House Speaker Kevin McCarthy (R-CA) called on Democrats to begin talks immediately on raising the debt ceiling, a critical requirement that Republicans plan to use as leverage in their effort to slash federal spending. “I would like to sit down with all the leaders and especially the president and start having discussions,” McCarthy said Tuesday at the Capitol.
Treasury Secretary Janet Yellen warned last week that the federal government would run up against the federal debt ceiling on this Thursday, forcing the Treasury to start taking “extraordinary measures” that would provide liquidity roughly through June. McCarthy said he wants to start talks before the cash crunch gets too close. “Who wants to put the nation through some type of threat at the last minute with the debt ceiling? Nobody wants to do that,” he said.
The White House, however, made it clear that President Joe Biden – who called Republicans “fiscally demented” in comments over the weekend — has no plans to negotiate on the issue, and is demanding instead a clean vote to raise the debt limit.
Speaking to reporters Tuesday, White House Press Secretary Karine Jean-Pierre reiterated the administration’s position on the matter. “As President Biden has made clear, Congress must deal with the debt limit and must do so without conditions,” she said. “But congressional Republicans are threatening to hold the nation’s full faith and credit, a mandate of the Constitution, hostage to their demands to cut Social Security, to cut Medicare and to cut Medicaid — brinksmanship that threatens the global economy.”
McCarthy rejected the White House position, saying he didn’t see why you would “continue the past behavior” that produced the current fiscal situation. Instead, he said he wants to negotiate with Democrats to “set a budget, set a path to get us to a balanced budget and let’s start paying this debt off.”
The new Republican speaker indicated that the country’s main social welfare programs were fair game for negotiations as far as he is concerned, along with discretionary spending. “Let’s sit down and find a place where we can protect Medicare and Social Security for the future generations, let’s put our house in order in how we are going to spend,” McCarthy said.
What’s the plan? House Republicans are reportedly working on a contingency plan for what to do if the standoff goes badly, and the U.S. veers toward default. The plan is expected to call on the Treasury Department to meet certain obligations — with the must-pay group including Treasury instruments, Social Security, Medicare and the military — while leaving other bills unpaid.
However, it’s not clear that the Treasury has the ability to prioritize its payments in that way, or that Republicans could force it to do so. In any event, skipping some payments while making others would be sure to cause major disruptions in the economy — and major headaches politically for Republicans. “Any plan to pay bondholders but not fund school lunches or the FAA or food safety or XYZ is just target practice for us,” a senior Democratic aide told The Washington Post’s Jeff Stein, Leigh Ann Caldwell and Theodoric Meyer.
The White House’s Jean-Pierre called the contingency plan “a recipe for economic catastrophe,” while previewing a line of attack that would likely get a lot of use in the event of a partial default. “Their latest idea is that rather than paying its bills, the United States should make payments to wealthy bondholders, including foreign investors, and stop payments for border security, food safety, nursing homes, school lunches, the FAA, drug enforcement, and other programs Americans rely on every single day,” she said. “This so-called ‘privatization’ scheme makes Republicans’ priorities pretty clear — crystal clear, if I may add. They want to put wealthy bondholders over ordinary Americans who want safe food, safe skies, safe communities, and secure borders.”
A word of warning: So how will this play out? Lines are being drawn, with no clear solutions in sight. As Politico’s Olivia Beavers, Caitlin Emma and Zachary Warmbrodt put it Tuesday, “The Biden administration and House Republicans are heading toward an initial Thursday debt ceiling deadline without even a hint of an endgame, ensuring a months-long standoff that’s poised to rattle financial markets amid worries about a recession this year.”
The Wall Street Journal Editorial Board, a deeply conservative group sympathetic to the drive to cut spending, warned Republicans about the difficulties they may face in the coming weeks. “The first rule of political negotiation is never take a hostage you’re not prepared to shoot,” they wrote. “That’s advice for House Republicans to contemplate as they gear up for a high-stakes showdown with President Biden over raising the federal borrowing limit.”