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    U.S. Faces ‘Elevated Risk’ of Default in Early June, a New Report Warns

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    The Bipartisan Policy Center said the government would be operating on “dangerously low” cash reserves after Memorial Day in its estimate of the so-called X-date.The United States faces an “elevated risk” of running out of cash to pay its bills between June 2 and 13 if Congress does not raise or suspend the nation’s debt limit, according to an analysis released on Tuesday by the Bipartisan Policy Center, an influential think tank that carefully tracks federal spending.The analysis underscores the growing possibility that the United States will default on its debt as soon as next week. It comes amid negotiations between the White House and Republicans in Congress to reach an agreement that would also lift the $31.4 trillion borrowing cap.“Come early June, Treasury will be skating on very thin ice that will only get thinner with each passing day,” said Shai Akabas, the center’s director of economic policy. “Of course, the problem with skating on thin ice is that sometimes you fall through.”The center said that the Treasury Department would be operating on “dangerously low” cash reserves after Memorial Day and that each day in June would come with increasing risk. The department has been using accounting maneuvers known as extraordinary measures to delay a default since the United States technically hit the debt limit in January, but those are expected to be exhausted soon.The center noted that the federal government could get a reprieve if it mustered sufficient revenue to make it to June 15, when quarterly tax payments are due. That could push a default, the so-called X-date, into July.However, Treasury Secretary Janet L. Yellen said this week that she thought it was unlikely that the federal government would have enough cash on hand to make it to mid-June.In a letter to Congress on Monday, Ms. Yellen reiterated her estimate that the X-date could arrive as soon as June 1. Her warning did not come with the caveats included in her previous updates, which had suggested that the government’s cash reserves could potentially last for a few additional weeks. Instead, she emphasized the urgency of the situation.“If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position and raise questions about our ability to defend our national security interests,” Ms. Yellen said.As the X-date approaches, the Treasury Department has been checking with federal agencies about the timing of upcoming expenditures. Treasury recently sent a memo to agencies to inquire if any scheduled payments could be delayed. The Washington Post reported earlier on the memo.The communication is similar to what the Treasury Department conveyed during the 2021 debt limit standoff and is part of how it manages its cash reserves.“To produce an accurate forecast around the debt limit, it’s critical that Treasury have updated information on the magnitude and timing of agency payments,” Lily Adams, a Treasury spokeswoman, said. “As in prior debt limit episodes, Treasury will continue to regularly communicate with all aspects of the federal government on their planned expenditures.” More

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    Biden and McCarthy Describe ‘Productive’ Debt Limit Talks, but No Deal Is Reached

