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    Yellen Calls Invoking 14th Amendment to Raise Debt Limit ‘Legally Questionable’

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    The Treasury secretary warned that a default would lead to a “very substantial downturn.”Treasury Secretary Janet L. Yellen on Thursday downplayed the possibility that President Biden could essentially ignore the debt limit by invoking the 14th Amendment, calling the idea “legally questionable.”Her comments come as lawmakers and the Biden administration remain locked in a standoff over whether and how to raise the debt ceiling, which caps how much money the federal government can borrow. Ms. Yellen warned lawmakers last week that the United States could run out of money to pay its bills on time by June 1.Mr. Biden is scheduled to meet with top congressional leaders again on Friday, after an initial meeting on Tuesday failed to elicit an agreement.The brinkmanship has raised questions about whether the Biden administration can act on its own to raise the $31.4 trillion borrowing cap by relying on a clause in the 14th Amendment stating that “the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”The strategy would effectively be a constitutional challenge to the debt limit. Under the theory, the government would be required by the 14th Amendment to continue issuing new debt to pay bondholders, Social Security recipients, government employees and others, even if Congress fails to lift the limit before the so-called X-date.Ms. Yellen, however, continued to dismiss that notion.“There would clearly be litigation around that; it’s not a short-run solution,” Ms. Yellen said at a news conference in Japan before a meeting of finance ministers from the Group of 7 nations. “It’s legally questionable whether or not that’s a viable strategy.”Biden administration officials have studied the idea, but the president also voiced similar skepticism this week after meeting with Speaker Kevin McCarthy and predicted that unilateral action to raise the debt limit without Congress would spur litigation.As she prepared to meet with her international counterparts, Ms. Yellen warned that failing to lift the debt limit would have dire consequences for the United States and the world economy. She noted the significant uncertainty associated with a default but predicted that a sharp decline in government spending combined with the expected turmoil in financial markets would lead to a “very substantial downturn.”“A default would threaten the gains that we’ve worked so hard to make over the past few years in our pandemic recovery,” Ms. Yellen said. “And it would spark a global downturn that would set us back much further.”She added: “It would also risk undermining U.S. global economic leadership and raise questions about our ability to defend our national security interests.” More

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    Biden Woos Republican Moderates in Debt Ceiling Standoff

