WASHINGTON (AP) — All the hand-wringing in Washington over raising the debt limit can seem far removed from the lives of everyday Americans, but they could end up facing huge consequences.
Millions of people in the U.S. rely on benefits that could go unpaid and services that could be disrupted, or halted altogether, if the government can’t pay its bills for an extended period.
If the economy tanked due to default, more than 8 million people could lose their jobs, government officials estimate. Millions of Social Security beneficiaries, veterans and military families could lose their monthly payments. Vital federal services including border and air traffic control could be disrupted if workers can’t get their government paychecks.
The economy could nosedive into a recession.
President Joe Biden and the top congressional leaders from both parties met at the White House on Tuesday to try to resolve it all, their second such meeting in as many weeks.
WHAT’S THE PROBLEM?
If the government’s legal borrowing limit of $31.4 trillion is not raised or suspended by June 1, the result could be financial havoc. The inability to borrow money to keep paying government obligations could mean businesses sent into bankruptcy, crashes piling up across financial markets and lasting economic pain. The damage would be financial, but the cause would be political, a breakdown between Republicans and Democrats, rather than a problem with a basically healthy U.S. economy.
WHAT’S HOLDING UP AN AGREEMENT?
Philosophical differences with financial consequences.
Republicans want spending cuts in exchange for raising the debt ceiling, saying the current pace of spending is unsustainable. Biden and congressional Democrats want the debt limit raised without conditions, arguing that the two issues should not be linked.
Biden had said he would not negotiate over the debt limit, but that he would have a separate conversation with McCarthy about the federal budget.
WHAT’S HAPPENING WITH THE BUDGET?
First the budget is not the debt. The budget is the money the government takes in and spends each year. If it spends more than it brings in — a budget deficit — that adds to the debt that has been building basically forever.
Biden dared McCarthy to produce a budget plan, and House Republicans responded by narrowly approving a bill to reduce deficits by $4.8 trillion over 10 years. It would do so by cutting discretionary spending to 2022 levels and placing an annual 1% cap on future increases. The bill would also reclaim billions of unspent COVID-19 funding, eliminate clean energy tax credits Biden signed into law last year and reverse his student debt forgiveness and repayment plan.
It’s unclear how Democrats can get the debt ceiling increased without support from House Republicans. But Democrats say the GOP bill’s unspecified budget cuts would harm individuals — and the economy — as domestic spending would likely be cut. Moody’s Analytics estimates the Republican bill would cause the loss of 780,000 jobs next year alone.
ARE THERE ANY POSSIBLE AVENUES OF AGREEMENT?
Besides repurposing unspent COVID-19 funding, the White House and House Republicans could agree to tighten certain work requirements for federal aid programs that benefit the needy. The GOP-controlled House passed legislation that imposes more stringent conditions for people receiving food stamps, or SNAP benefits, as well as adults without dependents on Medicaid and recipients of Temporary Assistance for Needy Families, which offers aid to low-income families with children.
Biden over the weekend appeared to rule out changes to Medicaid. The White House said he would reject proposals that take away people’s health coverage or push them into poverty.
WHO WOULD SUFFER THE MOST FROM A DEFAULT?
Basically everyone, because the jolt to the U.S. and global financial systems would be so “catastrophic,” Treasury Secretary Janet Yellen said Tuesday in a speech to community bankers.
But working people, those living paycheck to paycheck and people who rely on government benefits and services would face the biggest blows through job losses and the loss of income.
Yellen, in her speech, urged Congress to act quickly. “The U.S. economy hangs in the balance. The livelihoods of millions of Americans do, too,” she said.
HOW DOES IT END?
No one really knows, though McConnell, a longtime Senate Republican leader, said this after last week’s White House meeting: “The United States is not going to default. It never has and it never will.”
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AP Congressional Correspondent Lisa Mascaro and Associated Press writers Josh Boak, Seung Min Kim and Mary Clare Jalonick contributed to this report.
Debt limit progress as Biden, McCarthy name top negotiators to avert national default
WASHINGTON (AP) — Debt-limit talks shifted into an encouraging new phase Tuesday as President Joe Biden and House Speaker Kevin McCarthy named top emissaries to negotiate a deal to avert an unprecedented national default. Biden cut short an upcoming overseas trip in hopes of closing an agreement before a June 1 deadline.
The fresh set of negotiators means discussions are now largely narrowed to what the White House and McCarthy will accept in order to allow lawmakers to raise the debt limit in the coming days. The speaker said after a meeting with Biden and congressional leaders that a deal was “possible” by week’s end, even as — in McCarthy’s view — the two sides remained far apart for the moment.
Biden was publicly upbeat after a roughly hourlong meeting in the Oval Office, despite having to cancel the Australia and Papua New Guinea portions of his overseas trip that begins Wednesday. Biden will participate in a Group of Seven summit in Hiroshima, Japan, but then return to Washington on Sunday.