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    President Biden and Speaker Kevin McCarthy expressed optimism on Monday that they could break the partisan stalemate that has prevented action to avert a default on the nation’s debt, but remained far apart on a deal to raise the debt limit as Democrats resisted Republicans’ demands for spending cuts in exchange.The two met face to face at the White House for the second time in two weeks in a show of good will after a weekend of behind-the-scenes clashes among negotiators, punctuated by a move by Republicans on Friday to halt the talks and accusations by both sides that the other was being unreasonable.With Mr. Biden back from a summit meeting in Japan, the tenor appeared to have changed considerably. “We don’t have an agreement yet,” Mr. McCarthy told reporters at the White House after the meeting. “But I did feel like the discussion was productive,” he said, adding later that he believed the tone of the talks was “better than any other time we’ve had discussions.”“I believe we can still get there,” Mr. McCarthy said. “I believe we can get it done.”He said he expected to speak with Mr. Biden daily until a deal could be struck.With a default looming as soon as June 1, both Mr. Biden and Mr. McCarthy began their latest meeting sounding upbeat about finding common ground in an effort to avoid economic catastrophe and left dispatching their top advisers to hammer out an agreement in the coming days.“We still have some disagreements, but I think we may be able to get where we have to go,” Mr. Biden said as the two sat down in the Oval Office. “We both know we have a significant responsibility.”Mr. Biden said in a brief statement after the meeting that the talks were “productive.”“We reiterated once again that default is off the table and the only way to move forward is in good faith toward a bipartisan agreement,” he added, saying that he and his negotiating team would continue talking with Mr. McCarthy and his.Still, the two sides remained at loggerheads. The White House has called Republicans’ demands for spending cuts extreme, while Mr. McCarthy and his aides have accused White House officials of being unreasonable.The number of legislative days for Congress to vote to raise the debt ceiling before the projected deadline is rapidly dwindling. Treasury Secretary Janet L. Yellen on Monday reiterated her warning to Congress that the United States could exceed its authority to borrow to pay its bills as soon as June 1. She said in an interview with NBC’s “Meet the Press” over the weekend that the odds of the government being able to hold out until mid-June — when a substantial amount of quarterly tax revenue is expected to roll in, giving the Treasury more breathing room to cover its obligations — were “quite low.”And Republicans hinted that no deal was likely to materialize until a default was truly imminent. When asked on Monday evening what it would take to break the deadlock, Mr. McCarthy replied simply: “June 1.”Chief among the outstanding issues is how much to spend overall next fiscal year on discretionary programs and how long any spending caps should be in place. Republicans want to allow military spending to increase while cutting other programs. But they have shown some flexibility around how long they would seek to cap spending overall, coming down from their initial demand of a decade to six years.That is longer than Mr. Biden wants. White House officials have proposed holding both military and other spending — which includes education, scientific research and environmental protection — constant over the next two years.“These are tough issues,” said Representative Patrick T. McHenry, Republican of North Carolina and a key ally of Mr. McCarthy who has been involved in the talks and attended the White House meeting. “A directive to cut spending year over year is the toughest thing to do in Washington, D.C. But that is the speaker’s directive to his negotiating team. It is our expectation to be able to get that.”Hard-right members of Mr. McCarthy’s conference have continued to pressure the speaker not to accept anything less than the spending cuts that House Republicans passed in their debt limit bill last month, which would have amounted to a reduction of an average of 18 percent over a decade.“Republicans must #HoldTheLine on the debt ceiling to bring spending back to reality and restore fiscal sanity in DC,” the House Freedom Caucus wrote on Twitter. “We spend $100+ billion more than federal tax revenues EVERY MONTH. Washington has a spending problem, not a revenue problem.”Mr. McCarthy expressed confidence that he could keep his conference largely united around whatever deal he strikes with Mr. Biden, telling reporters at the Capitol before the meeting that he believed it would draw the support of both Democrats and Republicans.“I firmly believe what we’re negotiating right now, a majority of Republicans will see that it is a right place to put us on a right path,” he said.But he also hinted that members of his conference should prepare to accept a final product that falls short of what some lawmakers have demanded.“I don’t want you to think at the end of the day, the bill that we come up with is going to solve all this problem,” he said. “But it’s going to be a step to finally acknowledge our problem and put one step in the right direction. And we’re going to come back the next day and get the next step.”Once negotiators agree to a deal, it will take time to translate it into legislative text. Mr. McCarthy has promised that he will give lawmakers 72 hours to review the bill, and said on Monday that he believed negotiators would need to agree to a compromise this week in order to pass legislation raising the debt ceiling before the projected June 1 deadline.Lawmakers in the House were still left uncertain about when they would need to be present to cast a vote to avert a default. The House, as of Monday evening, was set to depart Washington beginning on Thursday afternoon ahead of the Memorial Day weekend.The two sides have found some agreement in talks in the last week, including on clawing back some unspent funds from previously approved Covid relief legislation.But many other issues have yet to be resolved, including tightening work requirements for able-bodied adults without dependents for certain safety social net programs. The bill passed by House Republicans contained stricter requirements for recipients of Temporary Assistance for Needy Families and food stamps, and is a key demand of conservatives in the House.Mr. McCarthy said on Monday that he would continue to push for their inclusion in whatever deal he strikes with Mr. Biden, and White House negotiators have shown openness to finding some compromise on the issue.Carl Hulse More

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    Yellen Warns the U.S. Could Default as Soon as June 1

