Negotiations over the debt ceiling remain tense between President Joe Biden and GOP lawmakers after House Republicans narrowly passed the “Limit, Save, Grow Act” on April 26.
Finding a resolution to the fierce debate was given an added sense of urgency by Treasury Secretary Janet Yellen’s May 1 letter to House Speaker Kevin McCarthy (R-Calif.) in which she warned the Treasury will be unable to meet all of the government’s obligations potentially as early as June 1.
“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States”, Secretary Yellen said.
The debt limit or ceiling is the total amount of debt, defined by Congress, that the United States is allowed to borrow in order to meet its obligatory expenditures. This includes the funding for entitlement programs like Social Security, Medicare and Medicaid, but also the military.
In January, the United States reached its statutory debt limit of $31.381 trillion. This limit was established by Congress on December 16, 2021, itself being a $2.5 trillion increase over the previous debt ceiling.
Due to the stalemate reached in Congress over potentially raising the debt ceiling, on January 19 the Treasury exercised their authority to take “extraordinary measures” to allow time for negotiations between lawmakers and prevent the government from defaulting on its spending obligations.
Yellen warned in an earlier January 13 letter to House leadership that the government’s failure to meet its obligations “would cause irreparable harm to the U.S, economy, the livelihoods of all Americans, and global financial stability.”
Yellen went on to remind lawmakers of both parties of the harms of a similar debt ceiling crisis which occurred in 2011, which resulted in the only time the credit rating of the United States has been downgraded. A similar result in the present crisis could cause another credit rating downgrade, she said, which would have tangible negative effects on consumers and investors.
After Yellen’s May 1 letter, McCarthy agreed to a May 9 meeting with Biden to discuss possible solutions to the crisis.
Despite his invitation to Speaker McCarthy to negotiate, President Biden remains highly critical of the House Republicans’ plan to increase the debt ceiling and reduce spending, the “Limit, Save, Grow Act”.
Filed by House Budget Committee Chairman Rep. Jodey Arrington (R-TX), the bill would either suspend the debt ceiling through March 31, 2024 or increase it by $1.5 trillion. At the same time, the bill makes massive cuts to government spending. These cuts are largely focused on gutting the 2022 Inflation Reduction Act, reducing funds for clean energy subsidies, lowering the IRA’s increased funding to the IRS, and rescinding unspent COVID relief funds.
In an April 25 press release,Rep. Arrington wrote, “Over the last two years, the Biden Administration’s reckless spending and failed economic policies have resulted in record inflation, soaring interest rates, and an economy in a recessionary tailspin – with the prospect of a catastrophic debt crisis looming on the horizon.”
Democrat opposition to the Limit, Save, Grow Act have dubbed it the “Default on America Act”, with the Democrats of the House Budget Committee writing on their website that “Extreme MAGA Republicans are threatening to default on America’s bills for the first time in history unless their demands are met”
After the narrow passage of the bill in the House by a vote of 217-215 on April 26, McCarthy said in a statement to the press that “the president can no longer put this economy in jeopardy. We lifted the debt limit, we’ve sent it to the Senate, we’ve done our job”.
However, in a series of recent tweets President Biden has made numerous statements decrying the proposed solution of House Republicans.
In a May 2 tweet President Biden wrote that “MAGA House Republicans have laid out two options for us: Cut spending – from veterans to food programs – by 22 percent. Or they’ll default on our national debt. That’s what holding the American economy hostage looks like”.
On the same day in another tweet the president wrote that House Republicans “would rather use our economy as a bargaining chip than protect families from default”.
The political polarization over this debate raises concerns over the ability for Biden and McCarthy to successfully reach a compromise in their May 9 meeting. In order to avoid default, a compromise will have to be reached before the Treasury’s extraordinary measures expire in early June.
