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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

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    House Democrats Move to Force a Debt-Limit Increase as Default Date Looms

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    House Democratic leaders who have been quietly planning a strategy to force a debt ceiling increase to avert default began taking steps on Tuesday to deploy their secret weapon.The only clue to the gambit was in the title of the otherwise obscure hodgepodge of a bill: “The Breaking the Gridlock Act.”But the 45-page legislation, introduced without fanfare in January by a little-known Democrat, Representative Mark DeSaulnier of California, is part of a confidential, previously unreported, strategy Democrats have been plotting for months to quietly smooth the way for action by Congress to avert a devastating federal default if debt ceiling talks remain deadlocked.With a possible default now projected as soon as June 1, Democrats on Tuesday began taking steps to deploy the secret weapon they have been holding in reserve. They started the process of trying to force a debt-limit increase bill to the floor through a so-called discharge petition that could bypass Republican leaders who have refused to raise the ceiling unless President Biden agrees to spending cuts and policy changes.“House Democrats are working to make sure we have all options at our disposal to avoid a default,” Representative Hakeem Jeffries, Democrat of New York and the minority leader, wrote in a letter he sent to colleagues on Tuesday. “The filing of a debt ceiling measure to be brought up on the discharge calendar preserves an important option. It is now time for MAGA Republicans to act in a bipartisan manner to pay America’s bills without extreme conditions.”An emergency rule Democrats introduced on Tuesday, during a pro forma session held while the House is in recess, would start the clock on a process that would allow them to begin collecting signatures as soon as May 16 on such a petition, which can force action on a bill if a majority of members sign on. The open-ended rule would provide a vehicle to bring Mr. DeSaulnier’s bill to the floor and amend it with a Democratic proposal — which has yet to be written — to resolve the debt limit crisis.The strategy is no silver bullet, and Democrats concede it is a long shot. Gathering enough signatures to force a bill to the floor would take at least five Republicans willing to cross party lines if all Democrats signed on, a threshold that Democrats concede will be difficult to reach. They have yet to settle on the debt ceiling proposal itself, and for the strategy to succeed, Democrats would likely need to negotiate with a handful of mainstream Republicans to settle on a measure they could accept.A handful of hard-right Republicans explicitly warned their colleagues on Tuesday not to go down that path. “House Republicans: don’t defect!” Senator Mike Lee of Utah wrote on Twitter.Still, Democrats argue that the prospect of a successful effort could force House Republicans into a more acceptable deal. And Treasury Secretary Janet L. Yellen’s announcement on Monday that a potential default was only weeks away spurred Democratic leaders to act.House Democratic leaders have for months played down the possibility of initiating a discharge petition as a way out of the stalemate. They are hesitant to budge from the party position, which Mr. Biden has articulated repeatedly, that Republicans should agree to raise the debt limit with no conditions or concessions on spending cuts.But behind the scenes, they were simultaneously taking steps to make sure a vehicle was available if needed.There were no signs on Tuesday of any momentum toward even a temporary resolution. Senator Chuck Schumer, Democrat of New York and the majority leader, brushed aside the idea of putting off a confrontation by passing a short-term debt limit increase, telling reporters: “We should not kick the can down the road.”And Senator Mitch McConnell, Republican of Kentucky and the minority leader, reiterated that he intended to leave the negotiations to Mr. Biden and Speaker Kevin McCarthy, again dashing the private hopes of some Democrats that the veteran Republican would ultimately cut a deal with them to allow the debt ceiling to be lifted, as he has done in the past.