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    A day after an unproductive meeting on the debt limit with Speaker McCarthy, the president assailed “extreme” Republicans who he said had “taken control of the House.”President Biden sought to drive a wedge among Republicans in their escalating dispute over spending and debt on Wednesday, effectively reaching out to moderates in hopes of convincing them to break away from Speaker Kevin McCarthy rather than risk triggering a national default that could throw the economy into a tailspin.Appearing in a competitive suburb with a vulnerable House Republican in his sights, Mr. Biden accused Mr. McCarthy of pursuing a radical strategy at the behest of the “extreme” wing of his party loyal to former President Donald J. Trump, putting the country in economic jeopardy in a way that he said reasonable Republicans of his own era in the Senate would not have done.“They’ve taken control of the House,” Mr. Biden said of this wing to a friendly audience at SUNY Westchester Community College in New York’s Hudson Valley. “They have a speaker who has his job because he yielded to the, quote, MAGA element of the party,” he added.Those hard-right Republicans, Mr. Biden said, are “literally, not figuratively, holding the economy hostage by threatening to default on our nation’s debt, debt we’ve already incurred, we’ve already incurred over the last couple hundred years, unless we give into their threats and demands.”The trip seemed aimed at least in part at peeling off even a few House Republicans to force the speaker’s hand. Legislation that Mr. McCarthy pushed through the House last month linking an increase in the debt ceiling to significant spending restraints passed with just one vote to spare, so even a relatively small mutiny would complicate Mr. McCarthy’s position.Mr. Biden singled out Representative Mike Lawler, a local Republican congressman sitting in the front row in the audience on Wednesday, praising him as a more rational member of his party. “Mike’s on the other team,” Mr. Biden said, “but you know what? Mike is the kind of guy that when I was in the Congress, there was a kind of Republican I was used to dealing with. He’s not one of these MAGA Republicans.”Gov. Kathy Hochul of New York, a fellow Democrat, greeted Mr. Biden in Westchester. The trip seemed aimed at least in part at peeling off even a few House Republicans to force Speaker Kevin McCarthy’s hand. Sarah Silbiger for The New York TimesThe president’s trip came a day after he hosted Mr. McCarthy and other congressional leaders at the White House to discuss the crisis. The session produced no breakthroughs, but the leaders agreed to have their staffs meet every day and to reconvene themselves on Friday.The federal government has reached the $31.4 trillion debt ceiling set by law and the Treasury Department estimates that it will run out of ways to avoid default as soon as June 1. Unless Congress acts by then, the nation will fail to pay its obligations for the first time in history, with potentially devastating consequences for an already fragile economy. Mr. McCarthy insists that any debt ceiling increase be tied to spending cuts, while Mr. Biden rejects linking the two; he has agreed to negotiate deficit controls separately.The annual deficit reached $1.375 trillion last year, up from $983 billion in 2019, the last year before the Covid-19 pandemic prompted vast relief spending, and is projected to double in the next decade. Even aside from the linkage with the debt ceiling, the two sides are drastically apart on how to address the red ink. Mr. Biden has proposed a budget that would reduce projected deficits by nearly $3 trillion over 10 years by increasing taxes on corporations and the wealthy, while Mr. McCarthy’s plan would scale back deficits by $4.8 trillion over a decade largely through cuts in discretionary programs.In speaking to a swing-voting New York suburb, Mr. Biden seemed to have two audiences — voters outside the capital who may not be paying as much attention to the debate and Mr. Lawler. A 36-year-old former political operative and first-term Republican, Mr. Lawler is an obvious target for the White House to try to sway. He ousted Representative Sean Patrick Maloney, then the chairman of House Democrats’ campaign operation, in a district that Mr. Biden won by 10 percentage points.In Washington, Mr. Lawler has positioned himself as a serious-minded moderate, breaking with his party on some cultural issues while supporting Mr. McCarthy’s debt ceiling and spending proposal. Both parties view him as one of the most vulnerable Republicans in 2024, and Democrats are already lining up millions of dollars and potential candidates to defeat him.For now, Mr. Lawler appears to be toeing a careful line between his party’s leaders and the president. When the White House reached out with an invitation to the event that many in the G.O.P. would have shunned, he promptly accepted. In media interviews before and after the speech, Mr. Lawler reiterated he would not support a default. But he also chastised Mr. Biden for not engaging with Mr. McCarthy sooner and insisted on broad spending cuts.Mr. Biden seemed to have two audiences: swing voters and Representative Mike Lawler, a first-term Republican, shown at left.Sarah Silbiger for The New York TimesAt this community college just a few hundred feet from his congressional district border, Mr. Lawler nodded politely when the president mentioned him while onstage on Wednesday. “I don’t want to get him in trouble by saying anything nice about him — or negative about him,” Mr. Biden said jokingly. “But thanks for coming, Mike. Thanks for being here. It’s the way we used to do it.”Speaking with reporters after the speech, Mr. Lawler said that he and Mr. Biden had a “very cordial” and “very frank” conversation backstage before the event. “He told me he wants me to know he wasn’t coming here to put pressure on me in any way,” said Mr. Lawler, who seemed to welcome the president’s remarks onstage about him not being a MAGA Republican. “You heard his comments today. I don’t think he put too much pressure on me.”Mr. Lawler reaffirmed his vote for Mr. McCarthy’s legislation. “We need to get our fiscal house in order,” he said. “And so yes, spending needs to be tied to the debt ceiling. And that is the message I conveyed to the president.” But he repeatedly called for a bipartisan solution.Local Democrats were frustrated that the president wooed Mr. Lawler rather than assail him. Mondaire Jones, a former congressman positioning himself to challenge Mr. Lawler next year, said after the speech that Mr. Lawler had done nothing to justify being described “as not being a MAGA Republican.” Mr. Jones added: “He has voted for everything Kevin McCarthy has asked him to vote for at the request of the MAGA extremists.”Indeed, Republicans seized on Mr. Biden’s comments to rebut the Democratic Congressional Campaign Committee’s attacks on the G.O.P. congressman. “Despite the D.C.C.C.’s repeated lies regarding Congressman Lawler’s positions,” the National Republican Congressional Committee said in a statement, “Lawler is a pragmatic member of Congress who is working to negotiate and avoid a government default.” More

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    How Past Debt Limit Crises Shaped Biden’s No-Negotiation Stance

