Biden Passes the Debt Deal, Avoiding Default

Updated June 5, 2023

• President Joe Biden signed the debt deal on Saturday, avoiding a default on the nation's debt. In an address Friday evening, Biden said:

“I know bipartisanship is hard and unity is hard, but we can never stop trying, because in moments like this one—the ones we just faced, where the American economy and the world economy is at risk of collapsing—there is no other way.”

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Updated June 2, 2023

• The Senate passed the debt limit bill in a 63-to-36 vote. The bipartisan legislation, which will suspend the debt limit and impose new spending caps, is now heading to President Biden to sign. 

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Updated June 1, 2023

• Wednesday night, the House passed Biden and McCarthy's bill to suspend the nation's debt limit through Jan. 1, 2025, with a 314-117 vote. 

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Updated May 30, 2023

• President Biden and Speaker McCarthy struck a deal for the U.S. debt ceiling. McCarthy released a 99-page long legislative text finalized over weekend negotiations to be voted on by House lawmakers.
• Both Biden and McCarthy said the bill includes necessary trade-offs. Biden told reporters on Sunday:

"The agreement prevents the worst possible crisis: a default for the first time in our nation's history, an economic recession, retirement accounts devastated, millions of jobs lost."

• McCarthy said the bill is not 100% what both sides are asking for but praised the framework for being able to gain bipartisan support.

If passed, the bill would:

• Set spending caps for the federal budget in 2024 and 2025, with appropriation targets for the following four years;
• Raise the age of food stamp recipients subject to work from 50 to 54, but only until 2030;
• Create new exemptions that waive work requirements for young adults aging out of foster care, all veterans, and the houseless, only until 2030;
• Place restrictions on how often states can waive work requirements for food stamp recipients;
• Reduce the timeline for when environmental impact statements must be released for proposed projects and reform the way federal agencies conduct environmental impact statements;
• Decreasing funding for the IRS;
• And end the current pause on student loan repayments and interest accrual 60 days after June 30. 

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Updated May 23, 2023

• Biden and McCarthy met last night at the White House to continue discussing the debt limit. While it ended with no deal, the two expressed optimism that they would come to an agreement to avoid default. 
• The Biden administration and House Republicans continue to double down on their own conditions. However, last week, Biden suggested there was a possibility he would consider McCarthy's proposal of requiring able-bodied adults without dependents enrolled in federal safety net programs, such as food stamps, to work. Progressive Democrats are concerned about Biden's suggestion. 
• Both parties have also signaled a potential agreement regarding the $60 million in unspent COVID relief funds. 

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Updated May 22, 2023

• With just 10 days left to take action before the potential debt default, President Biden and House Speaker Kevin McCarthy are meeting this evening to discuss their plan. Both have acknowledged the main sticking point that needs to be addressed — mandatory spending caps. 
• Little progress has been made on the government spending level negotiations between the White House and McCarthy's representatives. On Monday morning, McCarthy said to reporters:

"The underlying issue here is that Democrats, since they took the majority, have been addicted to spending. And that's going to stop. We're going to spend less than we spent last year."

• Biden said Sunday that across-the-board cuts "make absolutely no sense at all."
• Treasury Secretary Janet Yellen has maintained that June 1 is the government's "hard deadline" to raise the debt limit, or the U.S. will face the consequences of the nation's first-ever default. 

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Updated May 3, 2023

• Democrats responded to the news that the U.S.'s debt could default as early as June 1 by attempting to start the process to force a debt-limit increase bill to the floor through a discharge petition that could bypass Republican lawmakers.
• The Democrats introduced an emergency rule on Tuesday during a pro forma session held while the House was in recess. The move would allow them to start collecting signatures as soon as May 16. At least five Republicans would need to cross party lines to force the bill to the floor.
• President Joe Biden, Senate Majority Leader Chuck Schumer, and House Democratic Leader Hakeem Jeffries have taken steps to pave the way for an 11th-hour deal with Republicans. Biden is meeting with House Speaker Kevin McCarthy, signaling significant changes after months of not budging. 
• As Biden and Republicans are in a standoff over the nation's debt limit, the Federal Reserve has decided to continue raising interest rates by a quarter-point to fight rapid inflation, a move that will weigh on the U.S. economy. 

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Updated April 26, 2023

• House Republicans are pushing forward their legislation to raise the debt ceiling, cut spending, and undo President Biden's various plans for the U.S. 
• The GOP is rallying support around their proposal after leaders made a series of last-minute changes to the legislation designed to win over key Republicans — a major move after lawmakers insisted they would not make edits to the bill. 
• Speaker Kevin McCarthy walked members through some of the changes during a closed-door meeting on Wednesday morning, leading to a few dissenting members beginning to fall in line. Now, GOP leaders are confident that their bill will pass later in the day. Zero Democrats are expected to support the legislation, and McCarthy can only afford to lose four votes in order for it to pass.
• If McCarthy can unite his side of the aisle and get his bill through the chamber, it will be a huge win for the GOP. The speaker's supporters say passing the bill is crucial to strengthen the Republican's argument in their negotiations with Biden and the Democrats. 