“There is no solution in the Senate,” Mr. McConnell said.The White House had no public comment on the discharge effort, according to Karine Jean-Pierre, the press secretary. Mr. Biden is scheduled next week to host Mr. McCarthy and other congressional leaders at the White House to discuss raising the debt limit. His goal at that meeting, a senior administration official said, will be to stress the importance of averting default and creating a separate negotiation to address other budget issues.The discharge petition process can be time-consuming and complicated, so House Democrats who devised the strategy started early and carefully crafted their legislative vehicle. Insiders privately refer to the measure as a “Swiss Army knife” bill — one intended to be referred to every single House committee in order to keep open as many opportunities as possible for forcing it to the floor.It would create a task force to help grandparents raising grandchildren, create a federal strategy for reducing earthquake risks, change the name of a law that governs stock trading by members of Congress, extend small business loans, protect veterans from the I.R.S., authorize a new Pentagon grant program to protect nonprofit organizations against terrorist attacks and more. The legislation was so broad and eclectic that it was referred to 20 committees, where it has sat idle for months. That was the point.Mr. DeSaulnier’s intent was never to pass the elements of the bill, though he favors them all. It was to create what is known on Capitol Hill as a shell of a bill that would ultimately serve as the basis for a discharge petition — and a way out of the debt limit standoff.“I wrote it in a way to be prepared,” said Mr. DeSaulnier, a former member of the Rules Committee who worked with Democratic procedural experts to craft legislation that could provide a debt-limit escape hatch. “I anticipated there would be these problems with the Republican caucus, whether it was abortion or the debt limit. I think it was the responsible thing as a legislator to do.”Democrats say the beauty of Mr. DeSaulnier’s bill — which Republicans have ignored — is that it long ago passed the threshold of being held in committee for at least 30 days, the minimum length of time to initiate a discharge petition to force action on legislation. Even so, in a memo sent to members on Tuesday, a U.S. Chamber of Commerce analysis projected that even if Democrats were able to draw enough support for their plan and advance it without further delay, the measure could take until June 12 or 13 to clear Congress — many days beyond the earliest date Ms. Yellen has warned the debt limit could be reached.Democrats said the fact that their bill would fall under the jurisdiction of so many committees gave them several options for moving forward.Mr. DeSaulnier was picked to sponsor the measure because his low profile meant there was likely to be little attention to his bill. In contrast, any legislation introduced by Representative Jim McGovern of Massachusetts, the ranking Democrat on the Rules Committee, would have drawn attention immediately, and Republicans might have been able to take action to derail it.Discharge petitions have spurred action in the past by prompting House leaders to move on issues rather than lose control of the floor through a guerrilla legislative effort. But the procedure is rarely successful and has produced a law in only a handful of cases, including the approval of major bipartisan campaign finance legislation in 2002. Congressional leaders of both parties have been disdainful of such efforts, since they effectively wrest control of the House floor from the majority.Democrats say that the current situation, with a default looming, showed that they were taking prudent precautions with Mr. DeSaulnier’s bill. Besides thwarting gridlock, the legislation says its purpose is also “to advance common-sense policy priorities.”Catie Edmondson More

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    Is the Debt Limit Constitutional? Biden Aides Are Debating It.

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    As the government heads toward a possible default on its debt as soon as next month, officials are entertaining a legal theory that previous administrations ruled out.A standoff between House Republicans and President Biden over raising the nation’s borrowing limit has administration officials debating what to do if the government runs out of cash to pay its bills, including one option that previous administrations had deemed unthinkable.That option is effectively 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.That theory rests on the 14th Amendment clause 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.”Some legal scholars contend that language overrides the statutory borrowing limit, which currently caps federal debt at $31.4 trillion and requires congressional approval to raise or lift.Top economic and legal officials at the White House, the Treasury Department and the Justice Department have made that theory a subject of intense and unresolved debate in recent months, according to several people familiar with the discussions.It is unclear whether President Biden would support such a move, which would have serious ramifications for the economy and almost undoubtedly elicit legal challenges from Republicans. Continuing to issue debt in that situation would avoid an immediate disruption in consumer demand by maintaining government payments, but borrowing costs are likely to soar, at least temporarily.Still, the debate is taking on new urgency as the United States inches closer to default. Treasury Secretary Janet L. Yellen warned on Monday that the government could run out of cash as soon as June 1 if the borrowing cap is not lifted.Mr. Biden is set to meet with Speaker Kevin McCarthy of California at the White House on May 