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    Battles in 2011 and 2013 taught President Biden not to lean on a House speaker who has little room to negotiate and to keep debt ceiling talks separate from the budget.As a debt limit crisis loomed in 2011, Vice President Joseph R. Biden Jr. described early negotiations with Republicans as civil, at one point suggesting that the process was about finding out who was willing to trade their side’s bicycle for the other side’s golf clubs.The genteel vibe came to a halt that summer, when Speaker John A. Boehner walked away from a deal because he was not able to wrangle the Republicans in his caucus. Months later, congressional leaders agreed to raise the debt ceiling and cut trillions in federal spending to avoid default.The bitter compromise convinced Mr. Biden of two things, according to a half-dozen current and former advisers: Do not negotiate with a speaker who cannot reach a deal — Mr. Boehner’s caucus was arguably less radical than the current bloc of House Republicans — and do not turn the process of avoiding government default into a discussion about budgeting.“That was kind of a terrifying transition, because all of the sudden you’re negotiating over whether or not you’re going to default,” Jacob J. Lew, the Treasury secretary under President Barack Obama, recalled of the 2011 saga.Mr. Lew added, “It left you with the real sense that this could just as easily have failed.”Twelve years later, the government is again at risk of defaulting on its debt for the first time, and Republicans in the House are again demanding spending cuts in exchange for agreeing to raise the debt limit.. Faced with the highest-stakes economic obstacle of his presidency and left with the searing memory of Obama-era fights, Mr. Biden has held firm that the discussion over raising the $31.4 trillion debt limit must take place separately from spending negotiations, advisers say.That has not always been the case. Republicans have pointed out in recent weeks that, as a senator, Mr. Biden railed against budget deficits during the Reagan presidency. In 1984, he presented a proposal to freeze federal spending for a year. He said his plan would “shock the living devil out of everyone in the U.S. Senate,” but it went nowhere.And as vice president, Mr. Biden tied the debt limit and budget issues in 2011, when he was negotiating for the Obama administration. In remarks to reporters on Tuesday, Mr. Biden suggested that he only did that because he had been instructed to get a deal done.“I got a call that morning at 6 o’clock saying that the Republican leader would only talk to me, and there was no time left,” he said. “And so I sat down, and I got instructions from the White House to settle it. And that was my job. But I had no notice.”In the spring of 2011, Mr. Biden and a bipartisan group of congressional leaders met frequently to hash out their differences. In early meetings, the group gathered at Blair House, where foreign dignitaries stay when they visit Washington. That summer, Mr. Boehner broke off negotiations, in large part because rank-and-file Republicans would not agree to raise taxes on the wealthy. A complex deal was reached weeks later, leaving Mr. Obama to explain to Democratic voters why he was not able to raise taxes and had agreed to at least $2.4 trillion in spending cuts.According to Mr. Biden’s aides, the scar tissue remains.The second debt ceiling battle of the Obama presidency, in 2013, was another test of a divided government: Mr. Obama flatly refused to negotiate, and Republicans, suffering from plunging poll numbers and the political toll of a downgrade in the country’s credit rating, eventually backed down.Mr. Biden has since argued that there should be no strings attached to raising the federal debt limit, which is the cap on the amount of money that the United States is authorized to borrow to fund the government and meet its financial obligations, including paying out social safety net programs and funding the salaries of the armed forces.Biden aides point out that the obvious: Relations between Republicans and Democrats have become even more fraught in the past decade. The last time a divided government threatened to take debt limit negotiations to the brink, Twitter was still nascent, and the idea of a President Donald J. Trump was little more than a sideshow.Now, in an era in which a large group of House Republicans remains loyal to Mr. Trump and would like to inflict pain on Mr. Biden as a matter of political principle, there is little compromise to be found on matters of substance, including the budget.“When your demand is keep the economy from falling off, and their demand is everything else, how do you meet the middle on that?” Dan Pfeiffer, a former senior adviser to Mr. Obama, said in an interview. “My recollection is that everyone believed that we would never go down that path again.”Republicans argue that, rather than taking the nation’s debt obligations hostage, they are responding to Democrats who have long been blind to the ballooning interest costs that accompany the debt. President Biden emphasized the consequences of a potential default with congressional leaders during a meeting at the White House on Tuesday, his advisers said.Doug Mills/The New York TimesIn a meeting with Speaker Kevin McCarthy on Tuesday, several advisers said, the president tried to emphasize the consequences of default and to get leaders to agree that it must be avoided at all costs. But Biden administration officials acknowledge that even if everyone agrees default must be avoided, working back from there will be the painful part.“There’s a very big gap between where the president is and where the Republicans are,” Treasury Secretary Janet L. Yellen, who has warned that the United States could default as soon as June 1, said on Monday.Mr. Biden said that he had asked the group to meet again on Friday, and that staff members would meet throughout the week. Two advisers said they expected similar meetings would take place regularly. Still, officials on both sides are not overly optimistic that a painless agreement will be reached in the short term.On Tuesday, Mr. McCarthy said that he “didn’t find progress” in the meeting and criticized the president’s suggestion that he may look at invoking a clause in the 14th Amendment that would compel the federal government to continue issuing new debt should the government run out of cash.“I would think you’re kind of a failure in working with people across the sides of the aisle or working with your own party to get something done,” Mr. McCarthy said.Mr. Biden and Senator Mitch McConnell of Kentucky, the minority leader, stay in regular contact, aides say, but the president’s advisers are reluctant to pin hopes on Mr. McConnell finding a way out of the debt ceiling morass.The president also has an untested Democratic ally in Representative Hakeem Jeffries of New York, the House minority leader, who would need to marshal the votes necessary to deliver on any compromise. (Mr. Pfeiffer pointed out that during past debates, Mr. McConnell has swooped in at the last minute, “when he has the most leverage,” reaching an agreement “that is basically enough for him, it passes, then he leaves town.”)On Tuesday, Speaker Kevin McCarthy said he was not interested in reaching any sort of short-term deal that would avert default.Doug Mills/The New York TimesThere will be little common ground over the budget. Mr. Biden wants to expand federal spending and reduce future debt by taxing corporations and high earners, a plan his administration argues could reduce the growth in the deficit by some $3 trillion over the next decade. Republicans want to extend the tax cuts approved by Mr. Trump, which would expire at the end of 2025.Late last month, Mr. McCarthy pushed a spending bill through that would cut deep into the president’s domestic agenda and slash discretionary spending, though Republicans have not outlined what might be cut and why. Since then, the Biden White House has been happy to fill the void, accusing Republicans of wanting to cut everything from veterans’ health care spending to Social Security. (Mr. McCarthy has called this a “lie.”)Ahead of the next meeting, the president’s advisers said they did not expect Mr. Biden’s message to change but suggested that both sides would have to make concessions. Mr. Biden’s comment on Tuesday that he might be willing to support rescinding unspent coronavirus relief funds — and fulfilling a Republican demand — could be the sort of compromise that would prevent talks from calcifying.But Mr. Biden’s aides also expect him to stress the political stakes for Republicans over the next few weeks should they refuse to budge on the debt limit. He will do so not just from the White House but from congressional districts.On Wednesday, the president was in the Hudson Valley region of New York, where Representative Marc Molinaro, a Republican whose district includes parts of the area, has accused him of playing a “game of chicken.” More