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    Treasury Secretary Janet L. Yellen reiterated on Monday that the United States could be unable to pay its bills as soon as June 1, an announcement that maintains pressure on the White House and congressional leaders as they negotiate how to raise the nation’s debt limit.The warning to Congress comes as President Biden and Speaker Kevin McCarthy are set to meet on Monday afternoon at the White House to try and resolve the impasse. Representatives for Mr. Biden and Mr. McCarthy have been engaged in talks over the past week to devise a plan that would cap federal spending and reduce the deficit while raising the $31.4 trillion borrowing cap.Ms. Yellen warned that the nation’s finances remain in a precarious state, saying that it was “highly likely” the United States would run out of cash by early June, rather than her previous letters, which called that time-frame “likely.”“With an additional week of information now available, I am writing to note that we estimate that it 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,” Ms. Yellen wrote.In her previous letter, issued a week ago, Ms. Yellen offered the caveat that her estimates could be off because of the unpredictability of incoming government tax revenue. She said that the actual date that Treasury will exhaust the so-called extraordinary measures that she is using to delay a default “could be a number of days or weeks later.”On Monday, Ms. Yellen did not suggest that there might be more time and she warned that failing to lift the debt limit would be disastrous for the economy.“If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests,” Ms. Yellen said.The nation’s cash balance has been running perilously low. On Sunday, Ms. Yellen dismissed hopes that the so-called extraordinary measures that she has been using to delay a default would be sufficient to maintain normal government operations beyond mid-June.Republicans have refused to raise the debt limit without spending cuts, forcing Democrats to the negotiating table to avoid a default that could cause a recession and financial crisis. The two sides remain far apart on key issues, including on caps for federal spending, new work requirements for some recipients of federal antipoverty assistance and funding meant to help the Internal Revenue Service crack down on tax evasion by high earners and corporations.The Treasury secretary said over the weekend that a failure to raise the debt limit would force the government to confront difficult choices about how to meet the nation’s financial obligations. Benefits payments to retirees and veterans are likely to be disrupted, and the uncertainty could cause interest rates to surge and stock prices to plunge.The Biden administration has downplayed the idea that it could essentially ignore the debt limit and continue borrowing by invoking the 14th Amendment, which says that the validity of U.S. debt shall not be questioned. Although the administration’s lawyers have studied the idea, officials believe that the expected legal challenges and uncertainty would destabilize markets.“There can be no acceptable outcomes if the debt ceiling isn’t raised,” Ms. Yellen said on “Meet the Press” on NBC. More

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    Debt Limit Negotiators Debate Spending Caps to Break Standoff

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    The strategy, which was used in 2011, could allow both sides to save face but would most likely do little to chip away at the national debt.As negotiators for the White House and House Republican leaders struggle to reach a deal over how to raise the nation’s debt limit, a solution that harks back to old budget fights has re-emerged as a potential path forward: spending caps.Putting limits on future spending in exchange for raising the $31.4 trillion borrowing cap could be the key to clinching an agreement that would allow Republicans to claim that they secured major concessions from Democrats. It could also allow President Biden to argue that his administration is being fiscally responsible while not caving to Republican demands to roll back any of his primary legislative achievements.The Biden administration and House Republican leaders have agreed in broad terms to some sort of cap on discretionary federal spending for at least the next two years. But they are hung up on the details of those caps, including how much to spend on discretionary programs in the 2024 fiscal year and beyond, and how to divide that spending among the government’s many financial obligations, including the military, veterans affairs, education, health and agriculture.What could a spending cap deal look like?The latest White House offer would hold military and other spending — which includes education, scientific research and environmental protection — constant from the current 2023 fiscal year to next fiscal year, according to a person familiar with both sides’ proposals. That move would not reduce what is known as nominal spending, which simply means the level of spending before adjusting for inflation. Republicans are pushing to cut nominal spending in the first year.One reason the White House is willing to entertain holding spending essentially flat has to do with politics. Given that Republicans control the House, getting an increase in funding for discretionary programs outside the military would have been nearly impossible. Congress would not have approved increases through the appropriations process, the normal way in which Congress allocates money to government programs and agencies.Republicans have repeatedly said that they will not accept a deal unless it results in the government spending less money than it did in the last fiscal year. They have said that simply freezing spending at current levels, as the White House has proposed, does not enact the kind of meaningful cuts many in their party have long called for.But Republican negotiators have shown some flexibility around how long they would require those spending caps to last. House G.O.P. leaders are now looking to set spending caps for six years, rather than 10. Still, that is longer than the White House is proposing, with Democrats offering to cap spending for two years.“The numbers are foundational here,” Representative Garret Graves, Republican of Louisiana and one of Speaker Kevin McCarthy’s lead negotiators, said on Sunday. “The speaker has been very clear: A red line is spending less money and unless and until we’re there, the rest of it is really irrelevant.”The approach is evoking debt limit déjà vu.If spending caps sound familiar, that is because they were employed during the last big debt limit fight in 2011.During that episode of brinkmanship, lawmakers agreed to impose limits on both military and nonmilitary spending from 2012 to 2021. The Budget Control Act caps were somewhat successful at keeping spending in check, but not entirely.A Congressional Research Service report published this year noted that during the decade that the caps were in place, Congress and the president repeatedly enacted laws that increased the spending limits. Certain types of expenditures — for emergencies and military engagements — were exempt from the caps and the federal government spent $2 trillion over 10 years on those programs. And spending on so-called mandatory programs such as Social Security was not capped, and those make up about 70 percent of total government spending.Still, the Congressional Research Service pointed out that spending was lower each year from 2012 to 2019 than had been projected before the caps were put in place.The strategy is no fiscal panacea.Caps that limit spending around current levels will help slow the growth of the nation’s debt, but will not cure the government’s reliance on borrowed money.The Congressional Budget Office said this month that annual deficits — the gap between what America spends and what it earns — are projected to nearly double over the next decade, totaling more than $20 trillion through 2033. That deficit will force the United States to continue to rely heavily on borrowed funds.Marc Goldwein, the senior policy director for the Committee for a Responsible Federal Budget, estimated that it would require $8 trillion of savings over 10 years to hold the national debt to its current levels. However, he said that did not mean that enacting spending caps would not be worthwhile.“We’re not going to fix this all at once,” Mr. Goldwein said. “So we should do as much as we can, as often as we can.”The group has called for spending caps to be accompanied by spending cuts or tax increases as a plan to reduce the national debt.Spending caps are not the only issue.Finding an agreement on the extent and duration of spending caps will be a critical part of getting a deal.But negotiators are still working to resolve several other issues, including whether to put in place tougher work requirements for social safety net programs including food stamps, Temporary Assistance for Needy Families and Medicaid, and whether to expedite permitting rules for energy projects, two key Republican priorities that White House negotiators have shown some openness to.Jim Tankersley More