9 to discuss fiscal policy, along with other top congressional leaders from both parties. The president’s invitation was spurred by the accelerated warning of the arrival of the X-date.But it remains unclear what type of compromise may be reached in time to avoid a default. House Republicans have refused to raise or suspend the debt ceiling unless Mr. Biden accepts spending cuts, fossil fuel supports and a repeal of Democratic climate policies, contained in a bill that narrowly cleared the chamber last week.Mr. Biden has said Congress must raise the limit without conditions, though he has also said he is open to separate discussions about the nation’s fiscal path.A White House spokesman declined to comment on Tuesday.A group of legal scholars and some liberal activists have pushed the constitutional challenge to the borrowing limit for more than a decade. No previous administration has taken it up. Lawyers at the White House and the Justice and Treasury Departments have never issued formal opinions on the question. And legal scholars disagree about the constitutionality of such a move.“The Constitution’s text bars the federal government from defaulting on the debt — even a little, even for a short while,” Garrett Epps, a constitutional scholar at the University of Oregon’s law school, wrote in November. “There’s a case to be made that if Congress decides to default on the debt, the president has the power and the obligation to pay it without congressional permission, even if that requires borrowing more money to do so.”Other legal scholars say the limit is constitutional. “The statute is a necessary component of Congress’s power to borrow and has proved capable of serving as a useful catalyst for budgetary reform aimed at debt reduction,” Anita S. Krishnakumar, a Georgetown University law professor, wrote in a 2005 law review article.The president has repeatedly said it is the job of Congress to raise the limit to avoid an economically catastrophic default.Top officials, including Ms. Yellen and the White House press secretary, Karine Jean-Pierre, have sidestepped questions about whether they believe the Constitution would compel the government to continue borrowing to pay its bills after the X-date.ABC News asked Ms. Yellen amid a debt-ceiling standoff in 2021 if she would invoke the 14th Amendment to resolve it.“It’s Congress’s responsibility to show that they have the determination to pay the bills that the government amasses,” she said. “We shouldn’t be in a position where we need to consider whether or not the 14th Amendment applies. That’s a disastrous situation that the country shouldn’t be in.”The government reached the borrowing limit on Jan. 19, but Treasury officials deployed what are known as extraordinary measures to continue paying bills on time. The measures, which are essentially accounting maneuvers, are set to run out sometime in the next few months, possibly as soon as June 1. The government would default on its debt if Treasury stopped paying all bills. Economists have warned that could lead to financial crisis and recession.Progressive groups have encouraged Mr. Biden to take actions meant to circumvent Congress on the debt limit and continue uninterrupted spending, like minting a $1 trillion coin to deposit with the Federal Reserve. Internally, administration officials have rejected most of them. Publicly, Biden aides have said the only way to avert a crisis is for Congress to act.“I know you probably get tired of me saying this from here over and over again, but it is true,” Ms. Jean-Pierre said on Thursday, after referring a question about the 14th Amendment to the Treasury Department. “It is their constitutional duty to get this done.”But inside the administration, it remains an open question what Treasury would do if Congress does not raise the limit in time — because, many officials say, the law is unclear and so is the Constitution, which gives Congress the power to tax and spend.Officials who support invoking the 14th Amendment and continuing to issue new debt contend the government would be exposed to lawsuits either way. If it fails to continue paying its bills after the X-date, it could be sued by anyone who is not paid on time in the event of a default.Other officials have argued that the statutory borrowing limit is binding, and that an attempt to ignore it would draw an immediate legal challenge that would most likely rise quickly to the Supreme Court.There is a broad consensus on both sides of the debate that the move risks roiling financial markets. It is likely to cause a surge in short-term borrowing costs because investors would demand a premium to buy debt that could be invalidated by a court.The Moody’s Analytics economist Mark Zandi modeled such a situation this year and found it would create short-term economic damage but long-term gains if courts upheld the constitutional interpretation — by removing the threat of future brinkmanship over the limit.