What to expect as the US continues with debt ceiling negotiations

Tensions are rising as the deadline for the US to raise spending limits and avoid a potentially catastrophic bankruptcy looms on the horizon.

Republican House Speaker Kevin McCarthy will meet with US President Joe Biden on Tuesday to discuss possible ways forward. The US Treasury Department has warned that as early as June 1 it will run out of money to pay the country’s bills.

In American politics, it is up to Congress to raise spending limits and prevent defaults. McCarthy has said he will not do this without an agreement to cut social programs.

The result is a stalemate in which little progress has been made, even as experts have warned that a bankruptcy could have disastrous consequences for the US economy.

“Every day that Congress does nothing, we are experiencing higher economic costs that could slow the US economy,” Treasury Secretary Janet Yellen said Tuesday. “There’s no time to lose.”

Here are some details on who is involved in the debt ceiling negotiations, what to expect in the coming days, and what it would mean for the US not to pay its debts.

What is the debt ceiling?

The debt ceiling is the US spending limit, currently set at approximately $31.4 trillion. Typically, raising government spending limits is a routine procedure. But what was once a fairly uncontroversial process has become increasingly politicized over the years.

When was it last raised?

The debt ceiling was last raised in 2021, when Democratic lawmakers in the House and Senate raised spending limits with little drama.

Today, the Democrats control the White House and the Senate, but the Republicans have a majority in the House of Representatives.

McCarthy, under pressure from his party’s right wing, is using Republican clout on the debt ceiling to push for spending cuts and tighter restrictions on programs such as food aid for low-income households.

“Avoiding unprecedented bankruptcy is a basic duty of Congress,” Biden said in a Twitter post Tuesday. “And House Republicans know it — they avoided bankruptcy three times under my predecessor, without once threatening our economy. Standard is not an option.”

Avoiding unprecedented bankruptcy is a fundamental duty of Congress.

And House Republicans know it—they’ve avoided bankruptcy three times under my predecessor, without ever threatening our economy.

Standard is not an option.

—President Biden (@POTUS) May 16, 2023

What do the members of each party say?

McCarthy and the Republican Party have said they are trying to rein in government spending.

“We can raise the debt ceiling if we limit what we spend going forward,” McCarthy told reporters on Tuesday.

Those restrictions largely focus on social programs and include proposed work requirements for food aid.

Republican demands have left the country’s more than $850 billion military budget largely untouched. Meanwhile, Democrats have benefited from the fact that Republican lawmakers have raised spending limits with little fuss when their own party is in power.

“Republicans exploded our debt when they gave massive tax breaks to the wealthy. Now they are refusing to raise the debt limit and foot the bill — risking global economic catastrophe unless they can undermine Social Security, Medicare and Medicaid,” Sen. Bernie Sanders said in a social media post in January.

“America cannot default on its debts. If we did, it would be catastrophic,” Biden said in a video posted to Twitter on Tuesday. “It is incomprehensible. No serious person in either party ever thought this was an option.”

What happens if the US defaults?

A US default would be unfamiliar territory, but experts agree on one key point: This would be deeply troubling for both the US and the global economy.

Treasury Secretary Yellen previously warned that if the US did not raise the debt ceiling in early June, a default would cause an “economic and financial catastrophe”.

“A default would raise the cost of borrowing forever. Future investments would become significantly more expensive,” Yellen told a group of business people in April.

Last week, the International Monetary Fund (IMF) also stated that a US default would have “very serious consequences” around the world, including a potential slowdown in global gross domestic product (GDP) growth.

If the government is unable to pay its bills after June 1, federal employees could face a backlog in their pay and the government could struggle to keep some positions.

What is the status of the talks?

Biden and McCarthy met Tuesday, along with other members of Democratic and Republican congressional leaders, the second meeting of its kind in the past week.

Republican Senator John Thune told reporters on Tuesday that there have been “too many cooks” in the negotiations and talks should be limited to Biden and McCarthy.

Adding to the difficulty is the fact that McCarthy, who was elected Republican leader of the House after a contentious and lengthy process following the 2022 midterm elections, is vulnerable to attacks from hardliners within his party.

The president is scheduled to leave on Wednesday for an overseas trip to attend the Group of Seven (G7) summit in Japan, but some lawmakers have called for him to cancel.

“He can’t fly halfway around the world as negotiations heat up,” Republican Senator John Cornyn said in a statement Tuesday.

While Biden previously took a more upbeat tone, declaring over the weekend that there was “a desire on their part as well as ours to reach an agreement,” the White House said on Tuesday that the president had begun his time at the G7 summit. could shorten. shortly if no further progress is made.

“We are currently working through and thinking about the rest of the journey,” White House national security spokesman John Kirby told reporters.