Biden, McCarthy Weigh Options Ahead of First Debt Ceiling Negotiation
President Biden is pushing a no-compromise position in the debt ceiling discussions.
While President Biden and Speaker McCarthy are both veterans of debt ceiling negotiations, this year’s debate could be the most contentious either of them has ever faced.
On Wednesday, Messrs. Biden and McCarthy will meet at the White House to discuss a framework for the coming negotiations, but some of the battlefield has already been set.
According to a memo obtained by Punchbowl News, Mr. Biden’s chief economic advisers are pushing for a no-compromise strategy. The chairman of the National Economic Council, Brian Deese, and the director of the Office of Management and Budget, Shalanda Young, say Mr. Biden should demand key concessions from the House speaker. One key point of the memo is a demand that Mr. McCarthy publicly commit to the “bedrock principle that the United States will never default on its financial obligations.”
It also asks Mr. McCarthy a question: “When will Speaker McCarthy and House Republicans release their budget?”
The memo states that the president will release his budget on March 9, and it will outline “plans to invest in America, continue to lower costs for families, protect and strengthen Social Security and Medicare, and reduce the deficit.”
In the memo, Mr. Deese and Ms. Young map out what they say are Mr. McCarthy’s public policy prescriptions — tax cuts for wealthy individuals, elimination of the 15 percent minimum tax on corporations with more than $1 billion in annual profits, and cuts to education funding.
“Speaker McCarthy and his Caucus need to transparently lay out to the American people their fiscal and economic proposals in the normal budget process,” the memo stated.
Mr. McCarthy, if he can’t reach an agreement with the president, does have some other niche options to avoid economic catastrophe. Senator Scott of Florida introduced a bill that would allow Congress to meet the Treasury’s “core obligations” — to bondholders, Social Security recipients, veterans, and active duty military.
Another option could be to suspend payment of federal tax refunds should the president refuse to negotiate, something that nearly happened in 2013. That year, amid another debt ceiling fight, the government was at risk of not paying nearly $100 billion of taxpayers’ refunds. The threat of that — as Americans experience economic uncertainty — could put political pressure on the White House to quickly resolve the debt ceiling and negotiate with the speaker.
The closest America ever came to breaching the debt ceiling was in 2011, when the United States raised the threshold just two days before the deadline. At the time, Standard & Poor’s downgraded the country’s credit rating for the first time in history, to AA+ from AAA. In the weeks surrounding the negotiations, the S&P 500 index fell by more than 15 percent and 10-year Treasury yields dropped by more than a third.
Mr. Biden’s current desire for a clean bill — meaning one with no spending cuts attached — is informed by his time as a negotiator more than 10 years ago. The tea party wave had just taken over the Republican House majority, and its members refused to raise the ceiling without a significant package of tax and spending cuts.
The 2011 negotiations saw the Obama administration work closely with Speaker Boehner for months to find an agreeable solution to cut funding and taxes, but conservative members of the House were not satisfied with President Obama’s concessions. Talks between Messrs. Obama and Boehner eventually fell apart, forcing Vice President Biden to work alongside former Senate colleagues on a bipartisan deal that passed just 48 hours before the deadline.
At the time, Mr. McCarthy served as majority whip, the No. 3 House Republican charged with ensuring members vote the way leadership wants them to.
The “lesson of 2011,” one Obama administration official told NBC News, is that Democrats cannot allow Republicans to “use the threat of default or not increasing the debt limit as a negotiating tool.”
In late 2013, the U.S. was once again at risk of default. Republicans presented Mr. Obama with a number of options for raising the debt ceiling — an increase that would cover the rest of Mr. Obama’s term in exchange for privatization of Medicare; a two-year increase in exchange for cutting food stamps and raising the age of Medicare eligibility; or a short-term, one-year increase in exchange for means testing Social Security and an end to agricultural subsidies. Senator Cruz also led his quixotic mission to defund the Affordable Care Act that year.
Yet Mr. Obama refused to negotiate, telling Speaker Boehner that budget cuts adopted earlier in the year were already deep enough. Mr. Boehner blinked, and allowed the House to pass a clean debt ceiling extension. The only concession Mr. Obama offered was setting up a toothless committee to study ways to reduce the deficit.
“I will not let anyone use the full faith and credit of the United States as a bargaining chip,” Mr. Biden said on Thursday, signaling a repeat of the 2013 strategy this year.
The speaker seems bullish on his ability to get what he wants, though. “I’ve received your staff’s memo,” Mr. McCarthy said on Twitter. “I’m not interested in political games. I’m coming to negotiate for the American people.”