It’s almost Friday — and negotiators in Washington almost have a deal to raise the debt limit. Read on for the details.
Negotiators Close In on a Debt Deal, Angering Both Right and Left
White House and congressional negotiators are reportedly nearing a budget deal that would cut spending and raise the debt ceiling to avert an unprecedented default on U.S. debt — and members of both the Republican and Democratic parties are fuming and fretting about it, even as difficult issues remain unresolved.
President Joe Biden said Thursday afternoon that the negotiators were “making progress” and he believed that a bipartisan agreement will be reached. But he said that the two sides have very different visions for the country. “Speaker McCarthy and I have a very different view of who should bear the burden of additional efforts to get our fiscal house in order,” Biden said. “I don't believe the whole burden should fall on the backs of middle-class and working-class Americans. My House Republican friends disagree.”
The deal could be sealed as early as tomorrow, Republican Rep. Mike McCaul of Texas told CNN Thursday morning. And Republican Rep. Kevin Hern of Oklahoma told Reuters that negotiators “are inching closer to a deal” and an agreement is likely by Friday afternoon.
House Speaker Kevin McCarthy and his negotiators also indicated that the talks were advancing but remain at a delicate stage. “Are we closer? Yes,” Republican Rep. Patrick McHenry of North Carolina said. “Is it more difficult? Yes.”
McHenry said nothing had been finalized yet and that talks are entering the most difficult phase. “Nothing’s done, and we’re at a sensitive phase with sensitive issues that remain. Those sensitive issues are the thorniest issues that we’ve been discussing,” he told reporters.
The emerging deal reportedly would extend the debt limit through 2024 and include a strong incentive for Congress to pass all 12 annual spending bills: a mechanism that would automatically extend federal funding at a capped level agreed upon by the two sides if the appropriations bills aren’t enacted by the end of the fiscal year. The deal reportedly also would claw back unspent Covid funding and could still include some of the stiffer work requirements sought by Republicans for certain safety net programs.
The deal could include some surprises. Defense spending remains a sticking point in the talks, with Republicans looking to exempt the military from any spending caps and instead make deeper cuts to non-defense programs like education, Jim Tankersley of The New York Times reports. But the Associated Press says that Republicans may be willing to pull back on their demands for defense spending — and could be eyeing at least a modest victory on one of their biggest priorities, IRS funding.
“Republicans may be easing their demand to boost defense spending, instead offering to keep it at levels the Biden administration proposed, according to one person familiar with the talks and granted anonymity to discuss them,” the AP reported. “The Republicans may achieve their goal of rolling back bolstered funding for the Internal Revenue Service if they agree to instead allow the White House to push that money into other domestic accounts, the person said.”
“In case anyone had doubts about Republicans’ priorities, at the 11th hour before a catastrophic default, they’re making a last ditch effort to help rich people cheat on their taxes,” Democratic Sen. Ron Wyden of Oregon tweeted in response to that report.
The Washington Post adds that Biden officials may see the tradeoff as a good way to preserve funding for programs like nutrition assistance, rental aid and scientific research without giving up too much: “It is unclear exactly how much money the final agreement might strip from the IRS, but one of the people familiar with the matter said it is unlikely to be more than $10 billion.”
As indications grew that a deal may be within reach, some conservatives and progressives expressed heightened concerns that their leaders will give up too much to get to a final agreement.
What Republicans are angry about: “As the deadline nears, it’s clear the Republican speaker — who leads a Trump-aligned party whose hard-right flank lifted him to power — is now staring down a potential crisis,” the AP said.
Conservatives were angered by the likelihood of a larger increase in the debt ceiling than House Republicans had included in the bill they passed last month, which would lift the limit by $1.5 trillion or until March 31, 2024, whichever comes first.