“There’s still work to do,” Biden said. “But I made it clear to the speaker and others that we’ll speak regularly over the next several days and staff’s going to continue meeting daily to make sure we do not default.”
Senior White House officials, as well as top aides to the four congressional leaders — McCarthy, R-Calif., Senate Majority Leader Chuck Schumer, D-N.Y., Senate Minority Leader Mitch McConnell, R-Ky., and House Minority Leader Hakeem Jeffries, D-N.Y. — have been meeting daily.
But now, Steve Ricchetti, counselor to the president, Office of Management and Budget Director Shalanda Young and legislative affairs director Louisa Terrell will take the lead in negotiations for the Democratic side, while Rep. Garret Graves, R-La., a key McCarthy ally who has been a point person for the speaker on debt and budget issues, will represent Republicans.
“Now we have a format, a structure,” McCarthy said as he returned to the Capitol.
Negotiators are racing to beat a deadline of June 1, which is when the Treasury Department has said the U.S. could begin defaulting on its debts for the first time in history and risk a financial catastrophe. The revised itinerary of Biden’s upcoming trip showed the urgency of the talks.
White House officials sought to soften the impact of the trip cancellations. National Security Council spokesman John Kirby noted that Biden will already have met with some of the leaders of the “Quad” — the purpose of the Australia leg of the visit — while in Japan, and the president is inviting Australian Prime Minister Anthony Albanese for an official state visit in Washington.
Still, Kirby added, “We wouldn’t even be having this discussion about the effect of the debt ceiling debate on the trip if Congress would do its job, raise the debt ceiling the way they’ve always done.”
Even as the Democratic president and the Republican speaker box around the politics of the issue — with Biden insisting he’s not negotiating over the debt ceiling and McCarthy working to extract spending cuts with the backdrop of a potential default — various areas of possible agreement appeared to be emerging.
Among the items on the table: clawing back some $30 billion in untapped COVID-19 money, imposing future budget caps, changing permit regulations to ease energy development and putting bolstered work requirements on recipients of government aid, according to those familiar with the talks.
But congressional Democrats are growing concerned about the idea of putting new work requirements for government aid recipients after Biden suggested over the weekend he may be open to such changes. The White House remains opposed to changes in requirements for recipients of Medicaid and food stamp programs, although it is more open to revisions for beneficiaries of the Temporary Assistance for Needy Families cash assistance program.
The idea of imposing more work requirements was “resoundingly” rejected by House Democrats at a morning caucus meeting, according to one Democrat at the private meeting and granted anonymity to discuss it.
Progressive lawmakers in particular have raised the issue. Rep. Pramila Jayapal, the chair of the Congressional Progressive Caucus, said, “We want to make sure that these negotiations do not include spending cuts, do not include work requirements, things that would harm people, people in rural areas, black, brown, indigenous folks.”
Democratic leader Jeffries’ staff sought to assuage the concerns late Monday, while a separate group of more centrist Democrats signaled to their moderate Republican colleagues they are prepared to work something out to reach a debt ceiling deal, aides said Tuesday.
While McCarthy has complained the talks are slow-going, saying he first met with Biden more than 100 days ago, Biden has said it took McCarthy all this time to put forward his own proposal after Republicans failed to produce their own budget this year.
Compounding pressure on Washington to strike a deal, Treasury Secretary Janet Yellen said Monday that estimates are unchanged on the possible “X-date” when the U.S. could run out of cash.
But Yellen, in a letter to the House and Senate, left some opening for a possible time extension on a national default, stating that “the actual date Treasury exhausts extraordinary measures could be a number of days or weeks later than these estimates.”
“It is essential that Congress act as soon as possible,” Yellen said Tuesday in remarks before the Independent Community Bankers of America. “In my assessment – and that of economists across the board – a U.S. default would generate an economic and financial catastrophe.”
Time is dwindling. Congress has just a few days when both the House and Senate are in session to pass legislation, although scheduled recesses could be canceled if more time is needed to clear whatever deal the White House reaches with McCarthy.
Congressional leaders will also need time to take the temperature of rank-and-file lawmakers on any agreement, and it’s not at all clear that the emerging contours go far enough to satisfy McCarthy’s hard-right faction in the House or would be acceptable to a sizable number of Democrats whose votes would almost certainly be needed to secure any final deal.
Republicans led by McCarthy want Biden to accept their proposal to roll back spending, cap future outlays and make other policy changes in the package passed last month by House Republicans. McCarthy says the House is the only chamber that has taken action to raise the debt ceiling. But the House bill is almost certain to fail in the Senate, controlled by Democrats, and Biden has said he would veto it.
An increase in the debt limit would not authorize new federal spending. It would only allow for borrowing to pay for what Congress has already approved.
___ Associated Press writers Fatima Hussein and Kevin Freking contributed to this report.
