On Wednesday, Biden will travel to New York to bring his pressure campaign on the road, targeting moderate House Republicans who could prove to be critical in reaching compromise on the debt ceiling. The president will hold a campaign-style event in Westchester County, N.Y., near the district of Rep. Michael Lawler (R-N.Y.), a moderate Republican who represents an area that supported Biden over former president Donald Trump in 2020.
The standoff is in some ways a familiar one in Washington, as a Republican-controlled House refuses to lift the debt ceiling unless a Democratic president agrees to sweeping spending cuts. Similar episodes played out in 2011 and 2013 under President Barack Obama, when Biden was vice president and last-minute deals were struck between the two sides.
But the political landscape has changed significantly since then, leaving both sides jittery. McCarthy has a razor-thin majority of 222-213, including a faction of volatile hard-liners who could challenge his speakership if he makes compromises not to their liking. Some Democrats and Republicans worry that this time the stalemate could drag beyond the deadline, triggering catastrophic economic consequences.
Yet the two sides so far have shown little willingness to compromise. Biden says that raising the debt ceiling, necessary to fund items that have already been approved by Congress over the years, is a shared obligation that should not be subject to conditions by one side. Republicans say spending has surged out of control, and that declining to raise the borrowing limit without spending cuts is eminently reasonable.
“House and Senate Republicans agree: Raising the debt limit without getting spending under control would be irresponsible,” McCarthy tweeted recently.
The White House in recent days has emphasized that Biden is willing to discuss spending cuts as long as they are not tied to the debt ceiling increase, a message he is expected to repeat at Tuesday’s meeting.
“President Biden will discuss the urgency of preventing default and stress that Congress must take action to avoid default without conditions,” Michael Kikukawa, a White House spokesman, said in a statement. “He will discuss how to initiate a separate process to address the budget and FY2024 appropriations.”
The terms of a potential deal have remained elusive, although some congressional aides and outside observers say they are beginning to see the potential contours of an agreement.
McCarthy’s bill to raise the debt limit, passed by the House last month, would cut federal spending by $4.8 trillion over 10 years. The White House has rejected that proposal, but Biden aides have recognized that they need to reach an agreement with House Republicans on government spending levels, regardless of the resolution to the debt limit.
Some analysts argue that lawmakers should find a middle ground on these domestic spending numbers, clearing the way to both cut spending and raise the debt limit. Under that plan, GOP leaders could say the two moves are linked and the White House could insist that they are not.
“There is a solution staring lawmakers in the face,” said Brian Riedl, a policy analyst at the Manhattan Institute, a libertarian-leaning think tank. “Just come up with something in the middle and call it a day.”
Yet that may prove more difficult in practice than on paper. House Republicans have not said which federal programs they would cut, and it’s not clear they could reach a consensus on that. Beyond that, enormous gaps remain between the spending cuts the GOP is demanding and the levels Biden would accept.
“What looks good on paper for the purposes of House Republicans’ budget politics does not look good when they have to explain what that means to programs that matter for the American people,” said Charlie Ellsworth, a former Schumer aide who is at Pioneer Public Affairs.
Speaking on CNBC on Monday, Treasury Secretary Janet L. Yellen, who has warned that the government could default as early as June 1 if no action is taken, reiterated the potentially catastrophic impact of failing to lift the debt limit. Biden aides have explored, but are wary of acting on, several options for ignoring Congress and trying to resolve the debt ceiling unilaterally.
“It will have tremendously adverse effects on financial markets and the economy. There is no good option other than raising the debt ceiling,” Yellen said.
Financial markets have begun reacting to the standoff, if mildly so far. Yields on one-month U.S. Treasury bills have spiked as investors demand a higher return on government debt viewed as increasingly uncertain. Investors are also bidding up the price of U.S. credit default swaps, which insure against a federal default.
Still, Wall Street has mostly ignored the growing standoff, as investors continue to expect lawmakers to come to a resolution before breaching the debt limit. Stocks remained relatively stable on Monday, and analysts are more likely to attribute price fluctuations in the bond market over the past few weeks to the Federal Reserve’s rate hikes than to concerns about the debt limit.
“People are thinking overall that it’s too awful, too catastrophic, to try and even prepare for,” said Chris Rupkey, a financial analyst at FwdBonds. He added of investors, “They feel that just like all other times, we’ll get through this and both sides will eventually sign off.”
The White House has slammed Republicans in recent days who supported McCarthy’s budget bill, arguing that the budget cuts would have devastating impacts on schools, health care coverage, Social Security and other benefits programs.
“House Republicans that brand themselves as moderate lined up with the most extreme MAGA members on this vote, and we are making sure their constituents are aware of the true nature of their priorities,” White House communications director Ben LaBolt said in a statement. “It’s up to them whether they will continue to side with MAGA extremists or come together to ensure that the country avoids default.”
