We made it to the weekend! The same can’t be said of the debt talks on Capitol Hill, which broke down unexpectedly on Friday, dashing hopes that a deal could be reached this weekend — or at least dimming them.
Here’s an update.
Republicans Abruptly Hit ‘Pause’ on Debt Talks
Debt-limit talks between the White House and House Speaker Kevin McCarthy have been put on “pause” after Republican negotiators abruptly walked out of the meetings and complained that President Joe Biden’s team was being “unreasonable.”
“We’ve got to get movement by the White House and we don’t have any movement,” McCarthy told reporters. “So yeah, we’ve got to pause.”
McCarthy was not in the Friday meeting, but his lead negotiator, Rep. Garret Graves of Louisiana, told reporters that the talks had reached an impasse. “We’ve decided to press pause because it’s just not productive,” he said, adding that he was not sure if negotiators would be meeting this weekend.
Split on spending levels: McCarthy indicated that the White House was resisting spending cuts: “We can’t be spending more money next year. We have to spend less than we spent the year before. It’s pretty easy.”
Republicans are looking to cut spending by about $130 billion and cap growth at 1% a year for the next decade. The White House reportedly has indicated that it does not want to reduce spending below fiscal year 2023 levels and is instead willing to freeze discretionary spending rather than cut it.
“Spending caps are the major sticking point, although they’re not the only one,” Republican Rep. Dusty Johnson of South Dakota told Politico.
The breakdown is a sharp reversal from the optimism McCarthy had expressed on Thursday, when he told reporters he could see a path to an agreement. The speaker had said that it was imperative to at least reach a deal in principle by this weekend so as to leave the House and Senate enough time to pass the necessary legislation. The Treasury Department has warned that it could run out of cash and be unable to pay its bills as soon as June 1.
The right-wing House Freedom Caucus on Thursday called on McCarthy to end the bipartisan talks until after the Senate passes the bill approved by House Republicans last month to provide a $1.5 trillion increase in the debt ceiling combined with some $4.8 trillion in spending cuts. That legislation would also apply stricter work requirements to food stamps, welfare and Medicaid.
The White House pushes back: “Sources familiar with the White House’s thinking acknowledge that part of the reason for the temporary breakdown in talks is that White House negotiators view the extent of spending cuts House Republicans are pushing for as unacceptable, though the White House has expressed a willingness to cut some spending,” CNN’s Melanie Zanona and Haley Talbot report.
Bloomberg’s Billy House adds that White House aides told Republicans that some GOP demands would lead to mass Democratic defections. Democratic votes — potentially dozens of them — will likely be needed to pass any deal. Progressive Democrats in recent days have been aggressively pressing to ensure that the White House does not agree to certain Republican demands, particularly expanded work requirements.
A White House official reportedly said: “There are real differences between the parties on budget issues and talks will be difficult. The president’s team is working hard towards a reasonable bipartisan solution that can pass the House and the Senate.”
What it means: This could just be a bump on the road to a deal, or it could be a more serious setback.
“Sometimes the breakdown of talks comes just before the breakthrough in these DC negotiations,” Garrett Haake of NBC News noted. “In those cases, walking away is how you show YOUR side how hard you’re fighting for YOUR priorities.”
An administration official told The Washington Post’s Jeff Stein: “A path to a reasonable bipartisan budget agreement is still possible as long as both sides recognize that they won’t get everything they want.”
Right now, it’s not completely clear that that’s the case.
The bottom line: It’s not clear when talks will resume, but time is ticking away. Analysts at Goldman Sachs said Friday that Treasury might be able to make it past June 1 but would likely see its cash levels drop under $30 billion by June 8 or 9.
“At that point, we believe there are even odds that the Treasury exhausts its funds entirely at that point,” Goldman’s Alec Phillips and Tim Krupa told clients. “We are confident that Congress will avoid going past the deadline without action, but there are many paths this could take. The most likely is a full-fledged deal that suspends the debt limit to early 2025 along with spending caps (70% chance). There is a small chance this could be announced over the weekend (10%) but we think a deal is more likely later next week (30%) or shortly before the deadline (30%).”
Quote of the Day
“The U.S. Treasury market is Washington’s golden goose, and the market shows the golden eggs it lays are still very much in demand. And yet the U.S. has a rule in the debt ceiling that inexplicably says that the golden goose should be taken out back and shot unless it agrees to lay fewer eggs for a while.”
– Maximilian Hess, principal at London-based political risk firm Enmetena Advisory, as quoted by The Washington Post in an article detailing the global “disbelief and horror” about the prospect of a U.S. debt default. “Rich and poor nations alike fear a possible U.S. default, which would torpedo the financial markets and deal a massive blow to the dollar,” the Post’s Rachel Siegel and Jeff Stein report. “Analysts say the impasse jeopardizes America’s standing abroad. And foreign economists and policymakers are bewildered over why the United States has imposed a specific limit on its debt and then turned it into a political football.”
Number of the Day: $101 Billion
The U.S. Treasury is scheduled to pay out $101 billion on June 1, according to an updated analysis of the department’s cash flow by the Bipartisan Policy Center this week. The payments include $47 billion for Medicare, $12 billion for veterans’ benefits, $10 billion for military pay and retirement, $6 billion for civil service retirement and $5 billion for supplemental security income. On the revenue side, the Treasury is projected to take in an estimated $26 billion on the same day.