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    Biden and McCarthy Set to Resume Debt Ceiling Talks on Monday

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    Discussions aimed at avoiding a default have bogged down as Republicans press their demand for spending caps, work requirements for public benefit programs and other proposals in exchange.President Biden and Speaker Kevin McCarthy agreed on Sunday to meet on Monday afternoon to try to jump-start talks aimed at averting a default on the nation’s debt, capping a tumultuous stretch of negotiations that faltered over the weekend as the two sides clashed over Republicans’ demands to cut spending in exchange for raising the debt limit.Mr. McCarthy announced the meeting — his third with Mr. Biden this month, scheduled for after the president’s return from the Group of 7 summit in Hiroshima, Japan — after he concluded a call with the president on Sunday sounding more sanguine than before about the prospects for a deal. The speaker said House G.O.P. and White House negotiators would continue talks at the Capitol on Sunday to lay the groundwork. White House negotiators left the Capitol on Sunday night after a two-and-a-half-hour bargaining session with their Republican counterparts but said they intended to keep working before Monday’s session.Mr. Biden “walked through some of the things that he’s still looking at, he’s hearing from his members; I walked through things I’m looking at,” Mr. McCarthy said. “I felt that part was productive. But look — there’s no agreement. We’re still apart.”Negotiators are working against a punishing clock. The debt ceiling, the statutory limit on the government’s power to borrow to pay its obligations, is projected to be reached as soon as June 1.Mr. Biden and Mr. McCarthy are negotiating over a fiscal package that would raise the limit, which Republicans have refused to do without spending cuts. They remain far apart on key issues, including on caps for federal spending, new work requirements for some recipients of federal antipoverty assistance and funding meant to help the I.R.S. crack down on high earners and corporations that evade taxes.Mr. Biden said on Sunday that he believed he had the power to challenge the constitutionality of the nation’s borrowing limit, but that he did not believe such a challenge could succeed in time to avoid a default on federal debt if lawmakers did not raise the limit soon.“I think we have the authority,” Mr. Biden said at a news conference in Hiroshima. “The question is could it be done and invoked in time.”Mr. Biden added that after the current crisis is resolved, he hopes to “find a rationale and take it to the courts” to decide whether the debt limit violates a clause in the 14th Amendment stipulating that the United States must pay its debts. He also said that, while meeting with world leaders, he had not been able to assure them that America would not default on its debt — an event that economists say could set off a financial crisis that would sweep the globe.“I can’t guarantee that they will not force a default by doing something outrageous,” Mr. Biden said, referring to congressional Republicans who have insisted on deep cuts to federal spending in exchange for raising the borrowing limit.“The numbers are foundational here,” Representative Garret Graves, Republican of Louisiana and one of Mr. McCarthy’s lead negotiators, said on Sunday. “The speaker has been very clear: A red line is spending less money and unless and until we’re there, the rest of it is really irrelevant.”Treasury Department officials estimate that there are just over two weeks before the government could lose its ability to pay its bills on time, forcing a default. Both Mr. Biden and Mr. McCarthy had expressed rising optimism last week that they could reach an agreement that would pave the way for Congress to raise the borrowing limit while also reducing some federal spending.But on Friday, Republicans abruptly halted the talks, leading to a weekend of stop-and-start negotiations that left things in limbo and Mr. McCarthy insisting that Mr. Biden reinsert himself.Treasury Secretary Janet L. Yellen is expected to provide another update to Congress on the government’s cash balance this week. On Sunday, Ms. Yellen indicated that her projections that the United States could be unable to pay all of its bills on time as soon as June 1 had not changed.“I certainly haven’t changed my assessment, so I think that that’s a hard deadline,” Ms. Yellen said on NBC’s “Meet the Press.”Ms. Yellen noted that the government was expecting to receive substantial tax payments on June 15 that could extend the so-called X-date later into the summer. But she cautioned that the odds of making it that far were “quite low.”The Treasury secretary, who warned last week that a default would “generate an economic and financial catastrophe,” said she was not exaggerating the gravity of the looming crisis.