With a June default date looming, President Joe Biden is meeting with Democrat and Republican leaders on Tuesday to discuss the urgent issue of the debt ceiling, the legal cap that the US can borrow.
The gathering, which will include Senate Majority Leader Chuck Schumer, Senate Minority Leader Mitch McConnell, House Speaker Kevin McCarthy, and House Minority Leader Hakeem Jeffries, is an important first step in keeping the US from defaulting on its debt. But because Democrats and Republicans are so dug in on how to approach debt ceiling negotiations, the meeting isn’t expected to result in significant progress just yet.
As they’ve repeatedly emphasized, Democrats are intent on a “clean” debt ceiling increase that isn’t paired with any spending cuts. Republicans, meanwhile, are dedicated to using the must-pass debt ceiling bill as leverage for serious social spending cuts that have no chance of passing the Senate.
That disagreement has been the root of an enduring standoff between both parties up to this point, and it’s likely to be reaffirmed at Tuesday’s meeting. The gathering, however, signals that both parties sense the importance of beginning talks immediately given how little time lawmakers have before a possible deadline.
Raising or suspending the debt ceiling is a vital action Congress needs to take every few years to make sure that the country is able to pay its bills. If lawmakers fail to do so and the country defaults, the government could delay important payments, including Social Security checks; interest rates will skyrocket; and unemployment is expected to go up as well. The country’s credit rating would also fall, which could have ripple effects across the global economy, setting off a financial crisis.
What Democrats want from debt ceiling talks
Democrats, who felt burned by Republicans in 2011, when the GOP similarly tried to use a debt limit standoff to extract major concessions, have vowed not to negotiate on the debt ceiling this time around.
“This is their constitutional duty. Congress must act,” White House press secretary Karine Jean-Pierre said on Monday. “That’s what the president is going to make very clear with the leaders tomorrow.”
In 2011, President Barack Obama tried to negotiate with congressional Republicans only to have those talks implode. Amid fears the US actually would default on its debt, House and Senate lawmakers ultimately arrived at a deal that included spending cuts and a debt ceiling increase.
Going into Tuesday’s meeting, Democrats have stood by their position, with Schumer urging a two-year standalone debt ceiling increase. Both Jeffries and Schumer have indicated, too, that they’re less interested in any short-term extensions that would buy lawmakers more time.
Biden has said he is open to negotiations on spending, but that spending talks should be handled separately and not tied to the debt ceiling, as Republicans have tried to do. His position has centered on approving the debt ceiling increase first, and then addressing potential cuts later.
What Republicans want from debt ceiling negotiations
House Republicans came together in late April to pass legislation, dubbed the Limit, Save and Grow Act, that effectively lays out their wish list for talks.
In this bill, they called for federal spending to be returned to fiscal year 2022 levels, and for annual increases in discretionary spending to be capped at 1 percent, which is below the rate of inflation. Such caps could have a wide range of effects, including reducing spending for affordable housing aid and nutrition services. According to the Congressional Budget Office, the legislation would save $4.8 trillion over 10 years, though certain provisions, such as reducing funding for the IRS, would actually add to the deficit.
In addition to addressing IRS funding, the bill contains a rollback of other Democratic policy wins, including clean energy tax credits. It also pushes Republican priorities like adding controversial work requirements for Medicaid, and would undo Biden’s forgiveness of some student loans. It’s obvious the legislation isn’t poised to advance, given Democratic control of the Senate, though it establishes Republicans’ starting position.
Republican cooperation is needed to avoid a default, and they’re interested in using the leverage they currently have in order to secure some version of spending cuts in the debt ceiling talks. Conservatives are also urging McCarthy to take a hard line on preserving aspects of the House-passed legislation in negotiations, an expectation he’ll have to manage moving forward.
Thus far, House Republicans have viewed their ability to unify behind a bill as a show of strength and as their opening bid to Biden in negotiations. “He either has to negotiate now or we’re the only ones that have raised the debt limit,” McCarthy previously said.
How the debt limit standoff could end
As Vox’s Andrew Prokop explained, there will likely need to be concessions from both parties for this standoff to be resolved — though whether such talks are even productive depends on how committed Republicans actually are to avoiding a default.
Historically, lawmakers have gotten close to the brink but have never intentionally gone over because they’re aware of how disastrous that would be. If Republicans were so committed to sending a message about government spending that they’re willing to default, that could change the dynamics of these talks.
Notably, a big question is whether McCarthy would be able to get the votes he needs to approve a deal in the House, given hardline conservatives’ push for more aggressive cuts. Theoretically, some moderate Republicans could join with House Democrats to approve an agreement lacking these cuts, though McCarthy could face blowback from his right flank for allowing such a deal to come to the floor.
In the end, Prokop notes, a deal could involve Democrats and Republicans finding middle ground on spending: Biden has proposed $1.695 trillion in discretionary spending for fiscal year 2024, while House Republicans have proposed $1.471 trillion. Additionally, there’s a question of if lawmakers would agree to longer-term discretionary spending caps.
Perhaps the most likely scenario at the moment is one 2011 negotiators outlined for Vox: The parties come to a final agreement that avoids a default but includes some kind of concession in order for Republicans to “save face” and get the votes needed to approve it.