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Updated April 20, 2023

• House Speaker Kevin McCarthy released a legislative framework to raise the nation's debt limit for one year while decreasing federal spending.
• His proposal, the Limit, Save, Grow Act of 2023, would increase the debt limit by $1.5 trillion or raise the ceiling until March 31, 2024 — whichever came first. Additionally, it would limit discretionary spending, retrieve unspent pandemic-related funds, eliminate Biden's student forgiveness plan, and cut funds earmarked for the Internal Revenue Service.
• On the House floor Wednesday afternoon, McCarthy said:

"Limited government spending will reduce inflation and restore fiscal discipline in Washington. If Washington wants to spend more, it will have to come together and find savings elsewhere — just like every single household in America."

• McCarthy is expected to bring the proposal to the floor next week, echoing his confidence that the GOP will support the legislation. He noted that the cuts would not impact Medicare and Social Security, but his framework will include work requirements for adults without dependents who are enrolled in federal assistance programs.
• Democrats remain critical of debt ceiling negotiations that impact work requirements for people on those programs. Rep. David Scott (D-GA) said:

"Let me be perfectly clear: Holding food assistance hostage for those who depend on it — including 15.3 million of our children, 5.8 million of our seniors and 1.2 million of our veterans — in exchange for increasing the debt limit is a nonstarter...Speaker McCarthy and his extreme Republican colleagues are ensuring their failure."

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Updated April 19, 2023

• The tension between President Biden and Speaker Kevin McCarthy (R-CA) over the national debt escalated this week. Both sides are holding their ground, neither indicating a will to budge nor when negotiations will resume. 
• McCarthy turned to Wall Street on Monday to pitch his plan for the debt ceiling, which the White House and Democrats almost immediately disapproved of. At the New York Stock Exchange, the Speaker said the House Republican Conference would move forward with its own measures "in the coming weeks" to avoid default. Biden, on the other hand, still wants a clean debt ceiling increase for this year. 
• White House spokesperson Andrew Bates said: 

"Speaker McCarthy is breaking with the bipartisan norm he followed under [former President] Trump by engaging in dangerous economic hostage taking that threatens hard-working Americans' jobs and retirement savings. A speech isn't a plan but it did showcase House Republicans' priorities."

• Senate Minority Leader Mitch McConnell (R-KY) said: 

"President Biden does not get to stick his fingers in his ears and refuse to listen, talk or negotiate. And the American people know that. The White House needs to stop wasting time and start negotiating with the Speaker of the House."

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Updated March 9, 2023

• President Biden revealed the third budget plan of his presidency today, which the White House says reflects the administration's commitment to building a fair economy. The $6.8 trillion plan will increase spending on the military and new social programs while reducing future budget deficits. 
• The White House says Biden's plan would decrease the deficit by $3 trillion over the next decade, primarily due to increased taxes on corporations and the rich. However, critics point to the government's projected spending, which would be $1.8 trillion more than the government would receive in 2024. 
• The Republican-controlled House is not expected to pass the budget. Still, it will lead to a significant debate over the trajectory of the nation's debt limit, especially since the GOP is focusing on spending cuts. 
• Biden's proposed budget would also increase funding for Medicare, Obamacare, Medicaid, the EPA, affordable housing, free preschool, reinstatement of the Child Tax Credit, Pell grants, student benefits, and more.
• To successfully implement the increases, Biden's plan proposes a minimum tax on billionaires of 25%, a 28% tax rate on corporations, a cut in tax breaks for oil and gas companies for real estate investors, increasing tax on stock buybacks, ending tax breaks used by cryptocurrency transactions, and more. 
• During his formal release of the plan in a speech in Philadelphia, Biden said:

"I value everyone having an even shot. My budget reflects what we can do to lift the burden on hard-working Americans. Too many people have been left behind or treated like they're invisible. I promise you, I see you. Families have started to breathe a little easier, but we've got further to go."

• Republicans are criticizing the plan, including House Speaker Kevin McCarthy calling Biden's proposal "completely unserious" on Twitter. McCarthy continued: 

"Mr. President: Washington has a spending problem, NOT a revenue problem."