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    The Debt Limit Workarounds: The Coin, the Constitution, Premium Bonds

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    As Congress hurtles toward a debt limit showdown, ways to work around it are garnering attention.Move over, trillion-dollar coin, there is a new debt limit workaround in town — and this one sounds more sophisticated, which some of its proponents have suggested could make it more likely to work.For years, debt limit skeptics have argued that the United States can get around the cap on how much it can borrow by minting a large-denomination coin, depositing it in the government’s account at the Federal Reserve. Officials could then use the resulting money to pay the country’s bills. The maneuver would exploit a quirk in U.S. law, which gives the Treasury secretary wide discretion when it comes to minting platinum coins.But there have always been challenges with the idea: Treasury has expressed little appetite. It is unclear whether the Fed would take the coin. It just sounds unconventional to the point of absurdity. And now, some are arguing for a fancier-sounding alternative: premium bonds.The government typically funds itself by issuing debt in the form of financial securities called bonds and bills. They are worth a set amount after a fixed period of time — for example, $1,000 in 10 years — and they pay “coupons” twice a year in between. Typically, those coupon rates are set near market interest rates.But in the premium bond idea, the government would renew old, expiring bonds at higher coupon rates. Doing so would not technically add to the nation’s debt — if the government previously had a 10-year bond worth $1,000 outstanding, it would still have a 10-year bond worth $1,000 outstanding. But investors would pay more to hold a bond that pays $7 a year than one that pays $3.50, so promising a higher interest rate would allow Treasury to raise more money.Would those higher interest rates, which would cost the government more money, pose a problem? Not technically. The debt limit applies to the face value of outstanding federal government debt ($1,000 in our example), not future promises to pay interest.And the idea could also come in a slightly different flavor. The government could issue bonds that pay regular coupons, but which never pay back principal, or perpetual bonds. People would buy them for the long-term cash stream, and they would not add to the principal of debt outstanding.The premium bond idea has gained support from some big names. The economic commentator Matthew Yglesias brought it up in January, the Bloomberg columnist Matt Levine has written about it, and The New York Times columnist and Nobel-winning economist Paul Krugman made a case for it this week.But even some proponents of premium bonds acknowledge that it could face legal challenges or damage the United States’ reputation in the eyes of investors. Plus, their design and issuance would have to happen fast.“Normally, Treasury makes changes slowly, with lots of consulting of bond market participants and advance announcement of auctions,” said Joseph E. Gagnon, an economist at the Peterson Institute for International Economics, adding that the government might have to offer a discount.But, he added, it “sure beats defaulting” and he “would argue it is better than not paying workers or retirees.”While the premium bond idea might come in different packaging, it has a lot of similarities with the coin idea. Either plan would exploit a loophole to add to government coffers without actually lifting the debt limit. Because both are seen as gimmicky, it could be hard for either to become reality.Of all the options the government could use to unilaterally get around the debt ceiling, “they are the least likely in our opinion,” said Chris Krueger, a policy analyst at TD Cowen.But a workaround that hinges on the 14th Amendment could garner broader support, Mr. Krueger said. That would leverage a clause in the Constitution that says that the validity of public debt should not be questioned.Some legal scholars contend that language overrides the statutory borrowing limit, which currently caps federal debt at $31.4 trillion. The idea is that the government’s responsibility to pay what it owes would trump the debt limit rules — so the debt limit could be ignored.It would not be a perfect solution: The move would draw an immediate court challenge and could sow uncertainty in the bond market, even its proponents acknowledge. Still, some White House officials have looked into the option. More