“There will be hard choices to make if the debt ceiling isn’t raised,” Ms. Yellen said, explaining that if the United States ran out of money to pay all its bills, some would have to go unpaid.Hopes had dimmed at least slightly in the last few days. Mr. Biden’s aides accused Republicans of backsliding on key areas of negotiation, and Republicans accused the White House of refusing to budge on top priorities for conservatives.Mr. Biden criticized Republicans on Sunday for not considering raising additional tax revenue to reduce future budget deficits as part of the negotiations. He said he had proposed a discretionary spending cap that would save $1 trillion over a decade compared with baseline projections.“It’s time for Republicans to accept there is no budget deal to be made solely on their partisan terms,” he said.Representative Jodey C. Arrington, Republican of Texas and the chairman of the Budget Committee, on Sunday flatly ruled out Republicans’ accepting any tax increases as part of a debt-limit deal.“It’s not on the table for discussion,” Mr. Arrington said on ABC’s “This Week.” “This is not the time to put a tax on our economy or on working families.”Some of the barbs that have been traded by the parties appeared to be meant to shore up their bases. Hard-line spending hawks in the House have urged Mr. McCarthy to demand far greater concessions from Mr. Biden. Some progressive Democrats have pushed Mr. Biden to cut off negotiations and instead act unilaterally to challenge the debt limit on constitutional grounds.A clause in the 14th Amendment, adopted after the Civil War, stipulates that “the validity of the public debt” issued by the U.S. government “shall not be questioned.” Some legal scholars say the limit is constitutional. But others contend that the clause requires the government to continue issuing new debt to pay bondholders, effectively overriding the nation’s statutory borrowing limit, which is controlled by Congress.The two sides have found some agreement in talks in the last week, including on clawing back some unspent funds from previously approved Covid relief legislation. They have also agreed in broad terms to some sort of cap on discretionary federal spending for at least the next two years. But they are hung up on the details of those caps, including how much to spend overall next fiscal year on discretionary programs — and how to divide that spending among the military and other programs.The latest White House offer would hold both military spending and other spending — which includes education, scientific research and environmental protection — constant from the current fiscal year to next fiscal year, according to a person familiar with both sides’ proposals. That move would not reduce nominal spending before adjusting for inflation, which Republicans are pushing hard to do. Asked by a reporter on Sunday, Mr. Biden said the spending reduction he had proposed would not cause a recession.Speaker Kevin McCarthy at a news conference on debt-limit negotiations at the Capitol on Wednesday.Haiyun Jiang/The New York TimesA bill that Republicans passed last month that paired spending cuts with a debt-limit increase would bring net savings of about $5 trillion over a decade compared with current projections.Republicans’ latest proposal includes a nominal drop in total discretionary spending next year. But that cut is not evenly distributed; in their plan, military spending would continue to rise, while other programs would face deeper cuts.Mr. Biden’s offer would set spending caps for two years. Republicans would set them for six years.Republicans have also proposed several efforts to save money that White House officials have objected to. They include new work requirements for recipients of Medicaid and the Temporary Assistance for Needy Families program. They would also make it harder for states to seek waivers for work requirements for certain recipients of federal food assistance who live in areas of sustained high unemployment — a proposal that was not in the Republican debt-limit bill that passed the House.Republicans are also continuing to seek a reduction in enforcement funding for the I.R.S., a move that the Congressional Budget Office estimates would increase the budget deficit by decreasing future federal tax receipts. And they have sought to include some provisions from a stringent immigration bill that recently passed the House, according to a person familiar with the proposal.“We are all concerned about deficits and fiscal responsibility, but deficits can be addressed both through changes in spending and through changes in revenue,” Ms. Yellen said, adding that she was “greatly concerned” about Republican proposals to cut funding for the I.R.S. Mr. Biden insisted on Sunday that he was willing to cut spending. He also suggested that some Republicans were trying to crash the economy by not raising the borrowing limit, in order to hurt Mr. Biden’s hopes of winning re-election.If the nation were to default, Mr. Biden said, “I would be blameless” on the merits — meaning that it would be Republicans’ fault. But, he said, “on the politics of it, no one would be blameless.”“I think there are some MAGA Republicans in the House who know the damage that it would do to the economy, and because I am president, and the president’s responsible for everything, Biden would take the blame,” he said.Alan Rappeport More