“The extraordinary uncertainty created by the constitutional crisis leads to a sell-off in financial markets until the Supreme Court rules,” Mr. Zandi wrote in March. Economic growth and job creation would be dampened briefly, he added, “but the economy avoids a recession and quickly rebounds.”Obama administration officials considered — and quickly discarded — the constitutional theory when Republicans refused to raise the limit in 2011 unless the president agreed to spending cuts. Treasury lawyers never issued a formal opinion on the question, and they have not yet this year, department officials said this week.But in a letter to the editor of The New York Times in 2011, George W. Madison, who was Treasury’s general counsel at the time, suggested that department officials did not subscribe to the theory. He was directly challenging an assertion by the constitutional law professor Laurence H. Tribe, who wrote in an opinion essay in The Times that Treasury Secretary Timothy F. Geithner had pushed to embrace the 14th Amendment interpretation, which Mr. Tribe opposed.“Like every previous secretary of the Treasury who has confronted the question,” Mr. Madison wrote, “Secretary Geithner has always viewed the debt limit as a binding legal constraint that can only be raised by Congress.” More

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    Why the 14th Amendment Is Being Cited in the Debt Ceiling Debate

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    Some Biden administration officials believe a constitutional clause prevents the United States from failing to make payments even if it means breaching the debt limit.WASHINGTON — Faced with an impasse over raising or suspending the nation’s debt limit, some White House officials are looking to a clause in the 14th Amendment to ensure the United States does not default on its debt.The amendment, adopted after the Civil War, conferred citizenship to former slaves — and contains a more obscure section on public debt. Here is a brief history of the 14th Amendment and an explanation of its provisions, including why it’s now being talked about in the White House.What does the 14th Amendment say?Considered by historians to be a milestone for civil rights, the 14th Amendment to the Constitution extended citizenship to former slaves. It also guaranteed that the right to due process and equal protection under the law applied to both federal and state governments.The expansive amendment is the most cited amendment in lawsuits, according to the Library of Congress.Section 1 of the amendment established that “all persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside” and that “no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States.”Another provision, known as the Disqualification Clause, was more obscure until the events of Jan. 6, 2021. Some have argued that the clause, outlined in Section 3 of the 14th Amendment, bars anyone who has “engaged in insurrection or rebellion” from holding public office.Now, the standoff over the national debt has renewed debate over Section 4 of the amendment, known as the public debt clause.What spurred its adoption?After the Civil War and the assassination of President Abraham Lincoln, lawmakers sought to set out the terms of the Confederacy’s surrender and the rebellious states’ re-entry into the Union.The 13th Amendment’s formal abolition of slavery also meant that the size of delegations from former Confederate states would increase, even as the states passed discriminatory “Black codes” and prevented former slaves from voting. Reconstructionist Republicans in Congress sought to address these issues by passing the Civil Rights Act of 1866, which guaranteed citizenship and equal protection for former slaves.Although Republicans had enough votes to override a veto by President Andrew Johnson, some remained concerned that the protections in the law were not strong or permanent enough, and began seeking a constitutional amendment.A joint committee on Reconstruction then drafted what would become the 14th Amendment, which was passed by Congress in 1866 and ratified two years later.Why does it contain a public debt clause?The 14th Amendment includes a provision that protected public debt held by the federal government, and prohibited payment of debt held by the Confederate states.“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 clause reads.That section, historians say, was added because of fears that if former Confederate states were to regain political power in Congress, lawmakers might repudiate federal debts and guarantee Confederate debt. Reconstructionist Republicans also thought that the clause would discourage loans to future insurrectionists.“Southerners were used to having their way in Congress — they had dominated the institution from 1787 until secession in 1861 — and many believed that when their representatives arrived in House and Senate, they would be able to tear up the nation’s i.o.u.s. Section 4 was the response,” Garrett Epps, a legal scholar, has previously written.Why is it being discussed today?Some legal scholars contend that the public debt clause overrides the statutory borrowing limit, which is set by Congress and can be lifted or suspended only with lawmaker approval.The United States hit that cap on Jan. 19 and on Monday, Treasury Secretary Janet L. Yellen warned that the federal government could run out of cash to pay its bills by June 1 unless it was able to borrow more money.The Biden administration is discussing whether the 14th Amendment compels the government to continue issuing new debt to pay bondholders, along with Social Security recipients, military personnel and others, even if Congress fails to lift the limit before the so-called X-date. More