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    ‘There Are No Good Options’: The U.S. Is Running Out of Money

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    Treasury is running out of cash, leaving little time to resolve a debt ceiling standoff that could result in default.President Biden and Speaker Kevin McCarthy will meet on Tuesday afternoon to discuss budget priorities and raising the debt limit at a precarious moment: The United States is quickly running out of cash to pay its bills.Lawmakers have less than a month to pass legislation to increase or suspend the debt ceiling, which caps the amount of money the government can borrow. The United States reached its statutory $31.4 trillion debt limit on Jan. 19, and the Treasury Department estimates that the accounting maneuvers it has been employing to prop up its cash reserves could be exhausted as soon as June 1.If the debt ceiling is not raised before the government runs out of cash — what is known as the X-date — it could be unable to pay all its bills on time, including military salaries, payments to bondholders and Social Security checks. Barring a solution, millions of Americans could stop receiving government benefits, stock markets could plunge, and a constitutional crisis could ensue.The Bipartisan Policy Center, a think tank that tracks the nation’s cash reserves, warned on Tuesday that the X-date was likely to be between early June and early August. It said that economic risks would start to surge before the money ran out and that meeting the nation’s financial obligations would soon become increasingly difficult.“The coming weeks are critical for assessing the strength of government cash flows,” said Shai Akabas, the director of economic policy at the Bipartisan Policy Center. “If a solution is not reached before June, policymakers may be playing daily Russian roulette with the full faith and credit of the United States, risking financial disaster for their constituents and the country.”A default could come sooner than expected because tax revenues have been trickling into the government’s coffers this spring. The sluggish pace is due in part to a decision by the Internal Revenue Service to give taxpayers in states that were affected by severe weather more time to file their 2022 taxes.The brinkmanship has renewed questions about how the federal government might try to prioritize certain payments if it does run out of cash, whether Mr. Biden could ignore the debt limit entirely and order the Treasury Department to continue borrowing, and if far-fetched ideas such as minting a $1 trillion coin could in fact be viable.Treasury Secretary Janet L. Yellen said on Monday that if the debt limit was not raised, then Mr. Biden would have to decide how to proceed.“I would say that if Congress doesn’t raise the debt ceiling, the president will have to make some decisions about what to do with the resources that we do have,” Ms. Yellen said on CNBC. “And there are a variety of different options, but there are no good options.”She added that failing to raise or suspend the debt limit would be an “economic catastrophe” and assailed Republicans for holding the economy hostage.“It’s a gun to the head of the American people and the American economy,” Ms. Yellen said.Mr. Biden and Mr. McCarthy will be joined by Senator Chuck Schumer of New York, the majority leader, and Senator Mitch McConnell of Kentucky, the minority leader. Ms. Yellen is traveling to Japan on Tuesday for a gathering of finance ministers of the Group of 7 nations and will not be participating in the meeting at the White House.The Biden administration and lawmakers are under growing pressure from business groups to find a way to avoid a default.“A default would deliver a severe blow to the economy, leading to widespread job losses, decimated retirement savings and higher borrowing costs for families, businesses and the government,” said Joshua Bolten, the chief executive of the Business Roundtable. “Failing to raise the debt limit would also threaten the U.S. dollar’s central role in the global financial system to the benefit of China.”He added: “Securing a bipartisan path forward to raise the debt ceiling could not be more urgent.” More

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    Biden and McCarthy to Discuss Debt Limit as a Possible Default Looms