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    Debt Limit Talks Resume After Republicans Briefly Hit Pause

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    Republicans returned to the negotiating table on Friday hours after walking out, though talks lasted only about an hour.Negotiations between top White House and Republican congressional officials over a deal to raise the debt limit resumed on Friday just hours after House G.O.P. leaders said it was time to “press pause,” complaining that President Biden’s team was being unreasonable and that no progress could be made.The abrupt turn reflected the unwieldy state of negotiations over a bipartisan deal to avert a debt default that could occur as soon as June 1. Speaker Kevin McCarthy on Friday evening declared the talks were back on after venting frustration with the White House earlier in the day. Negotiations then broke up again Friday night roughly an hour after they resumed, and it was unclear when negotiators planned to meet again.The hourlong meeting capped a day of whiplash on Capitol Hill, as negotiators searching for a resolution to avoiding the first default in the nation’s history repeatedly restarted and ended discussions, and Republicans showed signs of increasing exasperation around negotiations on spending caps.“It’s very frustrating if they want to come into the room and think we’re going to spend more money next year than we did this year,” Mr. McCarthy, a California Republican, said on Fox Business on Friday evening, as he announced that his deputies would return to the negotiating table. “That’s not right, and that’s not going to happen.”Earlier in the day, Mr. McCarthy and one of his top advisers had declared that they were halting negotiations, saying that White House officials were refusing to budge on spending cuts. “We’ve got to get movement by the White House, and we don’t have any movement,” Mr. McCarthy said.His comments marked a departure from his tone just a day earlier, when he told reporters that he could see a path to reaching a deal in principle as early as the weekend.Still, the return to the negotiating table on Friday night underscored the mounting sense of urgency to find a resolution as Congress runs out of time to avoid the first default in the nation’s history, and the economic calamity that could follow.Once a deal is in hand, it will take time to translate it into legislation and pass it through Congress for Mr. Biden’s signature. Mr. McCarthy has promised his conference that he will give lawmakers 72 hours to read the bill before they vote on it.Republicans hinted that a major source of their frustration was how strictly to cap federal spending. The bill that House Republicans passed last month would raise the nation’s borrowing limit into next year in exchange for freezing spending at last year’s levels for a decade — which would lead to cuts of an average of 18 percent.The bill is a dead letter in the Democratic-controlled Senate, but the ultraconservative House Freedom Caucus declared on Thursday that Republicans should insist that it pass as is.“No more discussion on watering it down,” the group said in a tweet. “Period.”White House officials, speaking on the condition of anonymity to discuss private negotiations, acknowledged that there were significant differences between the parties, including around Mr. McCarthy’s stance on capping federal spending.Former President Donald J. Trump also weighed in on Friday on Truth Social, the social media website he founded, declaring that Republicans should not make a deal on the debt ceiling unless they get everything they want. “DO NOT FOLD!!!” he wrote.Negotiators were at odds over a handful of issues, including the extent to which a possible deal would include tougher work requirements for social safety net programs — a proposal that has drawn a backlash from progressive Democrats — and the length of any debt-limit extension.Conservatives in the House G.O.P. conference had grown increasingly concerned in recent days that Mr. McCarthy would agree to a deal freezing spending at current levels, rather than at last year’s levels, and would not lock in the kind of spending cuts for which they have long agitated.Zolan Kanno-Youngs More

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    If Debt Ceiling Standoff Can’t Be Resolved, Both Parties Will Share the Blame

