Pressure is building on President Joe Biden to respond after House Republicans unified on a set of demands to avert a catastrophic US debt default in the coming weeks.
(Bloomberg) — Pressure is building on President Joe Biden to respond after House Republicans unified on a set of demands to avert a catastrophic US debt default in the coming weeks.
The deadline for a deal is about to come into sharper focus, clarifying the ramifications for the financial markets even as the two parties remain deeply polarized over whether to require spending cuts in any agreement to raise the US debt limit.
But now that Republicans have squeaked their debt plan through the House, Biden can no longer claim they lack a cohesive plan — ratcheting up pressure to sit down with Speaker Kevin McCarthy.
“The president can no longer ignore by not negotiating,” said McCarthy, who needed to pass the bill to in order to have any serious leverage over Biden. “We have done our job.”
Biden, however, has dug in on his refusal to cave to GOP demands to attach budget cuts to raising the $31.4 trillion US debt ceiling, although he has signaled openness to “separate” budget discussions.
“I’m happy to meet with McCarthy, but not on whether or not the debt limit gets extended,” Biden said on Wednesday. “That’s not negotiable.”
The White House has already attacked the 22% cut to domestic programs that Republicans propose for next year in exchange for their agreement to lift the debt ceiling. Each side is likely to rev up their campaign to build support from the public.
“There’s probably a week of mutual recriminations to come, and then they find a basis to have a conversation,” said Rohit Kumar, who was Senate Republican leader Mitch McConnell’s chief negotiator in 2011 debt-limit talks and is now a principal at PwC.
The spread on one-year credit default swaps, the most popular contracts for wagering on a missed payment by the US government, has surged in recent days, touching a record 1.62 percentage points on Wednesday, according to data compiled by Bloomberg going back to 2007.
The pressure to open talks will only intensify once Treasury reveals a new date in the coming days after which the US would default on payments without lifting of the ceiling. The so-called X-date could be as early as June.
The GOP bill, which passed 217 to 215, is the Republican opening offer and has no chance of passing the Democratic-controlled Senate. To win support of conservatives, it contains a long list of their priorities including repealing climate change spending from Biden’s signature bill enacted last year.
Embattled Representative George Santos of New York, who had been undecided, provided extra drama, waiting to be the last Republican to cast a vote and tipping the balance in favor. Four members of his party, Matt Gaetz of Florida, Andy Biggs of Arizona, Ken Buck of Colorado and Tim Burchett of Tennessee, voted against the plan, along with every Democrat in the chamber.
White House Press Secretary Karine Jean-Pierre said in a statement that the measure “cuts veterans’ health care, education, Meals on Wheels, and public safety, takes away health care from millions of Americans, and sends manufacturing jobs overseas.”
“The president,” she said, “has made clear this bill has no chance of becoming law.”
The McCarthy plan would increase the US debt ceiling by $1.5 trillion, which would stave off a US payments default until March 31, 2024 at the latest. In exchange, Republicans demand $4.8 trillion in budget cuts, defying Biden’s demands for a so-called “clean” debt ceiling increase.
McCarthy secured the votes to pass the measure after making middle-of-the-night concessions to factions within his party. Midwestern Republicans forced the speaker to restore biofuels tax breaks, while conservatives accelerated work requirements in food stamp and welfare programs to 2024.
Democrats said the bill is so extreme that it cannot move talks forward.
“This is a ransom note,” said Jim McGovern, a Massachusetts Democrat. “They say that in order for us to pay our bills for one year, we have to make 10 years of deep cuts that will hurt our constituents.”
Senate Majority Leader Chuck Schumer said “Democrats cannot and will not allow the Republicans’ DOA Act to ever become law. It is DOA, plain and simple.”
For McCarthy, passing the bill allows him to quiet critics who have unfavorably compared him to former Speaker Nancy Pelosi who had a legendary ability to bend her caucus to her will.
McCarthy only became speaker after 15 rounds of voting at the start of the year and instituted a new process of dialogue between conservatives and moderates.
The talks on the substance of the debt bill were led by Louisiana Representative Garret Graves, who played a key role in adding energy and fossil fuel provisions to the proposal to win over conservatives, while sparing cuts to popular prescription drug provisions enacted last year.
“We have empowered Speaker McCarthy to go and negotiate,” added Representative Stephanie Bice of Oklahoma. “This brings them to the table. “
Josh Huder, a senior fellow at Georgetown University’s governmental affairs institute, said McCarthy had “to demonstrate the House has its demands in order for the House to even be at the table.”
Failure to pass the measure would have left McCarthy and the House essentially “irrelevant” in the negotiations, Huder added.
McCarthy’s greatest test, however, is yet to come.
If he strikes a compromise with Biden or a looming default forces him to put a no-strings-attached bill up for a vote, he risks angering ultra-conservatives. A deal that falls short of their demands could set up a career-ending no-confidence vote on the floor.
–With assistance from Josh Wingrove and Alexandra Harris.
(Updates with market reaction in ninth paragraph)
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