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    The president will host the House speaker and other congressional leaders at the White House on Tuesday to discuss their impasse over the debt ceiling and spending cuts.WASHINGTON — President Biden will meet with Speaker Kevin McCarthy at the White House on Tuesday in a critical face-to-face confrontation that will frame their showdown over the federal debt and spending in the weeks before the nation is set to default on its obligations for the first time in history.With the American and perhaps the global economy hanging in the balance, the meeting will be the first sit-down session between the Democratic president and Republican speaker since February. But even the terms of the discussion are in dispute: Mr. McCarthy insists the president negotiate a debt ceiling deal with him, while Mr. Biden insists the meeting will just be an opportunity to tell the speaker that there will be no negotiations over the limit.The meeting in the Oval Office will feature Mr. Biden, Mr. McCarthy and three other congressional leaders: Representative Hakeem Jeffries of New York, the Democratic leader in the House, and Senators Chuck Schumer of New York and Mitch McConnell of Kentucky, the Democratic and Republican leaders in the Senate. But Mr. Biden and Mr. McCarthy are the key players, locked in a political game of chicken to see who will blink first on raising the debt ceiling.With the federal government expected to default on its debt as soon as June 1 without an agreement, Mr. McCarthy and his Republican caucus have refused to raise the debt ceiling without commitments to major spending cuts. Mr. Biden has said he would discuss ways to reduce the deficit but has refused to link any spending decisions to the debt ceiling increase, arguing that Congress should simply raise the ceiling as it has for generations to pay for spending already approved.Karine Jean-Pierre, the White House press secretary, repeatedly referred to Mr. Biden’s meeting with Mr. McCarthy on Tuesday as a “conversation” rather than negotiations.Pete Marovich for The New York Times“We should not have House Republicans manufacturing a crisis on something that has been done 78 times since 1960,” Karine Jean-Pierre, the White House press secretary, said on Monday. “This is their constitutional duty. Congress must act. That’s what the president is going to make very clear with the leaders tomorrow.”The meeting that Mr. Biden has called, she added, will not involve any haggling over the debt ceiling. “I wouldn’t call it ‘debt ceiling negotiations,’” she said in reply to a reporter who used that phrase. “I would call it a conversation.” In fact, she was so intent on calling it a “conversation” that she used the word to describe the meeting 15 times during her briefing.Neither side expects any breakthrough at the session, scheduled for 4 p.m., but instead the leaders plan to use it to emphasize their positions in the dispute, in effect setting the parameters for the debate that will play out over the next few weeks. In recent years, such standoffs have not been resolved until the final hours and days before a deadline — or the deadline is extended.Mr. Biden has indicated that he is willing to have a separate discussion with Mr. McCarthy and the Republicans over spending that is not directly linked to the debt ceiling legislation. White House officials said the president plans to push Republicans to consider the tax increases and prescription drug savings he laid out in his most recent budget, which would reduce deficits by an estimated $3 trillion over 10 years, as part of a larger package to reduce debt accumulation over time.He is likely to challenge Republicans in Tuesday’s meeting to be more specific in the spending they would cut. He has hammered them for more than a week over the potential consequences — like reduced funding for veterans’ health services — that could result from the discretionary spending caps they included in a debt ceiling bill that passed the House late last month.Republicans have bristled at the president’s attacks on their legislation, calling them misleading. But they noted that unlike the Democrats, they at least have passed a measure to raise the debt ceiling, albeit conditioned on spending cuts. They argued that Mr. Biden and his Democratic allies have to come to the table with a counterproposal. Otherwise, they maintain, it would be the Democrats, not the Republicans, who failed to raise the debt ceiling, leading to a possible default.“They have to now step up and act like responsible leaders,” Representative Jodey C. Arrington, a Republican from Texas and the chairman of the House Budget Committee, said on CNBC on Monday. “We’ve done that, and we have set that example, and we have placed in their hands a list of proposals that we have gotten consensus on. It’s their time to respond, and the American people expect them to.” More

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    In Debt Limit Talks, Biden and Republicans Start Far Apart

