Happy Wednesday! President Biden departed for a four-day trip to the G7 summit in Hiroshima, Japan, but before he left he expressed optimism that a debt-limit deal could be reached with Republicans.
Here’s where things stand.
Dems Prepare Fallback Options, Even as Biden ‘Confident’ US Will Avoid a Default
President Joe Biden expressed optimism Wednesday that negotiations with Republicans will result in a budget deal that will raise the debt limit and avoid an unprecedented debt default. Yet even as he did so, the political posturing around talks continued and members of Biden’s party continued to work on fallback plans.
“I’m confident that we’ll get the agreement on the budget, that America will not default,” Biden said before departing for a Group of Seven summit of world leaders in Japan, adding, “To be clear, this negotiation is about the outlines of what the budget will look like, not about whether or not we’re going to, in fact, pay our debts. The leaders have all agreed we will not default. Every leader has said that.”
Biden shortened his planned overseas trip, canceling visits to Australia and Papua New Guinea. He is now scheduled to return from Japan on Sunday, which he said would be in time for the final stage of negotiations. Biden also said he would hold a press conference on the debt talks when he returns.
McCarthy told reporters that reaching a deal by Sunday is “doable.” In the meantime, as negotiations continue, so does the politicking. “God forbid you get a Biden default because he ignores the problem, just as he ignored the border,” the speaker told reporters at a news conference.
McCarthy got what he wants: The new negotiating structure that Biden, McCarthy and the other congressional leaders agreed to at their meeting Tuesday reduced the number of people involved in the talks. The change puts McCarthy in a strong position, as Carl Hulse of The New York Times writes: “Speaker Kevin McCarthy got what he wanted out of Tuesday’s debt limit talks at the White House — the chance to go one-on-one against President Biden.”
McCarthy has also effectively defined the terms of the discussions, which are centered around the key elements of the Limit, Save and Grow Act passed by House Republicans: spending caps, rescinding unspent pandemic funds, energy permitting reform and stiffer work requirements for social programs.
“The negotiators are not talking about Democratic priorities,” The Washington Posts’ Leigh Ann Caldwell and Theodoric Meyer note. “Raising taxes on the wealthy, lifting the corporate tax rate and cutting defense spending at similar levels to nondefense spending are all typical Democratic asks — but they’re not central to the conversation at the moment.”
Work requirements: Biden, who had signaled this weekend that he might be open to stiffer work requirements on some federal safety net programs besides Medicaid, reminded reporters that he had voted in favor of added work requirements in the past. Those comments sent the White House and Democrats scrambling to clarify their opposition to the additional work requirements Republicans are now proposing. “So-called work requirements are a nonstarter,” House Democratic Leader Hakeem Jeffries of New York told CNBC Wednesday.
On Wednesday, Biden was asked which work requirements he’d be willing to accept. “I'm not going to accept any work requirements that's going to impact on medical health needs of people,” he said. “I'm not going to accept any work requirements that go much beyond what is already — what I voted years ago for the work requirements that exist. But it's possible there could be a few others, but not anything of any consequence.”
McCarthy laughed at that notion. He has insisted that stronger work requirements be part of any deal. Those requirements may be a key element he needs to keep conservatives in his conference on board with a compromise that might otherwise fall short of their full wish list. “The work requirements only save about $1 billion per year, according to the Congressional Budget Office, a mere fraction of the amount Republicans want to cut, but they are a top ideological priority for conservatives,” the Post notes.
Dems move ahead with discharge petition: Rep. Brendan Boyle, the Pennsylvania Democrat who is the ranking member of the House Budget Committee, filed a discharge petition that would force a vote on a debt ceiling bill. The petition requires the signatures of 218 House members, and though Jeffries urged his 213 members to sign, Republicans in the House and Senate aren’t going to provide their help at this point. “Filing this petition does not preclude a deal or prevent other action – but it does create flexibility so Congress can come together to act,” Boyle said in a statement.
A group of Senate Democrats, meanwhile, is circulating a letter urging Biden to be ready to invoke the 14th Amendment to bypass the congressional talks and address the debt limit unilaterally, according to The Washington Post. “The letter, signed by five senators so far, reflects building unease among White House allies over the direction of negotiations,” the Post’s John Wagner, Marianna Sotomayor and Jeff Stein report.
“We are in a situation where these extreme Republicans in the House are demanding completely untenable policies in exchange for not driving the country’s economy off a cliff,” Sen. Tina Smith of Minnesota, one of the signatories, told the Post. “I think it’s important we understand there is another option.”
Some Senate Democrats remain skeptical that McCarthy can deliver a deal, or get his members to swallow a compromise. “I’m just very skeptical that there’s going to be an agreement in time,” Sen. Chris Murphy of Connecticut told Politico. “We’re gonna get to a point where McCarthy has to decide whether he’s willing to proceed to default.”
But Senate Majority Leader Chuck Schumer on Wednesday again called for bipartisanship rather than a one-sided approach. “Bipartisanship is needed. It’s the only way to go,” he said. “Nobody will get everything they want in these discussions, and I hope nobody — nobody — draws red lines in the sand.”
Big Drop in Treasury Cash Balance
The cash balance at the U.S. Treasury fell sharply this week, dropping by $53 billion in one day, leaving just $87 billion on hand as of Monday. It was the biggest one-day drop since March 1.
The Treasury’s cash balance is now at its lowest point since April 12, just before an influx of receipts around Tax Day. The big drop was driven in part by larger-than-expected securities redemptions by state and local governments, Bloomberg’s Alex Harris reports.
