Speaker Kevin McCarthy (R-Calif.), who was narrowly elected Speaker in January after 15 ballots, is coming under heavy pressure from conservatives not to agree to any debt ceiling deal that falls well short of the House-passed legislation that cut $4.8 trillion from the deficit.
So far, President Biden’s proposal to cap discretionary spending has fallen flat with McCarthy, who wants the White House to cut discretionary spending on domestic programs without cutting defense.
McCarthy tried to sound optimistic about reaching a deal after meeting with Biden at the White House late Monday afternoon, telling reporters it was a “productive” session.
“I believe we can still get there,” he insisted despite the gulf of differences between the two sides on spending and policy priorities.
House Freedom Caucus members, such as Rep. Ralph Norman (R-S.C.), warn they won’t accept anything less than the House-passed bill.
That leaves McCarthy with strikingly little room to maneuver.
The House bill cut discretionary spending to fiscal 2022 levels and then caps domestic discretionary spending to 1 percent growth over the next decade. It also expands work requirements for federal social aid programs and rescinds $30 billion in unspent COVID funding.
House Republicans are also pushing for energy permitting reform, measures to secure the U.S.-Mexico border and to block Biden’s plan to forgive $400 billion in student debt relief.
Biden is holding fast against many of the Republican demands, which Democrats warn would hurt American families across the nation by cutting an array of federal programs, expecting McCarthy will back down.
The president also is insisting wealthy companies and individuals contribute pay more in taxes as part of any deficit-reduction deal.
“Here’s the disagreement: We have to — I think we should be looking at tax loopholes and making sure the wealthy pay their fair share. I think revenue matters as well as — as long as you’re not taxing anybody under $400,000,” Biden told reporters in the Oval Office at the start of his meeting with McCarthy.
Sen. Rick Scott (R-Fla.), who has met regularly with House conservatives this year to call for ambitious fiscal reforms, says Biden is used to Republican leaders “caving” on the debt limit, but he says this time will be different.
“I think he’s being conditioned,” Scott said of Biden’s stance on cutting a debt limit deal with McCarthy.
“Think about it, McConnell caved in 2021,” he added in an interview with The Hill, referring to the deal Sen. Mitch McConnell (R-Ky.) offered Democrats to let them move debt limit legislation without having to face a Republican filibuster.
“I don’t believe the House Republicans are going to cave, and I don’t think Senate Republicans are going to cave this time,” he said.
Scott said the tax increases White House officials are pushing to include in a deficit-reduction deal would be a non-starter with Republicans in both chambers.
“It’s what I predicted,” he said Monday. “Everything I’ve heard from people is that they’re pushing it,” referring to the tax reforms favored by the White House.
Scott warned that if McCarthy agreed to any deal that includes tax increases, “he could never get it done in the House.”
Jim Kessler, the executive vice president for policy at centrist Democratic think tank Third Way, said “Republicans have an unreasonable request on the table” but questioned whether McCarthy has much room to negotiate because any member of the House GOP conference could call for a snap leadership election if they don’t like what comes out of the talks.
“The drama has always been — can a debt ceiling increase be passed and Kevin McCarthy keep his job? That’s not Joe Biden’s responsibility, but that’s one of the chips that Kevin McCarthy is playing on this,” he said.
“My expectation is they’ll get it done. I think we’ll see a lot more drama,” Kessler added. “If you’ve got a deadline of June 1, May 31 is a good day to pick as the moment when the deal is sealed. That’s the way Washington generally works.”
Rep. Matt Gaetz (R-Fla.), who initially withheld support for McCarthy’s bid to become Speaker in January, said the perceived threat to McCarthy’s job is overblown.
“Literally nobody except the press is talking about removing McCarthy right now,” he posted on Twitter.
But he also told the Washington Examiner in a statement that “Speaker McCarthy simply must deliver on the promises he made in January.”
Former President Trump, who still wields a lot of influence among House Republicans, is urging them to force the nation into default unless Democrats agree to “massive cuts.”
Trump doubled down on Friday, when he posted on his social media platform that, “Republicans should not make a deal on the debt ceiling unless they get everything they want (including the ‘kitchen sink.’)”
Republicans say polls show voters agree with them on spending cuts, but it’s unclear whether the White House is feeling significant pressure.
An Associated Press-NORC Center for Public Affairs poll of 1,680 adults nationwide found 6 in 10 people surveyed say an increase in the debt limit should be linked to reforms to cut the deficit, and two-thirds of respondents say they are worried about the economic impact if Congress fails to raise the debt limit by the June deadline.
Anxiety is mounting in the financial markets as more money managers are taking precautions in case of a federal default as early as June 1. Treasury Secretary Janet Yellen again on Monday warned the federal government may run out of money to pay its debts as early as that date.
Axel Merk, the president and CIO of Merk Investments, pointed out Monday that Treasury bills maturing at the end of May before the debt limit deadline are yielding only 3.2 percent, while Treasuries maturing next month are yielding close to 6 percent.
He pointed out that credit default swaps hedging against a possible default or market complications associated with a default scare are “elevated.”
“There is some anxiety,” Merk said, though he explained that traders are positioning themselves because of technical issues. “T-bills are the oil of the financial system; they grease the wheels. You don’t want to be without oil for even a second. So obviously, the market is preparing for a potential disruption.”
“The market is not expecting that what we have right now is a deal,” he said.
Merk also noted yields on Treasury bills maturing in July are starting to climb, a sign some investors and managers think the impasse in Washington may force the White House and Congress to extend the negotiations past June.
Democrats and Republicans on the Hill, however, insist they don’t have any desire to prolong the negotiation into July or early August.
Yellen warned in a letter Monday that she may not be able to postpone the debt limit deadline without action by Congress.
“With an additional week of information now available, I am writing to note that we estimate that is highly likely that Treasury will no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1,” she wrote, echoing her warning to congressional leaders in other recent letters.
This story was updated at 8:16 pm.