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    As the president prepares to meet with Speaker Kevin McCarthy this week, his budget shares little common ground with spending and tax proposals from House Republicans.President Biden is set to welcome Speaker Kevin McCarthy and other top congressional leaders to the White House on Tuesday for a pivotal round of discussions about the nation’s taxes, spending and debt as a potentially catastrophic government default rapidly approaches.The talks come just weeks before the United States is expected to run out of cash to pay its bills unless the nation’s borrowing cap is lifted. Like previous moments of brinkmanship, the discussions have echoes of 2011 and 2013, when congressional Republicans refused to raise the debt ceiling unless a Democratic president agreed to curb federal spending and reduce budget deficits. The same dynamic is at play now, but with a crucial difference: The parties share almost no common ground on tax and spending proposals that are meant to reduce the growth of the nation’s $31.4 trillion debt.The meeting is not expected to produce anything close to final agreement on a fiscal plan that could include raising the debt limit. But even small points of consensus could be hard to come by.Mr. Biden wants to expand federal spending and reduce future debt, largely by raising taxes on high earners and large companies. Republicans have passed a bill to cut federal discretionary spending — a category that includes national parks, education and more — and cancel tax breaks for certain low-emission energy sources that were part of Mr. Biden’s signature climate law. Republicans have promised to extend the 2017 tax cuts that were approved by President Donald J. Trump and are set to expire at the end of 2025.While both sides say they want to reduce the nation’s future debt burden, there is almost no overlap in how they aim to achieve that outcome. The only point of agreement so far is on the one thing Mr. Biden and Mr. McCarthy consider off limits in budget talks: Social Security and Medicare, the primary sources of projected federal spending growth in the decades to come.The gulf on fiscal issues is one of several complicating factors in discussions over the debt limit, which the government technically hit earlier this year. Officials have been employing what are essentially accounting maneuvers to keep paying all the government’s bills on time without going over the current $31.4 trillion limit. But Janet L. Yellen, the Treasury secretary, warned in a letter last week that those efforts will no longer be possible as soon as June 1, risking a debt default that economists warn could spawn a financial crisis and recession.We Hit the Debt Limit. What Happens Now?Lawmakers will need to reach a bipartisan agreement to lift the debt limit. The longer it takes, the more turmoil there could be for the United States and the global economy.Mr. Biden has refused to negotiate directly over the limit, saying Republicans must vote to raise it without conditions, given that it simply allows the government to pay for spending that lawmakers in both parties have already approved. But he invited Mr. McCarthy and other congressional leaders to come to the White House on Tuesday for what he called a separate negotiation on fiscal policy — even though it is effectively linked to the debt limit drama.Republicans say they will not raise the limit without significant curbs in spending. That is the same position they took in 2011 and 2013, under President Barack Obama, when Mr. Biden was vice president. They did not make similar demands to raise the limit when they controlled Congress at the start of Mr. Trump’s term and Republican votes helped to effectively raise the limit.In 2011, Mr. Obama entered debt limit negotiations with a set of proposed spending cuts. They included a five-year freeze on discretionary spending not related to national security, a separate freeze on federal workers’ salaries for two years and the elimination of an air-to-air missile program and a fighting vehicle for the Marine Corps. Republicans countered with a budget that featured deep cuts to federal health care spending, privatizing Medicare for future beneficiaries and new tax cuts.Republicans ultimately agreed to raise the debt limit in exchange for budget changes centered on caps on discretionary spending — essentially modifying and expanding the spending freeze Mr. Obama had proposed in his budget.Unlike Mr. Obama more than a decade ago, Mr. Biden has never agreed with Republicans’ argument that federal spending has grown too large. He has proposed to scale back the growth in government debt, but his aides reject the Republican contention that the current path of the debt poses a significant threat to economic growth.Mr. Biden’s most recent budget included $3 trillion in proposals to reduce future deficits. The savings would come largely from tax increases on the wealthy and big corporations, along with cutting government spending on health care by broadening Medicare’s ability to negotiate prescription drug prices.Republicans have rejected all the tax increases and criticized Mr. Biden earlier this year for not proposing to spend even more on the military than he already did.House Republicans have not put forth or passed a budget. The bill they passed last month would raise the debt limit by $1.5 trillion or through March 2024, whichever came first. It would reduce future deficits by nearly $5 trillion, largely by freezing certain federal spending for a decade, according to the nonpartisan Congressional Budget Office.It also included new supports for fossil fuels, a rollback of Mr. Biden’s climate change agenda and an end to the president’s attempt to cancel student loan debt for most borrowers, which appears likely to be struck down by the Supreme Court regardless.Neither side has found anything to like in the other’s starting position. Republicans “didn’t produce a budget,” Representative Hakeem Jeffries of New York, the Democratic leader, who will join Mr. McCarthy at the White House meeting, told NBC News on Sunday. “What they did was produce a ransom note.”Representative Jodey C. Arrington of Texas, the chairman of the Budget Committee, countered that Mr. Biden would have to relent and negotiate with Republicans.Mr. Biden “has negotiated, as vice president and as a senator, debt ceiling increases, with common-sense spending controls and fiscal reforms,” Mr. Arrington told Fox News on Sunday. “And we’re just asking him to be a responsible leader and do that again.” More

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    What Options Biden Has in the Debt Limit Crisis