“I am concerned about rumors to the effect — and I haven’t read or seen anything yet — but rumors that we may have some sort of a deal in place that would raise the debt limit for more than what was called for in Limit, Save, Grow for a whole lot less in return,” said Rep. Bob Good of Virginia. “If that were true, that would absolutely collapse the Republican majority for this debt ceiling increase.”
Members of the House Freedom Caucus sent McCarthy a letter Thursday calling a larger debt-limit hike “outrageous” and Biden’s position “preposterous.” The conservatives urged McCarthy to add border provisions to the Republican bill and end funding for the FBI’s new headquarters. The letter also questioned the validity of the June 1 deadline provided by Treasury Secretary Janet Yellen and suggested that McCarthy offer a stopgap measure to extend the deadline by clawing back unspent Covid money and repealing funding for the IRS enacted by Democrats last year.
On the Senate side, Utah Republican Mike Lee threatened to derail quick passage of any deal, tweeting: “I will use every procedural tool at my disposal to impede a debt-ceiling deal that doesn’t contain substantial spending and budgetary reforms. I fear things are moving in that direction. If they do, that proposal will not face smooth sailing in the Senate.”
McCarthy acknowledged the anxieties. “I don’t think everybody is going to be happy at the end of the day,” he told reporters. “That’s not how this system works.”
What Democrats are angry about: Many progressives are worried that the administration will agree to spending cuts they see as too steep — and they worry that the administration, and Biden specifically, has been too restrained in fighting back against the GOP’s demands and public posturing.
“The scale of the cuts is staggering, which really the public knows very little about,” said Rep. Rosa DeLauro of Connecticut, the top Democratic appropriator, per Politico. “The president should be out there.”
Dozens of Democratic votes may be needed to pass any deal, and some in the party feel they have not gotten concessions to match their role. “Many rank-and-file Democrats feel as if they’re going to be asked to vote for a package that is slanted toward Republican demands with little for them in return,” Punchbowl News reported Thursday morning, adding that Biden and Democratic leaders will have a lot of work to do to round up the necessary votes. “This will be a big test for House Minority Leader Hakeem Jeffries and Minority Whip Katherine Clark. They’ll have to deliver dozens of Democratic votes for Biden on a deal that benefits the president’s reelection campaign perhaps more than anyone else,” Punchbowl’s Jake Sherman and John Bresnahan suggested.
What’s next: Maybe, just maybe, we’ll see a deal tomorrow. The talks continue, but with just a week to go before the June 1 deadline — the earliest the government might run out of cash to pay its bills — and no agreement in place just yet, the House has left town for its Memorial Day recess. McCarthy has promised to allow 72 hours for members to read any legislation, and lawmakers can be called back with 24 hours’ notice.
Fitch Threatens US Downgrade as Debt Limit Brinkmanship Continues
Fitch Ratings, one of the three major firms that grade sovereign debt, announced late Wednesday that the United States’ perfect AAA credit rating is now at risk due to the ongoing political battle over the debt ceiling, which is raising the odds that the Treasury could miss payments on some of its obligations. The agency said U.S. credit is now on “rating watch negative,” signaling that Fitch could reduce the country’s bond rating if lawmakers fail to act in time to address the debt limit.
“The Rating Watch Negative reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching x date (when the U.S. Treasury exhausts its cash position and capacity for extraordinary measures without incurring new debt),” Fitch said.
A deterioration in governance and a growing debt load also weigh on the U.S. rating, Fitch added.
The rating agency said it thinks that lawmakers will act in time to avoid a default. Even so, it warned that failing to raise the debt ceiling by the X date “would be a negative signal of the broader governance and willingness of the U.S. to honor its obligations in a timely fashion, which would be unlikely to be consistent with a 'AAA' rating.”
Using a workaround to avoid defaulting on debt payments, such as invoking the 14th Amendment or minting a trillion-dollar coin, would also likely be problematic, Fitch said, and could cause a rating downgrade.