The payments due on June 1 are exceptionally large, but the next day could also be challenging, with the Treasury expected to pay $27 billion on June 2, including $25 billion for Social Security benefits and $2 billion for Medicaid. The sizable outlays scheduled for early June highlight the difficulties the Treasury faces as it maneuvers to meet all U.S. obligations, even as lawmakers continue to battle over raising the debt limit. This week, Treasury Secretary Janet Yellen reiterated her estimate that the so-called X date, when the Treasury runs out of cash to make all of its payments in full and on time, could arrive in early June, and perhaps as soon as June 1.
BPC estimates that the X date will arrive between June 1 and early August. “Due to the unpredictability of cash flows, and thus, all debt limit projections, policymakers should act ahead of the projected X Date window if they intend to ensure that all obligations of the U.S. government are paid in full and on time,” BPC said.
Accounting Error Means $3 Billion More in Aid for Ukraine
The Department of Defense said an accounting error led it to overestimate the value of weapons being sent to Ukraine, freeing up at least $3 billion that can be used to provide additional military assistance.
“During our regular oversight process of presidential drawdown packages, the Department discovered inconsistencies in equipment valuation for Ukraine,” said Pentagon spokesperson Sabrina Singh, per the Associated Press. “In some cases, ‘replacement cost’ rather than ‘net book value’ was used, therefore overestimating the value of the equipment drawn down from U.S. stocks.”
In other words, when the U.S. sent older equipment to Ukraine it sometimes valued it as if it were new. Correcting the valuations to reflect the age of the equipment reduces the total amount that has been sent to Ukraine so far, making it possible to send more material under existing authorizations. The U.S. has provided nearly $37 billion in military aid to Ukraine so far, with most of it being drawn from existing Pentagon stockpiles.
The news has been welcomed by some Ukraine supporters, since it will allow the U.S. to continue to provide aid to Ukraine into the fall without additional authorization from Congress. The Pentagon had said that about $2.3 billion remained from the funds provided through presidential drawdown authority, which worried some Ukraine supporters who are concerned that Republicans in the House may refuse to provide additional aid. Now, that figure is closer to $5.3 billion.
Still, some lawmakers complained that the accounting error may have harmed Ukraine as it planned its widely expected spring offensive against Russian forces occupying parts of the country. “The revelation of a three-billion-dollar accounting error discovered two months ago and only today shared with Congress is extremely problematic, to say the least,” House Foreign Affairs Chairman Michael McCaul and House Armed Services Chairman Mike Rogers in a statement. “These funds could have been used for extra supplies and weapons for the upcoming counteroffensive, instead of rationing funds to last for the remainder of the fiscal year.”
News
- White House, GOP Abruptly Break Off Debt Ceiling Talks as Deadline Nears – Washington Post
- Trump Urges Hardline Position as Debt Ceiling Talks Paused: ‘Do Not Fold!!!’ – The Hill
- House Hardliners Could Try to Block Debt-Ceiling Deal Without 'Robust' Cuts – Reuters
- 66 Progressive Lawmakers Urge Biden to Use 14th Amendment in Debt Ceiling Fight – The Hill
- Biden World Tells Progressives to Chill on the Talk of 14th Amendment – Politico
- US Chamber Warns Biden Using 14th Amendment Would Be ‘Economically Calamitous’ – The Hill
- World Watches in Disbelief and Horror as U.S. Nears Possible Default – Washington Post
- If the U.S. Defaults, Will It Miss Medicare Payments? What About Social Security? See What’s at Risk – Washington Post
- $3 Billion Accounting Error Means Pentagon Can Send More Weapons to Ukraine – Associated Press
- A Loud G.O.P. Minority Pledges to Make Trouble on Ukraine Military Aid – New York Times
- Powell Says Credit Crunch Is Doing the Work of Fed’s Rate Hikes – The Hill
- Bezos’s Blue Origin Wins NASA Contract to Land Astronauts on the Moon – Washington Post
- Former US Attorney Calls Brett Favre ‘Driving Force’ in Mississippi Welfare Scandal – The Hill
Views and Analysis
- Debt Limit Standoff Looms Over G-7 – Theodoric Meyer and Leigh Ann Caldwell, Washington Post
- Why the House Freedom Caucus’ Debt Ceiling Demands Matter – Steve Bennen, MSNBC
- The Debt-Ceiling Debate Is a Farce, but Fiscal Policy Is a Fiasco – Clive Crook, Bloomberg
- The Vanishing 14th Amendment Case – David Dayen, American Prospect
- Yes, Republicans Lifted the Debt Ceiling Without Spending Cuts Under Trump – Casey Decker, Verify
- Will The U.S. Economy Pull Off a ‘Soft Landing’? – Paul Krugman, New York Times
- Wonking Out: Death, Napoleon and Debt – Paul Krugman, New York Times
- AOC Dunks on McCarthy: If You Want to Cut Spending, What About No Yacht Tax Breaks? – Prem Thakker, New Republic
- Maybe the Looming Debt Ceiling Disaster Is Really Just Politics as Usual – George Will, Washington Post
- Once Again, SNAP Is a Political Football: And Americans Suffer for It – Lyndon Haviland, The Hill
- Debt Ceiling Clash Should Push States to Rely Less on Federal Money – Steven Johnson, The Hill
- States Are Getting Billions From Opioid Settlements. Now What? – McKenzie Beard, Washington Post
- When It Comes to Public Transportation, There Is No Free Ride – Charles Lane, Washington Post
- Are US Prescription Drug Prices 10 Times Those of Other Nations? Only Sometimes – Michelle Andrews, KFF Health News