The last time House Speaker Kevin McCarthy sat down with President Biden in the Oval Office, he struck a firm but hopeful tone, telling reporters that the pair could “find common ground” to avert a calamitous default on U.S. debt.
Ninety-seven days later, as McCarthy met with the president on Tuesday for only the second time since he became speaker, both sides were no closer to a compromise — paving a perilous path toward a historic default that would reverberate across the global economy.
“I didn’t see any new movement,” McCarthy said after meeting with Biden and House Democratic leader Hakeem Jeffries, Senate Majority Leader Charles E. Schumer and Minority Leader Mitch McConnell.
House Republicans have refused to raise the $31.4-trillion debt limit unless it’s paired with discretionary spending cuts. Biden and Democrats insist they won’t negotiate on budget cuts unless Congress agrees to separately increase the borrowing limit without conditions.
The pivotal meeting also marked the biggest test yet for McCarthy, who needs to balance the urgency of raising the debt limit with satisfying far-right conservatives who could end his speakership.
The Bakersfield Republican clinched the gavel in January by caving to the hard-line faction of his party, striking a bargain that allows a single member to force a vote to oust him from the role. Any deal he negotiates with the White House or the Senate would require convincing that same group of right-wing House members.
McCarthy’s critics say that his deal with the right wing of his party weakened his position. But the speaker has defied those expectations in recent weeks, unifying Republicans to pass a bill to hike the debt ceiling by $1.5 trillion or for just one year — whichever comes first — while also capping future spending growth at 1% a year over the next decade. Such a bill would set up yet another fiscal showdown months before the 2024 presidential election.
The legislation, which would cut future deficits by $4.5 trillion, also takes aim at Democratic priorities. The bill would add new work requirements for Medicaid recipients and others who receive federal assistance, end Biden’s student loan debt forgiveness program, claw back unspent COVID-19 funds and repeal parts of the White House climate agenda. Though the bill has no chance of passing a Democratic-controlled Senate or securing Biden’s signature, it strengthens McCarthy’s hand as he looks to hash out a deal with a so-far uncompromising White House.
Fabian Núñez, a Democrat and former speaker of the California Assembly who’s negotiated budgets with McCarthy, describes his tactics as “three-dimensional,” insisting that the speaker is staking out a position that considers the entire Republican conference instead of just his right flank.
“Kevin has never been do or die in the way he approaches negotiations,” Núñez said. “He’s usually at his best when he’s under the gun.”
But so far McCarthy’s methods have failed to move Biden, who’s own budget proposes reducing the deficit by $3 trillion over the next decade by increasing taxes on the wealthy and corporations and allowing the government to negotiate drug prices in order to reduce healthcare spending.
McCarthy is an “honest man” who “just about sold away everything [to the] far, far right,” Biden told MSNBC in an interview Friday.
“There’s the Republican Party and there’s the MAGA Republicans,” the president said, referring to former President Trump’s Make America Great Again political movement. “And the MAGA Republicans really have put him in a position where in order to stay speaker he has to agree — he’s agreed to things that maybe he believes, but are just extreme.”
The president, who announced his reelection bid in April, has used the debit-limit fight to sharpen his campaign rhetoric, painting Republican cuts as damaging to the American middle class. The White House has circulated several memos arguing that the GOP bill would slash Republican priorities including policing, anti-drug trafficking efforts and services for veterans
Before Biden sat down with congressional leaders, the White House had already announced that he would travel to a Hudson River Valley congressional district on Wednesday to give a speech on how the GOP bill would include cuts to veterans’ healthcare visits, school staffing and a food program for homebound seniors. The district, which Biden won in 2020, is home to Rep. Mike Lawler, a vulnerable Republican who will likely have to win reelection if the GOP is to have any hope of expanding its five-seat majority in the House next year.
Instead of focusing his attention on McCarthy, Biden has leaned on McConnell, with whom he cut deals during the 2013 fiscal cliff crisis, the debt-ceiling standoff in 2011 and the Bush tax cut fight in 2010. But McConnell insists he’s sitting this one out.
Rohit Kumar, McConnell’s chief negotiator during the 2011 talks, said the minority leader made the calculus that intervening would not yield the same response in the House as a Biden-McCarthy deal.
“If he thought that a deal that he would strike with President Biden would have a reasonable chance of becoming law, then he might be more willing to step into that role,” said Kumar, now PwC’s national tax services co-leader.
Much of Biden’s thinking is shaped by the 2011 debt crisis, when he served as President Obama’s vice president and the administration agreed to deep cuts that avoided a default but ultimately led to a downgrade of the nation’s credit rating for the first time.
A short-term extension of the debt limit, which would punt the deadline to raise the borrowing cap to align with annual talks over government funding — which will run out on Sept. 30 — was initially floated, but both McCarthy and the White House dismissed the idea on Tuesday.
“A short-term extension is not our plan either,” White House Press Secretary Karine Jean-Pierre told reporters. “This can be easily resolved. This is a man-made crisis that the speaker is leading.”
But time is short. Treasury Secretary Janet Yellen has warned that the U.S. could be unable to pay its bills for the first time ever as soon as June 1. A analysis from the Washington-based Bipartisan Policy Center released Tuesday projects the U.S. will not be able to meet its obligations between early June and early August, supporting Yellen’s forecast.
The bond market has already reacted to fears that the U.S. may default. Short-term bond prices have steadily declined since late April.
“If a solution is not reached before June, policymakers may be playing daily Russian roulette with the full faith and credit of the United States, risking financial disaster for their constituents and the country,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
There’s still ample time to negotiate, even as Biden is set to travel abroad for a weeklong trip to Japan, Papua New Guinea and Australia next week, according to Kumar. He recalled his own experience in 2011, when “there wasn’t even a prospect of an agreement” just 72 hours before the deadline.
“Unfortunately, because of the history of this issue, you can’t sort of know with confidence that no deal is going to be struck and no breakthrough is going to be reached in like the last couple of days,” he said.
Phil Schiliro, a former director of legislative affairs in the Obama White House, said he sees the parallels to 2011 in that the problem lies within the House Republican caucus.
“It wasn’t that President Obama could reach an agreement. It was whether or not the House Republican caucus would support an agreement its leadership reached,” he said.
The distinct difference this time around, Schiliro said, is that in previous fights, few thought breaching the debt ceiling was a serious possibility — a catastrophic outcome that could tip the country into a recession.
“American families end up being the hostages … that’s why default can’t be an option,” he said.