Biden, McCarthy to Negotiate Debt Ceiling as Default Looms

The North Lawn of the White House on Nov. 18, 2022. Mandel Ngan/AFP via Getty Images

After months of stalled debt ceiling negotiations, President Joe Biden and House Speaker Kevin McCarthy (R-Calif.) will meet May 9 to discuss possible paths forward to prevent a looming default.

Set to take place at the White House, the summit will mark the first such meeting since Feb. 1, and will also include Senate Majority Leader Chuck Schumer (D-N.Y.), Senate Minority Leader Mitch McConnell (R-Ky.), and House Minority Leader Hakeem Jeffries (D-N.Y.).

Treasury Secretary Janet Yellen warned on May 1 that a default could occur as soon as June 1 if the limit on how much money the federal government can borrow to meet its financial obligations is not raised.

Currently, the national debt ceiling is set at $31.4 trillion. When the United States hit that ceiling in January, the Department of the Treasury took “extraordinary measures” to create additional borrowing space to avert immediate default.

Now, with those measures set to reach their limit, congressional leaders and the president will need to bridge the political divide to find common ground and a solution.

At an Impasse

While Biden and most Democrats have pushed for a “clean” debt limit hike with no conditions, Republicans have argued that continually raising the debt ceiling without balancing the federal budget only increases the financial burden on future generations of Americans.

In line with that thinking, on April 26, House Republicans passed a bill that would raise the debt limit by $1.5 trillion or through the end of March 2024—whichever comes first—but would tie that increase to future spending cuts.

Republicans have promoted the bill as a starting point for further discussion, but Democrats have branded it a “partisan wish list” with no chance of passage in the Senate.

Meanwhile, House Democrats quietly introduced an unrelated bill in January as part of a covert scheme to force a vote on their own plan via a discharge petition. The move is unlikely to succeed, however, given that a majority of the Republican-controlled chamber would need to sign the petition.

Nevertheless, leading up to the May 9 negotiations, both sides have doubled down on their positions, with 43 Republican senators—including McConnell—telling Schumer in a May 6 letter that they would oppose any proposals for a debt limit increase that did not include “substantive spending and budget reforms.”

In a May 7 tweet, Biden accused Republicans of brinksmanship, holding: “MAGA Republicans are laying out two options for us: 1. Cut veterans’ benefits, Meals on Wheels, education, and health care. 2. Force America to default on its debt. They’re holding the American economy hostage.”

‘Congress Must Raise Debt Ceiling’

With both parties digging in their heels, a compromise on the debt crisis may be difficult to find, though some legal scholars have argued that compromise may not be needed thanks to the 14th Amendment.

According to Section 4 of the amendment, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

During past debt ceiling stalemates, the 14th Amendment has been proposed as a potential fail-safe for the president to prevent default, though it remains unclear whether that interpretation would hold up in court as it has never been invoked.

Legality aside, when asked last week if he was considering that option, Biden told MSNBC that he hadn’t “gotten there yet.”

Further, on May 7, Yellen warned on ABC News that choosing that path would present a “constitutional crisis.”

If negotiations fail, another potential course of action could be that the Treasury Department defaults on only some of its bills, prioritizing payments on the principal and interest on its bonds, as officials suggested in 2013 when the department was in a similar situation.

The government could also choose to prioritize other bills in addition to the debt, but that would likely result in more political negotiations over which programs to prioritize, as well as complications over how to pause programs that are not funded.

One path experts have strongly cautioned against is defaulting on the debt, holding that it could create an economic catastrophe.

Specifically, according to Bipartisan Policy Center Vice President and Chief Economist Jason Fichtner, default could “damage the full faith and credit of the United States” and financially harm millions of taxpayers “through possible delayed government payments and loss of stock market value and retirement account wealth.”

In sharing those concerns with the Senate Budget Committee on May 4, Fichtner stressed: “Congress must raise the debt ceiling. Period. Full stop.”