Some analysts think the Treasury will have enough cash to get past the early June deadline announced by Secretary Janet Yellen, though the margin for error could be small. As Bloomberg’s Harris writes, the latest numbers appear to increase “the chances that the government will run out of cash by early June if the debt limit isn’t raised or suspended by then.”
Number of the Day: $1 Billion
The Colorado River is a major source of water for more than 40 million people in the western United States. But the river has been drying up and has become the subject of a major dispute as states fight over their water supply and the Biden administration seeks to conserve water and protect the river. Now The Washington Post’s Joshua Partlow reports that California, Arizona and Nevada “have coalesced around a plan to voluntarily conserve a major portion of their river water in exchange for more than $1 billion in federal funds.” The deal isn’t quite done yet and still faces some hurdles, but the emerging consensus among the states and the administration reportedly would seek to have the states conserve about 13% of their allocation of river water over the next three years. “Participants are discussing cutting back about 3 million acre-feet of water over the next three years, the majority of it paid for with federal money approved in the Inflation Reduction Act,” Partlow writes.
Senate Democrats Take Aim at GOP Tax Cuts as Source of Deficit
As House Republicans continue to push for major spending cuts in exchange for raising the debt limit, Democrats on the Senate Budget Committee held a hearing Wednesday to highlight the role that tax cuts have played in increasing the national debt.
The hearing, titled “The Rich Get Richer, Deficits Get Bigger: How Tax Cuts for the Wealthy and Corporations Drive the National Debt,” included testimony from a number of experts who argued that Republican-led tax cuts are the prime culprit in the nation’s fiscal condition.
In his prepared remarks, Bobby Kogan, a budget expert at the liberal Center for America Progress, said that “without the Bush tax cuts, their extensions, and the Trump tax cuts, which gave a disproportionate share of their benefit to the rich, the ratio of debt to gross domestic product (GDP) would be declining indefinitely … our current rising debt ratio is due entirely to these tax cuts, not spending increases.”
Kogan called on lawmakers to look at revenue losses from tax cuts in the effort to control the debt. “Any discussion of how to address the deficits caused by these tax cuts should look first to the source,” he said.
Bruce Bartlett, a one-time Republican economist who helped pass tax cuts in the Reagan White House but now considers himself an independent, argued that the current standoff over the debt ceiling must be seen in light of Republicans’ main political project, which is to reduce government as much as possible. “Republicans believe in a theory called ‘starve the beast,’ which posits that the only way to cut spending is to slash taxes first,” he said. “It is precisely because tax cuts reduce revenue and raise the deficit that this works. However, deficits, in the Republican mind, arise only because of spending, never because of tax cuts. Thus their response to higher deficits is always to cut spending.”
Bartlett said that the Republican insistence on spending cuts and refusal to consider revenue increases means that the cost of their efforts is borne by those who benefit from federal programs. “These are often the poor and politically powerless,” he said. “But if the benefits of deficit reduction are large, then the cost should be shared by all Americans to the greatest extent possible. The only way to reach many well-to-do Americans is on the tax side of the budget. Thus tax increases are essential to fairness.”
As expected, Republicans on the committee and their expert witnesses rejected the idea that cutting taxes could somehow increase the deficit and instead blamed spending. “The problem isn’t tax cuts, but unchecked spending,” said Sen. Chuck Grassley, the ranking member. “Over the next decade, spending is projected to average 24.1 percent of our economy, a level previously reserved for times of war or recession.”
Adam Michel of the libertarian Cato Institute made much the same argument, though with many more charts and tables. At the same time, he noted that the argument over the cause of the debt and deficit “is simply a proxy argument over the appropriate size of the government.” Republicans want to cut spending because they want to keep taxes low and government small.
“The United States is a low-tax country compared to similar countries around the world,” Michel said. “So, if Congress wants to keep the United States a relatively low-tax country, spending will need to come down to meet revenues. On the other hand, if Congress decides that our current spending levels and projected spending increases are appropriate, taxes will eventually need to increase to match spending levels.”
- Biden ‘Confident’ on Reaching Debt Deal as GOP Bashes Japan Trip – Bloomberg
- Biden, McCarthy Aim for Deal on US Debt Ceiling by Sunday – Reuters
- Biden Gives Clearest Indication to Date He’s Willing to Make a Critical Debt Ceiling Compromise – Politico
- Senators Dismiss Happy Talk After Biden-McCarthy Debt Sitdown – Politico
- Senate Democrats Ask Biden to Ready 14th Amendment, Bypass GOP on Debt Limit – Washington Post
- The Five Washington Dealmakers Trying to Avoid a US Default – Bloomberg
- Drug Shortages Near an All-Time High, Leading to Rationing – New York Times
Views and Analysis
- The Speaker Gets His Chance to Go Toe-to-Toe With the President – Carl Hulse, New York Times
- The Narrative Shift of the Debt Ceiling Fight – David Dayen, American Prospect
- More Work Requirements Won't Help the Food Stamp Program – Claudia Sahm, Bloomberg
- The GOP’s Work-Requirement Scam – Eric Levitz, New York
- How to Use the Debt Ceiling to Inflict Cruelty on the Poor – David Firestone, New York Times
- How the Debt Ceiling Showdown Could Play Into China’s Hands and Weaken US Global Power – Stephen Collinson, CNN
- Quirky Federal Spending Speeds Up Debt-Ceiling Clash – Justin Fox, Bloomberg
- And the President Most to Blame for the National Debt Problem Is … – Glenn Kessler, Washington Post