Biden seeks debt ceiling talks as U.S. faces possible June 1 default

President Biden invited House Speaker Kevin McCarthy (R-Calif.) and other congressional leaders to the White House next week to discuss the debt ceiling, as Washington scrambled Monday to respond to news that the government could default on its obligations as soon as June 1.

Biden’s request for talks followed a jarring new projection from the Treasury Department that the government could run out of cash to pay its bills in as few as four weeks without additional borrowing authority - an unprecedented event that could rattle world financial markets and tip the fragile U.S. economy into another recession.

The debt ceiling imposes a legal limit on the amount of money the U.S. government can borrow, currently set at $31 trillion. Since the national debt hit the cap in January, the Biden administration has adopted special budgetary maneuvers to conserve cash and buy time for lawmakers either to raise the limit or to suspend its enforcement.

Republican lawmakers - who took control of the House in January - have tried to seize on the looming deadline to extract spending cuts and other policy concessions from the White House. Last week, the House approved a Republican measure that would briefly raise the debt ceiling while cutting billions of dollars in federal spending and repealing some of Biden’s recent legislative accomplishments.

The president has threatened to veto the measure and called on Congress to raise the debt ceiling without conditions. Until Monday, Biden had also refused to haggle with Republicans over an issue that poses such immense risks to the economy.

But with Monday’s news that default could come as soon as next month, the president set in motion a plan to hold talks on May 9, personally calling McCarthy as well as Senate Majority Leader Charles E. Schumer (D-N.Y.), Senate Minority Leader Mitch McConnell (R-Ky.) and House Minority Leader Hakeem Jeffries (D-N.Y.), according to a White House official, who spoke on the condition of anonymity to describe private conversations.

The Treasury Department, meanwhile, sounded an urgent alarm about the need for haste: In a letter to lawmakers, Treasury Secretary Janet L. Yellen said the agency may be “unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1.”

Yellen cautioned that the projection is imprecise, given the variability of federal tax receipts, which have come in lower than anticipated in recent months. But she said she was certain about the economic consequences of inaction, warning that it could cause “severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.”

“I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible,” Yellen said.

With time running out, the flurry of activity revealed a growing sense of anxiety in Washington. Few debates carry such high political and economic stakes: The nation has never defaulted on its financial obligations, and the failure to make payments to bondholders - as well as to federal employees and to beneficiaries of government programs such as Social Security - could send shock waves through the entire global financial system.

Adding to the uncertainty, the federal government and private economists have offered mixed, and sometimes conflicting, estimates as to the actual debt ceiling deadline, known in the nation’s capital as the “x date.” In its own projection, the nonpartisan Congressional Budget Office on Monday reported that there is now a “significantly greater risk” that the United States could run out of funds in early June. The CBO had earlier projected that lawmakers had as late as September to act.

Previously, Republicans have raised the debt ceiling without issuing demands. Three times, they addressed the borrowing cap under President Donald Trump without demanding fiscal reforms. Each time, Democrats serving in the minority also supplied their votes in a bid to avert a crisis.

Under Biden, Republican lawmakers have adopted a more aggressive posture, aiming to use the threat of a fiscal crisis as a political tool while blaming Democrats for the burgeoning debt. In reality, policies supported by both parties have contributed to a growing tide of red ink that could exceed $50 trillion over the next 10 years.

In a bill adopted last week, House Republicans spelled out their demands: They seek billions of dollars in spending cuts, the repeal of federal funds to fight climate change and pursue tax cheats, a set of new work requirements on welfare recipients, and an end to Biden’s plan to cancel student debts. Heralding the outcome at a brief news conference, McCarthy portrayed the so-called Limit, Save, Grow Act as a tool meant to force Biden to negotiate.

“The sad part here is, now the Democrats need to do their job,” McCarthy said after the vote. “The president can no longer ignore [it] by not negotiating.”

For the past three months, though, the two men have not met. The president has said he is open to discussing other fiscal issues with the House speaker, but only if the GOP lays out its plan for balancing federal spending and tax revenue, a difficult task the party has yet to tackle.

Even Monday, as Biden invited lawmakers to new discussions, he again slammed House Republicans for their legislation, saying “their extreme MAGA plan would cut critical funding for education, public safety, including cut 60,000 public schoolteachers, take health care and food assistance away from millions of working families.” The president also blamed Trump and his predecessors for incurring “200 years of debt,” adding: “We’re not paying for what we’re spending right now.”

McCarthy, who is on an official trip to Israel, responded to Biden’s invitation by criticizing the president for having “refused to do his job” and “threatening to bumble our nation into its first default.”

“After three months of the Biden administration’s inaction, the House acted, and there is a bill sitting in the Senate as we speak that would put the risk of default to rest. The Senate and the President need to get to work - and soon,” McCarthy said in a statement.

In the Senate, meanwhile, Schumer has signaled that he has no plans to approve the House bill. On Monday, he promised that lawmakers instead would hold hearings that “expose the true impact of this reckless legislation on everyday Americans.” Schumer also took the first procedural steps toward ensuring the Senate could act swiftly on legislation to increase the debt ceiling, including potentially a two-year increase.

Some Senate Democrats responded with pessimism to the idea of talks at the White House, arguing that Biden should continue to refuse to negotiate.

“There’s no deal to cut here,” Sen. Brian Schatz (D-Hawaii) said Monday, before news broke about the president’s invitation. “The premise here is that there should be no policy concessions in exchange for preventing default.”

Some Senate Republicans appeared equally unenthusiastic about Biden’s outreach, reiterating their unwillingness to get involved in what they believe should be a negotiation solely between Biden and McCarthy.

“What we’ve said all along is the only thing that can get 60 votes in the Senate is something that’s negotiated between the president and the House Republican leadership,” said Sen. John Thune (R-S.D.), McConnell’s deputy. “And so I’m not sure at this point what Schumer or McConnell add to the debt conversation.”

The looming deadline and the lack of a path forward raised the grim specter of 2011, when Washington came within days of breaching the debt limit. Then the standoff between Republican lawmakers and a Democratic president spooked the stock market and triggered a downgrade in the nation’s credit rating, which ultimately cost taxpayers an estimated $1 billion in higher interest rates on government bonds.

This year, investors already have started to hedge against the potential for another disruption, shifting away from bonds that mature around the date of the debt ceiling deadline. In another ominous sign, Fitch Ratings, which evaluates debt, warned last week that persistent dysfunction could result in another downgrade of the nation’s credit rating.

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The Washington Post’s Paul Kane and Leigh Ann Caldwell contributed to this report.