President Biden and House Speaker Kevin McCarthy are set to meet at the White House on Tuesday to try to break the deadlock over the US debt limit, which could trigger a default and a recession if not raised by June 1. The meeting will include Senate leaders Chuck Schumer and Mitch McConnell and House leader Hakeem Jeffries amid rising tensions and low expectations for a bipartisan deal.
What is the debt limit, and why is it a problem?
The debt limit is the legal cap on how much the federal government can borrow to pay its bills, such as interest on the debt, Social Security benefits, military salaries, and tax refunds. It is currently set at $31.4 trillion, which the Treasury Department reached in August 2022.
Since then, the Treasury has used “extraordinary measures” to shuffle funds and avoid breaching the limit. But these measures will run out by June 1, according to Treasury Secretary Janet Yellen, who has warned of “catastrophic economic consequences” if Congress does not act to raise or suspend the limit.
If the limit is not lifted, the government would have to stop paying some of its obligations, which could cause a default on the debt, a downgrade of the US credit rating, a spike in interest rates, a plunge in stock markets, and a global financial crisis.
What are the positions of Biden and McCarthy?
President Biden has urged Congress to raise the debt limit without conditions, saying it is a “shared responsibility” of both parties and that failing to do so would be “irresponsible and reckless.” He has argued that raising the limit does not authorize new spending but only allows the government to pay for what Congress has already approved.
House Speaker McCarthy has opposed raising the debt limit without spending cuts, saying it would be “fiscally irresponsible” and “enable more reckless spending” by the Biden administration. Instead, he has proposed a bill that would raise the limit by $1.5 trillion until March 2024, impose caps on discretionary spending, and rescind some unspent funds from previous COVID-19 relief packages.
McCarthy has said his bill is a “reasonable compromise” to avoid default while addressing the growing budget deficit. However, he has also said he will not support a “clean” debt limit increase or a short-term extension that would punt the issue to later.
What are the chances of a deal?
The chances of a deal are slim, as both sides have dug in their heels and accused each other of playing politics with the nation’s creditworthiness. Democrats have rejected McCarthy’s bill as a “non-starter” and a “poison pill,” saying it would slash vital programs and services. Republicans have rejected Democrats’ calls for a clean increase as a “blank check” and a “rubber stamp” for Biden’s agenda.
The meeting at the White House could be an opportunity for both sides to find some common ground and avoid a crisis. But it could also be a mere formality or a blame game, as neither side seems willing to budge or compromise.
Some analysts have suggested that a possible outcome could be a two-year agreement to raise or suspend the debt limit while setting spending levels for fiscal years 2024 and 2025. This would provide some certainty and stability for the government and the markets while avoiding another showdown before the 2024 presidential election.
But such an outcome would require both sides to make concessions and trust each other, which may be too much to ask in the current political climate.