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    While each party tries to blame the other for the crisis, some acknowledge that they would both share responsibility for a default.Is it the Biden default? Or the Republican Default on America?Even as negotiators push forward with halting talks to resolve the federal debt-ceiling standoff, members of both parties are positioning themselves to try to dodge the blame for the economic fallout if things go south. Democrats lambaste Republicans for taking the debt ceiling hostage to appease “extreme MAGA” conservatives bent on shrinking government spending. Republicans hit Democrats for waiting too long to open talks and not taking G.O.P. demands seriously.But deep down — and in some cases not so deep — officials in both parties know they are all going to pay if they don’t get a deal, the government defaults and Americans lose money and jobs and confidence about their financial well-being and future.“I would hate to be the politician trying to explain to people when the economy is in the toilet that it’s not my fault, it’s their fault,” said Senator Lindsey Graham, Republican of South Carolina. “Yeah, that ain’t going to work. They will flush us all.”Polls have suggested Mr. Graham’s view is correct. A Washington Post-ABC News Poll released earlier this month shows that the public is divided about who will bear the blame, with a significant chunk of independents saying the two sides should share it equally.And some on Capitol Hill say the political backlash will be well deserved if Congress and the White House manage to mangle the situation so badly that public officials careen into a completely avoidable crisis and send both the economy and the retirement accounts of millions of Americans reeling.“I can’t comprehend that anyone who had the ability to prevent this much damage to our country, our economy and our world standing would allow that to happen,” said Senator Joe Manchin III, Democrat of West Virginia, who had been among those pressing his party to engage in negotiations earlier. “It would be absolutely reprehensible. Everyone should get hammered.”But those likely reverberations haven’t yet motivated negotiators to come to an agreement and clear the way for an economic sigh of relief. Representative Garret Graves of Louisiana, the point man for House Republicans in the talks, abruptly exited a Friday negotiating session with administration representatives in the Capitol, accusing them of being “unreasonable,” and the talks were temporarily suspended. Suddenly, the path to a quick agreement that Speaker Kevin McCarthy had seen on Thursday was newly cluttered with obstacles. By the evening, talks had resumed.Such ups and downs in budget negotiations are fairly standard and can be performative as well as substantive. Both sides need to flex to show their respective forces that they are hanging tough and pushing for all they can get. But there are real differences in the positions of Democrats and Republicans on a host of issues on the bargaining table. A positive outcome is no certainty, despite regular high-level assurances that the United States cannot and will not default in the coming days.Still, should that occur, lawmakers and administration officials would like you to know that they didn’t do it.“Here we are on the brink of a Biden default,” Senator Shelley Moore Capito, Republican of West Virginia, declared this week both in person and via news release, sounding a refrain becoming increasingly popular with Republicans — that this was all Mr. Biden’s doing because he refused to engage with them earlier and allow enough time to work out an agreement.Not so, counter the Democrats. “We find ourselves in the midst of a G.O.P.-manufactured default crisis because House Republicans have chosen to try and hold our economy, our small businesses, everyday Americans hostage to unreasonable ransom demands,” Representative Hakeem Jeffries, Democrat of New York and the minority leader, said.Republicans have a retort. They argue that since they squeezed legislation through the House last month that would raise the debt limit and enact spending cuts, they have bragging rights as well as immunity from any criticism because they are the only ones who have acted thus far — though it was widely known the bill could never pass the Democratic-majority Senate.“I don’t know how we own it if we raised the debt limit,” Mr. McCarthy said at the White House when asked if he was ready to face the consequences for a default. His colleagues share his view.“In my district I don’t think it would be a huge problem,” said Representative Tom Cole, Republican of Oklahoma. “I did vote to raise the debt ceiling. Show me one person on the other side who did.”In addition, Republicans know it is traditionally the president who gets credit or fault for the state of the economy even if circumstances are well beyond control of the executive branch.Democrats scoff at the Republican claims. Senator Chuck Schumer, the New York Democrat and majority leader, dubbed the House legislation the Default on America Act, to try to capture both its impact and its dead-on-arrival status in the Senate. He and his fellow Democrats say they refuse to reward Republicans for what they view as highly irresponsible actions that are putting the nation’s economy at risk — even though both parties have used the debt limit for bargaining leverage over the years.“From the beginning, Democrats have said — I have said — that this process demands bipartisanship,” Mr. Schumer said this week. “It’s how we avoided default under President Trump. It’s how we have avoided default under President Biden, and it’s how we should avoid default this time too. Brinkmanship, hiding plans, hostage-taking — none of that will move us closer to a solution.”The two parties can continue to trade shots. But until they trade negotiating positions they can come to terms on, the threat of default hangs over Washington and the nation. And if that happens, those involved may find that the public won’t distinguish between who did or said what when, but will hold them all accountable. More

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    When Will the U.S. Run Out of Cash? The Answer Is Complicated.

