Biden, McCarthy in debt ceiling talks as US default risk looms

US President Joe Biden and House Speaker Kevin McCarthy met at the White House yesterday to discuss raising the US government’s US$31.4 trillion debt ceiling, with the US economy at risk if no agreement is reached within 10 days. The Democratic president and the top congressional Republican have struggled to make progress on a deal, as McCarthy pressures the White House to agree to spending cuts in the federal budget that Biden considers “extreme,” and the president pushes new taxes on the wealthy that Republicans reject.

With less than 10 days left to reach a deal – until June 1 – to increase the government’s self-borrowing limit or trigger an unprecedented debt default that economists warn could bring on a recession, the two leaders showed no sign that an agreement was imminent in remarks to reporters before they met.

“I think at the end of the day we can find common ground” but that differences remained, McCarthy said. Meanwhile, Biden expressed optimism that they could make some progress.

Treasury Secretary Janet Yellen yesterday offered a sobering reminder of how little time is left, stating the earliest estimated default date remains June 1 and that it is “highly likely” that Treasury will no longer be able to pay all government obligations by early June if the debt ceiling is not raised.

White House aides met with Republican negotiators on Capitol Hill for two hours yesterday, and early indications were that the talks had gone well. Any deal to raise the limit must pass both chambers of Congress and therefore hinges on bipartisan support. McCarthy’s Republicans control the House 222-213, while Biden’s Democrats hold the Senate 51-49.

A failure to lift the debt ceiling would trigger a default that would shake financial markets and drive interest rates higher on everything from car payments to credit cards. US markets rose yesterday as investors awaited updates on the negotiations.

It will take several days to move legislation through Congress if and when Biden and McCarthy agree. McCarthy said that a deal must be reached this week for it to pass Congress and be signed into law by Biden in time to avoid default.

A White House official yesterday said that Republican negotiators had last week proposed additional cuts to programs providing food aid to low-income Americans, and emphasised no deal could pass Congress without support from both parties.

Republicans want discretionary spending cuts, new work requirements for some programs for low-income Americans, and a clawback of Covid-19 aid approved by Congress but not yet spent in exchange for a debt ceiling increase, which is needed to cover the costs of lawmakers’ previously approved spending and tax cuts. Democrats want to hold spending steady at this year’s levels, while Republicans want to return to 2022 levels. A plan passed by the House last month would cut a wide swath of government spending by 8% next year.

Biden, who has made the economy a centrepiece of his domestic agenda and is seeking re-election, has said he would consider spending cuts alongside tax adjustments but that Republicans’ latest offer was “unacceptable.” The president tweeted that he would not back “Big Oil” subsidies and “wealthy tax cheats” while putting healthcare and food assistance at risk for millions of Americans.

MAGA House Republicans are threatening a default that could cost us millions of jobs and trigger a recession.

All because they are demanding deep cuts that will hurt hardworking families – even while they protect tax breaks for the wealthy and corporations.
⁰I’ve got a plan to… pic.twitter.com/8kiBsJRprj

— President Biden (@POTUS) May 21, 2023

Both sides must also weigh any concessions with pressure from hardline factions within their parties. Some far-right House Freedom Caucus members have urged a halt to talks, demanding that the Senate adopt their House-passed legislation, which has been rejected by Democrats. McCarthy, who made extensive concessions to right-wing hardliners to secure the speaker spot, risks being removed by members of his party if they do not like the deal he cuts.

Former President Donald Trump, a Republican who is seeking another term after losing to Biden in the 2020 election, has urged Republicans to force a default if they do not achieve all their goals, downplaying any economic consequences.

Liberal Democrats have pushed back against any cuts that would harm families and lower-income Americans, with some urging Biden to act on his own by invoking the Constitution’s 14th Amendment – an untested move which the president said on May 21 would face constraints.

The amendment states that the “validity of the public debt of the United States … shall not be questioned,” but the clause has been largely unaddressed by the courts, reported Channel News Asia.