, but Tax Plans Say the Opposite – Natasha Sarin and Mark J. Mazur, New York Times
- After Breaking Itself, Congress Tries to Break the Rest of Government, Too – Catherine Rampell, Washington Post
- The Media Is Normalizing Debt-Ceiling Extortion – Jonathan Chait, New York
- America Is Hurt by Its Debt Ceiling Theatre of the Absurd – Martin Wolf, Financial Times
- How Biden Blew It on the Debt Ceiling – Paul Krugman, New York Times
- The Budget Farce: A Travesty in Two Acts – Robert Kuttner, American Prospect
- Don’t Combine a Constitutional Crisis and Debt Default – Bloomberg Opinion Editors
- Fed Faces a Long Battle to Trim Inflation to Its 2% Target – Colby Smith and Sam Learner, Financial Times
- Why Are Americans So Negative About the Economy? – Paul Krugman, New York Times
- A Libertarian and I Debate the Debt Ceiling – The Ezra Klein Show, New York Times