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Updated February 3, 2023

• President Biden and Speaker Kevin McCarthy discussed America's debt ceiling at the White House on Wednesday. Biden insisted that Congress needs to pass a debt-limit increase with no strings attached to avoid a financial crisis, which Republicans refuse to do without cuts in federal spending. 
• While the President told McCarthy he would not negotiate on raising the ceiling, he does welcome a "separate discussion with congressional leaders about how to reduce the deficit and control the natural debt while continuing to grow the economy."
• After the meeting, McCarthy told the press:

"No agreements, no promises. Except we will continue this conversation." 

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Updated January 25, 2023

• Speaking with reporters Tuesday evening, Senate Minority Leader Mitch McConnell said establishing a solution to avoid catastrophic debt default must start in the House. McConnell continued:

"I can't imagine any debt ceiling provision passed out of the Senate with 60 votes could actually pass this particular House. I think the final solution to this particular episode lies between Speaker McCarthy and the president."

• Speaker of the House Kevin McCarthy said he wants to find common ground with the Biden administration to create a "responsible debt ceiling" and eliminate careless government spending.
• Biden has maintained that the debt ceiling must be addressed "without conditions" and that he will not agree to spending cuts to avoid failure to make payments. McCarthy called Biden's nonnegotiable stance "irresponsible." McConnell believes the House is being entirely reasonable by "[putting] spending reductions on the table."  
• The GOP has focused on cutting down Social Security, Medicare, Medicaid, food stamps, and many other federal payments and benefits. To this, Biden responded: 

"Look, I have no intention of letting the Republicans wreck our economy."

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Updated January 20, 2023

As Congress negotiates raising the nation's borrowing cap, here are some crucial moments to expect over the next few months:

• The White House is expected to reveal its annual budget proposal in March. This outline of the Biden administration's spending priorities will open up negotiations between them and Republicans in Congress who want to see spending cuts. 
• Yellen told Congress yesterday that she initiated a "debt issuance suspension period" that will last until June 5. 
• In the past, Congress was able to raise the debt ceiling before the Treasury breached the statutory limits on its ability to borrow funds. This time around, the same course of action seems unlikely. Republicans are urging the President's administration to negotiate spending cuts in order to win House Republicans' support for raising the debt limit. Democrats have rejected such proposals.
• Officials have raised the possibility of using the House's discharge petition, a procedural tool that forces a bill out of the committee and to a vote. The process of a discharge petition is long, drawn out, and undercuts the authority of the House speaker. Many also note how this tool is clumsy and infrequently successful. 

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What’s the story?

• The U.S. hit its debt limit earlier today, according to Treasury Secretary Janet Yellen. In a letter to Congress, Yellen said the Treasury has started implementing extraordinary measures so the government can continue paying its bills. 
• These maneuvers will prevent the nation from exceeding its debt limit, which is currently at $31.4 trillion. Lawmakers are being asked to raise the ceiling so the government can continue meeting its financial obligations, including military salaries, payments to bondholders, and retirement benefits. 
• The nation's debt grows when the U.S. borrows large sums of money by selling Treasury bonds to global investors and using the profit to pay off the country’s bills. Yellen wrote in her letter to Congress:

“The period of time that extraordinary measures may last is subject to considerable uncertainty, including the challenges of forecasting the payments and receipts of the U.S. government months into the future. I respectfully urge Congress to act promptly to protect the full faith and credit of the United States.”

• In August of 2021, the government’s debt limit suspension ended, prompting a similar letter from the Treasury. Yellen wrote to congressional leadership warning that failing to raise the debt ceiling “would cause irreparable harm to the U.S. economy and livelihoods of all Americans.”

What are the extraordinary measures the Treasury uses?

• The Treasury has four moves at its disposal to avoid exceeding the country’s debt limit — suspending sales of state and local securities, Government Securities Investment Fund (G Fund), Exchange Stabilization Fund, and the Civil Service Retirement and Disability Fund. 
• Yellen said the Treasury is only taking two of the four steps to buy more time — suspending new investments in the Civil Service Retirement and Disability Fund and the G Fund. 
• The Civil Service Retirement and Disability Fund is one of the largest federal pension funds. With a suspension period, the Treasury can redeem existing investments and stop making new ones. 
• The G Fund is a retirement fund for federal employees. The Treasury has halted reinvestments, but not the G Fund’s balance or federal employee investments. 

Lifting the debt ceiling 

• Congress needs a simple majority in both the House and Senate to vote for any change to the debt limit. Republican lawmakers want to leverage the negotiations to try to force spending cuts, which the Biden administration is adamantly against. 
• While raising the limit used to be a routine exercise for Congress, there’s now concern that it would have potentially huge consequences for the economy and markets. 

 

Should Congress abolish the debt ceiling?

 

-Jamie Epstein

(Photo credit: iStock/pabradyphoto)