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    The federal government is essentially living paycheck to paycheck, making the X-date hard to pin down.In letters to Congress and warnings to business leaders about the catastrophic consequences if the United States defaults on its debt, Treasury Secretary Janet L. Yellen has repeatedly offered an important caveat.She cannot give the exact date when the federal government will run out of cash.The United States reached its statutory $31.4 trillion debt limit on Jan. 19, forcing the Treasury Department — which borrows huge sums of money to pay nation’s bills — to begin using accounting maneuvers known as extraordinary measures to conserve cash and avoid breaching the cap.On Monday, Ms. Yellen reiterated previous warnings that the Treasury Department could deplete its cash reserves by June 1. Still, the exact day when the United States will reach the so-called X-date is nearly impossible to determine.“These estimates are based on currently available data, and federal receipts, outlays and debt could vary from these estimates,” Ms. Yellen has told lawmakers in her letters. “The actual date Treasury exhausts extraordinary measures could be a number of days or weeks later than these estimates.”While Treasury has the most sophisticated cash management system in the world and employs teams of highly trained economists, its coffers are a blur of payments going out and tax revenues coming in. When its cash balance runs painfully low — as was the case on Wednesday, when the Treasury General Account started the day with less than $100 billion — pinpointing the X-date becomes even harder to predict. In many respects, that is because the moment that a default would occur is a moving target.Big bills are coming due.Ms. Yellen has been eyeing early June as a pivotal month since her first warnings to Congress about the debt limit in January. The reason: The federal government spends a lot of money in a short period of time around June 1, and it is impossible to predict exactly how much revenue is going to be coming in and when.In a report published on Thursday, the Bipartisan Policy Center, a think tank that carefully tracks federal spending, estimated that the government would spend $101 billion on June 1. Most of that money — $47 billion — will go toward Medicare, while the rest will be directed to veterans’ benefits, military pay and retirement, civil service retirement and supplemental security income. On June 2, the government has to pay $25 billion in Social Security benefits and another $2 billion for Medicaid.During those two days, the government is projected to spend about $140 billion and bring in only $44 billion in tax revenue, leaving the nation’s coffers operating on fumes.Revenues sputter as refunds flow.One big problem this year is that tax revenues have been coming in at a more tepid pace than anticipated.Severe storms, flooding and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service to push the April 18 tax-filing deadlines in dozens of counties to October.Another surprising reason that cash is running lower than some budget experts projected is that the I.R.S. is starting to operate more efficiently. As a result of the $80 billion that the agency received as part of the Inflation Reduction Act last year, it has been able to ramp up hiring and chip away at the backlog of unprocessed tax returns.Because the I.R.S. has been processing returns more quickly, it is also paying out refunds more quickly and draining the amount of available cash.June 15 is a critical day.If Ms. Yellen can find enough coins in Treasury’s couch to pay the bills until June 15, the United States could find itself with a bit of breathing room.That is because June 15 is when third-quarter payments are due from corporations and people who are required to pay their tax bills throughout the year or choose to make payments every three months to avoid having large bills due in April.The Congressional Budget Office said in a report last week that an expected influx of quarterly tax receipts on June 15 and the availability of additional extraordinary measures would probably allow the government to continue financing operations through at least the end of July.The government could receive approximately $80 billion in tax revenue that day. The Bipartisan Policy Center estimates that those funds could be sufficient to keep the federal government afloat until June 30. At that time, Ms. Yellen would also have some additional extraordinary measures at her disposal — a suspension of investments into retirement funds for federal workers — that would allow her to unlock an additional $145 billion and potentially delay a default until well into July.It’s too close to call.The lack of clarity about the X-date has made it difficult for lawmakers to know how much pressure they are under to strike a deal. The government may not know how quickly cash is running out until right before the country faces default.But pressure is still mounting. Congress is likely to take days — if not weeks — to pass legislation to raise the debt ceiling. And even if President Biden and Speaker Kevin McCarthy strike an agreement, there is no guarantee that the House and Senate will easily pass the legislation.The legislative calendar gets increasingly complicated as summer approaches.Mr. McCarthy and Senator Chuck Schumer, Democrat of New York and the majority leader, would need to navigate legislation reflecting that agreement through their respective chambers, and the days left to do so are rapidly dwindling. The House is scheduled to be in session for only six days before the end of the month. The Senate is set for just five and is scheduled to be out of Washington beginning on Monday before the Memorial Day weekend.Mindful that lawmakers are loathe to reschedule their recesses, analysts have been watching the legislative schedule closely as they try to read the debt limit tea leaves. If no deal is signed into law by Memorial Day and Ms. Yellen does not announce that the X-date is delayed, that could raise the likelihood of a short-term suspension of the borrowing cap to give Congress more time to act.“The congressional calendar is king and will dictate urgency and passage dates for a bill, as has historically been the case,” Henrietta Treyz, the director of economic policy at Veda Partners, said in a note to clients this month. More