WASHINGTON – Treasury Secretary Janet Yellen said Friday that the projected debt deadline has been extended to June 5, four days later than previously thought.
Still, Yellen renewed her warning in a letter to Congress that inaction to raise the borrowing limit would “cause serious difficulties.”
Yellen’s latest “X-date” letter to lawmakers came as Congress adjourned for the long Memorial Day weekend. She said the Treasury Department had taken an extraordinary measure, not used since 2015, to bring the US financial position to this point.
The X-date comes when the government no longer has enough of a financial cushion to pay all its bills, as measures it has used since January to stretch existing funds have run out.
Earlier on Friday, House Speaker Kevin McCarthy said Republican debt negotiators and the White House were in for a “difficult” time as they scrambled to strike a deal with President Joe Biden to rein in federal spending and lift the government’s borrowing limit before a looming deadline. .
They had hoped to end weeks of frustrating negotiations and seal a deal by this weekend. Now the Treasury Department says the government could start running out of cash as soon as a week from Monday, pushing the US into a potentially catastrophic default with economic ripples around the world.
Alarmed retirees and social services groups were among those making contingency plans as lawmakers left town for the long holiday weekend. The next batch of Social Security checks is due next week.
“The world is watching,” International Monetary Fund Managing Director Kristalina Georgieva said after meeting with Yelen on Friday. “Let’s remember that we are now in the 12th hour.”
Biden, a Democrat, and the Republican speaker narrowed their differences as they tried to nail down the details of a two-year deal that would cap federal spending and repeal the statutory borrowing limit after next year’s presidential election.
Any deal would have to be a political compromise with support from both Democrats and Republicans to pass a divided Congress.
“We know it’s a crunch,” McCarthy said after arriving at a deserted Capitol, acknowledging that more progress needs to be made.
Speaking at the White House to honor Louisiana State University’s champion women’s basketball team, Biden praised one of those top negotiators, saying she “hopefully makes a deal.”
He was referring to Office of Management and Budget Director Shalanda Young, who attended the event, as well as Rep. Garrett Graves of Louisiana, a top GOP member.
While the outlines of a deal are taking shape on spending cuts for 2024 and a 1% cap on spending growth for 2025, the two sides remain stuck on various provisions. The debt ceiling, now $31 trillion, will be written off for two years to pay the country’s outstanding bills.
A person familiar with the talks said the two sides were “debating” whether to agree to Republican demands for tougher work requirements for people receiving government food stamps, welfare and Medicare.
House Democrats called such demands for health care and food assistance inappropriate.
Asked if Republicans would budge on the job demands, Graves fumed: “Hell no chance.”
House Republicans pushed the issue to the limit, showing risky political bravado by leaving town for the Memorial Day holiday. Lawmakers are tentatively expected not to return to work until Tuesday, just two days after the June 1 “X date,” when Treasury Secretary Yellen said the U.S. could face a default.
Biden will also be absent this weekend, traveling to a presidential meeting in Camp David, Maryland, on Friday and to his home in Wilmington, Delaware, on Sunday. The Senate is on recess and will return after Memorial Day.
“Every time there’s progress, the challenges that remain get harder and harder,” negotiator Patrick McHenry, RN.C., said at noon Friday.
Weeks of negotiations between Republicans and the White House failed to produce a deal — in part because the Biden administration resisted negotiating with McCarthy over the debt limit, arguing that the country’s full faith and credit should not be used as leverage to obtain other party priorities.
“We have to spend less than we spent last year. That’s a starting point,” McCarthy said.
One idea is to set basic budget numbers, but then add a “rebound” provision to carry out the cuts if Congress fails to meet new targets through the annual appropriations process.
On work requirements for welfare recipients, the White House is particularly resistant to measures that could push more people into poverty or rob them of their health, said a person familiar with the talks, who spoke on condition of anonymity to describe the closed-door discussions.
As for the Republican demand to eliminate money for the Internal Revenue Service, it is still “an open question” whether the parties will compromise by allowing funding to go to other domestic programs, the person said.
According to another person familiar with the talks, Republicans may relax their demand to raise defense spending beyond what Biden proposed in his budget, instead of offering to keep it at the levels he proposed.
The teams are also considering a proposal by Sen. John Hickenlooper, R-Cal., to incentivize the development of transmission lines to facilitate the construction of an interregional power grid.
Meanwhile, McCarthy is under pressure from the right wing of the House not to budge on any deal, even if it means missing the June 1 deadline.
“Let’s hold the line,” said Rep. Chip Roy, R-Texas, a member of the Freedom Caucus.
McCarthy said Donald Trump, the former president who is running for office again, told him, “Make sure you get a good deal.”
However, vigilant Democrats are also putting pressure on Biden. Three Democratic leaders in the House of Representatives, led by Representative Hakeem Jeffries, spoke to the White House Thursday night.
Even if negotiators strike a deal in the coming days, McCarthy has promised lawmakers that he will abide by the rule of placing any bill 72 hours before a vote — now likely Tuesday or even Wednesday. The Democratic-held Senate has vowed to quickly send the package to Biden’s desk before a possible deadline next Thursday.
Meanwhile, the rating agency Fitch Ratings put the US AAA credit on “negative rating”, warning of a possible downgrade.
The White House continues to argue that the deficit can be reduced by eliminating tax breaks for wealthy households and some corporations, but McCarthy said he told the president as early as their meeting in February that raising revenue through tax increases was not a consideration.
While Biden has for now ruled out invoking the 14th Amendment to raise the debt limit on his own, House Democrats have announced that they have all signed up to a “winding” legislative process that would force a vote on the debt ceiling. But they need five Republicans to split their party and give the majority the go-ahead to develop a plan.
Now that the pandemic emergency has officially been lifted, they are almost certain to return about $30 billion in unused COVID-19 funds.