President Joe Biden and House Speaker Kevin McCarthy were unable to reach an agreement on Monday regarding the US government’s $31.4 trillion debt ceiling, with just 10 days remaining before a potential default that could have severe consequences for the US economy.
Despite the challenges, both leaders expressed their commitment to ongoing discussions. The negotiations between the Democratic president and the top Republican in Congress have been fraught with difficulties. McCarthy has been exerting pressure on the White House to accept spending cuts in the federal budget that Biden deems “extreme,” while the president has been advocating for new taxes that Republicans have rejected.
Following their meeting on Monday evening, both sides emphasized the importance of avoiding a default and signalled their intention to continue talking in the coming days. A source familiar with the situation revealed that White House negotiators would resume discussions on Capitol Hill later that night.
In a statement after the meeting, President Biden stated that default was not an option and reiterated the need for a bipartisan agreement. McCarthy, after over an hour of talks, expressed optimism, stating that negotiators would work through the night to find common ground. However, he made it clear that he opposed Biden’s plan to raise taxes on the wealthy and close tax loopholes, focusing instead on reducing spending in the 2024 federal budget.
Both Democrats and Republicans have until June 1 to raise the government’s borrowing limit or risk an unprecedented debt default that economists warn could trigger a recession. Treasury Secretary Janet Yellen stressed the limited time remaining and the likelihood of the Treasury being unable to fulfil all government obligations by early June if the debt ceiling is not raised.
Republican Representative Patrick McHenry, present in the White House meeting, ruled out the possibility of a partial budget agreement to raise the debt ceiling, insisting on a finalized deal. The success of any agreement hinges on bipartisan support since it needs to pass both chambers of Congress. The Republicans control the House by a slim margin of 222-213, while the Democrats hold a slight majority in the Senate.
A failure to raise the debt ceiling would have far-reaching consequences, shaking financial markets and leading to higher interest rates on various financial commitments. Despite the ongoing negotiations, US markets rose on Monday as investors awaited updates on the situation.
Once Biden and McCarthy reach an agreement, it will take several days to pass the necessary legislation through Congress. McCarthy emphasized the urgency of reaching a deal this week to ensure it can be enacted in time by Biden and prevent a default.
The Republicans are advocating for discretionary spending cuts, work requirements for some low-income programs, and clawing back unspent COVID-19 aid in exchange for a debt ceiling increase. Democrats aim to maintain spending at current levels in 2024, while Republicans want to revert to 2022 levels and impose spending growth caps in subsequent years. Biden has expressed openness to spending cuts alongside tax adjustments but found the Republicans’ latest offer unacceptable.
Both sides also face pressure from their own party factions, with far-right House members urging a halt to talks and liberal Democrats opposing cuts that could harm families and lower-income Americans. The outcome of these negotiations will have significant implications for the country’s financial stability and the political futures of the involved leaders.