Biden Caves to GOP Demand for Debt Ceiling Talks

Biden Summons Congressional Leaders to White House Amid Risk of Default

The United States government could run out of cash to pay its bills as early as June, according to Treasury Secretary Janet Yellen. This has prompted President Joe Biden to call for a meeting with the four top congressional leaders at the White House on May 9. The risk of an unprecedented default has added new urgency to political calculations in Washington, where Democrats and Republicans are preparing for a months-long standoff.

Invitations Extended to Key Leaders

Biden has invited Republican House Speaker Kevin McCarthy, House Democratic leader Hakeem Jeffries, Senate Majority Leader Chuck Schumer, and Republican leader Mitch McConnell to the meeting. Biden had previously said he would not negotiate over the debt ceiling increase, but will discuss budget cuts after a new limit is passed. Congress has often paired debt-ceiling increases with other budget and spending measures.

Spending Cut Demands

House Republicans passed a bill to raise the debt limit last week that includes steep cuts to spending from healthcare for the poor to air-traffic controllers, which the Democratic-controlled Senate and Biden say they will not approve. The April 26 bill passed by the Republican-led House would slash tax incentives for solar energy and implement $4.5 trillion in spending cuts – or about 22% – in exchange for a $1.5 trillion increase in the U.S. debt limit.

Risk of Default Within Weeks

A potential default within weeks “is not a position befitting of a country considered the bedrock of the financial system, and only adds uncertainty to an already shaky economy,” said budget analyst Shai Akabas at the Bipartisan Policy Center. Yellen’s vagueness on the actual default date is due to some fiscal events in June that could buy some breathing room. If Treasury can make it past early June benefit payments, it could take in significant cash from quarterly estimated tax payments due on June 15, analysts say. Then Treasury could float until June 30, when it would be able to tap $143 billion in borrowing by suspending reinvestment of maturing securities held by the government retirement funds.

Debt Ceiling Battles Likely to Persist

Nonetheless, the U.S.’s debt ceiling battles are likely to persist for years to come, with benefit programs like Social Security and Medicare accounting for the largest category of the budget and projected to grow dramatically as the population ages. As the current debate heats up, Biden, who is seeking re-election in 2024, is using the House Republican proposal to tag his opposition as an economic threat to local economies.

Source: Reuters