1 year ago
The Biden administration and House Republicans are heading toward an initial Thursday debt ceiling deadline without even a hint of an endgame, ensuring a months-long standoff that's poised to rattle financial markets amid worries about a recession this year.
The two sides are effectively shrugging as the Treasury Department warns the country will hit the $31.4 trillion borrowing cap Thursday — though it’s not a hard deadline, as the department can still use extraordinary measures to pay the bills for another few months. But it means the potential economic doomsday clock is officially ticking, with House Republicans still insisting on massive spending cuts before they help raise the debt ceiling and Democrats refusing to engage the idea.
Treasury Secretary Janet Yellen said last week that the U.S. likely won’t run out of cash or exhaust those measures until at least early June. Until then, the department is suspending investments in certain government retirement funds and hoping the House GOP and Democrats can come to an agreement to keep the government from careening into an economic crisis with far-reaching consequences.
But Yellen’s warning to congressional leaders hasn’t spurred any movement toward even the beginning of a deal between Congress and the White House. The biggest legislative battle of the year is just beginning — and threatening to grow even messier than the 15-ballot speakership fight — and there’s no exit strategy in sight.
Even some Republicans viewed as more likely to negotiate with the White House are already taking aim at the administration's position after White House press secretary Karine Jean-Pierre said last week: “We will not be doing any negotiation."
“Maybe we should not just draw lines in the sand immediately, including the White House,” said Rep. Kelly Armstrong (R-N.D.), calling the administration’s refusal to negotiate on fiscal reforms “disappointing.”
“If we default on our debt, there's going to be huge ramifications,” he said. “I'm not interested in bottoming out everybody's 401k. They've already had a tough year.”
The White House is already working behind the scenes to work around Speaker Kevin McCarthy, including dispatching its top advisers to meet with moderate Republicans — particularly those who won in districts President Joe Biden won in 2020 — in hopes Democrats can count on those GOP lawmakers to cross the aisle and lift the debt ceiling.
“I think there is a real chance of that,” said one senior House Republican. “Kevin would probably love for that to happen because it gets him out of — ‘it wasn’t me.’”
Others think the White House needs to come at it differently for officials to have any hope at cross-aisle cooperation.
“Biden’s initial comment of zero negotiations is a non-starter,” said Rep. Don Bacon (R-Neb.), who said he personally hasn’t heard from the White House. “[Republicans] can’t get 100 percent of what we want with only control of half of Congress, but our voters sent us to D.C. to control spending, so the Democrats have to show some movement our way, too.”
“Both sides need to negotiate in good faith,” he added.
Concessions over the debt ceiling were a vital part of the deal that McCarthy negotiated with his 20 conservative holdouts to finally attain the speakership. He agreed that the GOP House wouldn’t move to lift the debt ceiling unless Congress slashes at least $130 billion in federal spending next fiscal year or addresses broader fiscal reforms that tackle the ballooning debt, as many Republicans argue it threatens the nation’s economic security and future.
Such spending cuts should be negotiated as part of the annual budget and appropriations process Congress will also have to tackle later this year, said Sen. Chris Van Hollen (D-Md.). He argued it shouldn’t occur during a high-stakes battle over the nation’s borrowing authority.
"We've been very clear. The President's been very clear. It's everybody's duty to make sure the United States pays its bills on time,” Van Hollen said. “There will be no negotiations over the debt ceiling and paying our bills on time.”
But Republicans, who are still deciding how to populate their committees after the speakership fight delayed those moves, said concrete discussions about potential demands haven’t even begun.
Some GOP members are beginning to float more specific plans as the debt-ceiling fight gets officially underway, like the return of a controversial payment prioritization plan that former Sen. Pat Toomey’s (R-Pa.) proposed during a similar showdown about a decade ago. Such a plan would allow the government to keep paying its bondholders if both parties can’t reach an agreement, while dictating what other financial obligations would lapse.
“I fully support the debt prioritization plan as it’s one of the many steps that have to be implemented,” said Rep. Ralph Norman (R-S.C.), a Freedom Caucus member who was among the 20 conservative McCarthy holdouts. Norman has argued his main priority is working to balance the budget over the next 10 years or less.
Meanwhile, the primary concern for financial markets is whether the debt ceiling brawl forces the U.S. to miss a payment owed to Treasury bondholders. Treasuries — usually seen as extremely safe assets — underpin the global financial system and are closely tied to lending products like mortgages. Missing a payment could send the stock market off a cliff, though Wall Street analysts are split about how much of a threat the standoff actually poses to the economy, with some banking on Congress and the White House reaching some sort of deal before the federal government misses any debt payments.
Some of the Republicans pushing the payment prioritization plan, first reported by the Washington Post, include Rep. Chip Roy (R-Texas), one of the 20 holdouts. He told the Post: “We agreed to advance a debt prioritization bill through regular order by the end of the first quarter of 2023 … Now, the contours of that were not specified (there are different versions).”
The hotly debated idea divides Republicans and budget experts alike, and the administration has already swatted it down. White House chief of staff Ron Klain tweeted that it would sow “CHAOS” in the U.S. and “cut off funding” for food safety, FAA operations, border security and drug enforcement.
“This so-called prioritization scheme makes Republicans’ priorities pretty clear,” Jean-Pierre said Tuesday. “They want to put wealthy bondholders over ordinary Americans.”
It’s unclear what capability the Treasury Department has to prioritize payments, with officials declining to comment last week on whether it’s even an option. A top Treasury official stressed in a December speech that debt limit stalemates hurt the department's cash balance and trigger market volatility. Treasury officials told House Republicans in 2014 that while the government could technically prioritize payments, such a plan would be “entirely experimental and create unacceptable risk to both domestic and global financial markets.”
Payment plan aside, the debt ceiling is a critical political battle for the House GOP. With McCarthy commanding only a narrow majority that can move to topple him at any time, even lawmakers who count him as a friend predict the showdown won’t end well for him.
“It will cost Kevin his job,” said Sen. Kyrsten Sinema (I-Ariz.).
Burgess Everett, Alex Ward and Adam Cancryn contributed to this report.
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