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    The president has not wavered in his calls for Republicans to raise the nation’s borrowing limit without condition. Privately, his aides have discussed other paths.The federal government has perhaps less than a month left before an economically devastating default on its debt.No matter who bears the political blame for a default, aides acknowledge that President Biden has a lot to lose if the nation tips into recession just as he is moving into his re-election campaign.Mr. Biden has several strategic options as he tries to prevent that from happening. All have been the subject of discussions inside the administration and with Democratic allies in recent weeks. They range from continuing to hold out for Republicans to raise the nation’s debt limit with no strings attached to preparing unilateral action to effectively bypass the limit and keep paying the nation’s bills.Some involve negotiations with Republican leaders, which Mr. Biden will insist are not related to the debt limit even though they would be.Each path carries risks, which administration officials acknowledge privately. The biggest by far is economic calamity: White House economists warned in an analysis released on Wednesday that if the country defaulted on its debt and that default continued for several months, the economy would shed eight million jobs as it entered recession.The economists also warned that merely approaching a possible default would rattle markets and drive up borrowing costs across the economy, “inhibiting firms’ ability to finance themselves and engage in the productive investment that is essential for extending the current expansion.”Here are the paths available to Mr. Biden, as his aides and allies see them.Stay the courseMr. Biden has insisted for months that lawmakers must raise the nation’s borrowing cap with no conditions attached, saying that it simply allows the United States to pay for spending Congress has already authorized. He could continue to do so, refusing to negotiate, as many progressives have urged him to do.It would be an attempt to stare down House Republicans, who last week passed a bill pairing an increase in the limit with cuts to federal spending and a reversal of Mr. Biden’s climate agenda. Mr. Biden would effectively be daring Speaker Kevin McCarthy of California to allow the government to run out of cash to pay its bills on time, which the Treasury Department estimates could happen as soon as June 1.The risk is that Mr. McCarthy refuses to give in, pointing to the House bill as evidence that Republicans had done enough to raise the debt limit. Mr. Biden would count on pressure from business groups and turmoil in financial markets to push Republicans to blink at the last moment and at least pass a bill to avoid default for a few weeks or months. But as of now, House Republicans have shown no willingness to pass such a bill, known as a “clean” debt-limit increase. Neither have a critical mass of Senate Republicans needed to advance the bill in that chamber.Shalanda Young, the White House budget director, said, “I have hope that we will find a path to avoid default.”Pete Marovich for The New York TimesNegotiate spending cuts not tied to the debt limitMr. Biden will welcome Mr. McCarthy and other congressional leaders to the White House next week for talks about fiscal policy — how much the nation taxes, spends and borrows. The president says those talks are divorced from the debt limit, but effectively, they are not.The deadline hanging over the talks is the so-called X-date, estimated for June 1; Mr. Biden’s invitation to congressional leaders was accelerated by the revised projections of when that date will hit. In contrast, the bill funding federal government operations, which Mr. Biden signed late last year, runs through the end of September.Mr. Biden could negotiate without “negotiating” by trying to broker an early agreement on spending levels for the next fiscal year, before the X-date. In exchange, Mr. McCarthy would commit to passing a clean extension of the debt limit.Business groups and even some administration officials expect any deal of that nature to center on limits on federal discretionary spending — though almost certainly not as stringent as the ones in the bill Republicans have passed. White House officials have said privately for months that they do not expect the House to approve significant spending increases for next year anyway, so some sort of limits may prove palatable to Mr. Biden, depending on the details.The risk of that strategy is that Mr. McCarthy’s most conservative members have shown no appetite for a deal of that scope. Mr. Biden will not accept those members’ more sweeping demands. That complicates the prospects for an agreement that runs through the speaker.Speaker Kevin McCarthy pointed to the bill the House passed last week as evidence that Republicans had done enough to raise the debt limit.Kenny Holston/The New York TimesBypass McCarthyMr. Biden could try to bypass the speaker and court a handful of moderate Republicans in the House and the Senate to vote to raise the limit, offering some fiscal concessions as an enticement. Bringing such a deal to the House floor could require some legislative maneuvering, like the so-called discharge petition Democrats have been keeping at the ready for months.It could also require a different approach from Mr. Biden to the congressional Republicans he needs to pass such a bill. Moderate Republicans in the House say they are receiving little friendly outreach from the White House so far. Instead, Biden administration officials have gleefully hammered them for voting to advance the Republican debt-limit bill and its deep spending cuts.This week administration officials have posted, again and again, the headshots and names of House Republicans on Mr. Biden’s official Twitter account, accusing them of voting to cut funding to veterans’ programs and Meals on Wheels. Two of the featured lawmakers were members of leadership, including Mr. McCarthy. Two others were high-profile, far-right congresswomen. The remainder — more than two dozen — were lawmakers in seats Mr. Biden won in 2020.Officials have defended that strategy. “I have hope that we will find a path to avoid default,” Shalanda Young, the White House budget director, told reporters on Thursday, after assailing budget cuts included in the Republican bill. “But it’s our job to keep coming to you, to go to the American people, and make sure people understand what this debate is about.”Go it aloneIf Mr. Biden’s chosen tactics do not produce a bill he will sign that raises the debt limit before the X-date, the president will have to choose between allowing the nation to default or pursuing what is effectively a constitutional challenge to the debt ceiling by continuing to borrow to pay the bills when the government runs out of cash.That challenge would be rooted in a clause in the 14th Amendment that stipulates that the government must pay its debts. Administration officials have debated that idea, with no resolution, for months. But even its proponents concede that it would not be a perfect solution. The move would draw an immediate court challenge and sow at least temporary uncertainty in the bond market, sending government borrowing costs soaring.Catie Edmondson More