The Treasury Department said the potential downgrade shows just how important it is for lawmakers to resolve the issue quickly. “As Secretary Yellen has warned for months, brinkmanship over the debt limit does serious harm to businesses and American families, raises short-term borrowing costs for taxpayers, and threatens the credit rating of the United States,” a Treasury spokesperson said in a statement.
Joseph Brusuelas, chief economist at the consulting firm RSM, warned that the debt ceiling showdown was already imposing an economic cost, just as a similar battle did in 2011, even though there was ultimately no default.
“The longer this episode continues, the greater the risk that the global reserve status of the U.S. dollar will be put in danger,” he wrote Thursday. “Like the 2011 debt ceiling debacle, equity valuations that underscore American households’ retirement accounts will suffer while corporate and consumer confidence will almost surely decline. All of these factors will create an adverse wealth effect that will show up on growth in the second half of the year.”
Brusuelas called on lawmakers to end what is essentially a political battle. “This is an artificial crisis that has nothing to do with the underlying health of the American economy, excessive imbalances or malinvestment within financial markets or the security of the country,” he said. “It is time to bring it to an end.”
Chart of the Day: Too Close for Comfort?
Donald Schneider, an analyst at Piper Sandler who previously served as chief economist for the GOP House Committee on Ways and Means, tweeted out this chart showing estimates for the cash balance at the U.S. Treasury in the coming days. “I think Treasury, after deploying all extraordinary measures, could have as little as $10bn on hand June 2 and $2 billion on June 9,” Schneider said.
“To be clear, Treasury rarely has cash balances below $25bn, especially with 0 extraordinary measures left, as would be the case in early June,” Schneider added. “This is very risky & relies on pretty uncertain daily estimates of revenues. $2bn is not a cash balance Treasury can reasonably carry.”
- Debt Ceiling Talks Teeter on the Brink, as Lawmakers Leave Town for Weekend Without a Deal – Associated Press
- Biden Aides Offer IRS Cuts to GOP, Hoping to Spare Other Programs – Washington Post
- House Conservatives Blanch at Leaked Details of McCarthy-Biden Debt Talks – Politico
- Democrats’ Worry Grows Over White House Approach to Debt Talks – Washington Post
- Democrats Want Biden to Give a National Address on the Debt Ceiling Fight – Semafor
- Jeffries Warns: House Democrats Won’t Rubber Stamp Debt Ceiling Deal – The Hill
- Military Spending Emerges as Big Dispute in Debt-Limit Talks – New York Times
- States Are Not Entitled to Windfalls in Tax Disputes, Supreme Court Rules – New York Times
- Judges Rebuke Social Security for Errors as Disability Denials Stack Up – Washington Post
- House Votes to Overturn Biden’s Student Loan Forgiveness Program – Washington Post
- America Aged Rapidly in the Last Decade as Baby Boomers Grew Older and Births Dropped – Associated Press
Views and Analysis
- Why Corporate America Isn’t Freaking Out Over the Debt Limit – Theodoric Meyer and Leigh Ann Caldwell, Washington Post
- When Kevin McCarthy’s Spending Cuts Get Spelled Out, Even Republicans Balk – Jackie Calmes, Los Angeles Times
- If the U.S. Avoids a Debt Ceiling Disaster, You May Want to Thank Main Street, Not Wall Street – Howard Gleckman, Forbes
- Debt Deal MUST Include Spending Cuts — Because We’re Headed for Disaster – Brian Riedl, New York Post
- Is Joe Biden Botching the Debt-Ceiling Fight? – Eric Levitz, New York
- Want to Cut Spending? Here’s How Much of Our Budget Is Going to the Military and Police – Indigo Olivier, New Republic
- America’s ‘Neoliberal’ Consensus Might Finally Be Dead – David Wallace-Wells, New York Times
- A Liberalism That Builds Power – David Dayen, American Prospect
- Joe Biden Wants a ‘New Economic World Order.’ It’s Never Looked More Disordered – Gavin Bade, Politico