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    Everything You Need to Know About the Debt Ceiling

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    Congress controls how much money the United States can borrow. Here’s a look at why that is and what it means.Washington is heading for another big fight over whether to raise or suspend the nation’s debt limit, which caps the amount of money the federal government can borrow to pay its bills.This year is shaping up to be the messiest fight in at least a decade. Republicans are demanding that an increase in the borrowing limit be accompanied by spending cuts and other cost savings. President Biden has said he will oppose any attempt to tie spending cuts to raising the debt ceiling, increasing the likelihood of a protracted standoff.The president is set to meet with Republican and Democratic leaders at the White House on May 9 to discuss a path forward. But it is still unclear how quickly lawmakers will act to raise the nation’s borrowing cap.Here is what you need to know about the debt limit and what happens if no deal can be reached:What is the debt limit?The debt limit is a cap on the total amount of money that the United States is authorized to borrow to fund the government and meet its financial obligations.Because the federal government runs budget deficits — meaning it spends more than it brings in through taxes and other revenue — it must borrow huge sums of money to pay its bills. Those obligations include funding for social safety net programs, interest on the national debt and salaries for members of the armed forces.Approaching the debt ceiling often elicits calls by lawmakers to cut back on government spending. But lifting the debt limit does not actually authorize any new spending — in fact, it simply allows the United States to spend money on programs that have already been authorized by Congress.When was the debt limit reached?The United States officially hit its debt limit on Jan. 19, prompting the Treasury Department to use accounting maneuvers known as extraordinary measures to continue paying the government’s obligations and avoid a default. Those measures temporarily curb certain government investments so that the bills can continue to be paid.The ability to use those measures to delay a default could be exhausted by June. Treasury Secretary Janet L. Yellen on Monday warned lawmakers that the United States could run out of cash by June 1 if the borrowing cap isn’t raised or suspended.How much debt does the United States have?The national debt crossed $31 trillion for the first time last year. The borrowing cap is set at $31.381 trillion.Why does the United States have a debt limit?According to the Constitution, Congress must authorize government borrowing. In the early 20th century, the debt limit was instituted so that the Treasury would not need to ask Congress for permission each time it had to issue debt to pay bills.During World War I, Congress passed the Second Liberty Bond Act of 1917 to give the Treasury more flexibility to issue debt and manage federal finances. The debt limit started to take its current shape in 1939, when Congress consolidated different limits that had been set on different types of bonds into a single borrowing cap. At the time, the limit was set to $45 billion.While the debt limit was created to make government run more smoothly, many policymakers believe that it has become more trouble than it’s worth. In 2021, Ms. Yellen said she supported abolishing the debt limit.What happens if the debt limit is not raised or suspended?If the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt. That means it would not have enough money to pay its bills, including interest and other payments it owes to bondholders, military salaries and benefits to retirees.No one knows exactly what would happen if the United States gets to that point, but the government could default on its debt if it is unable to make required payments to its bondholders. Economists and Wall Street analysts warn that such a scenario would be economically devastating, and could plunge the entire world into a financial crisis.Will military salaries, Social Security benefits and bondholders be paid?Various ideas have been raised to ensure that critical payments are not missed — particularly payments to the investors who hold U.S. debt. But none of these ideas have ever been tried, and it remains unclear whether the government could actually continue paying any of its bills if it can’t borrow more money.One idea that has been proposed is that the Treasury Department would prioritize certain payments to avoid defaulting on U.S. debt. In that case, the Treasury would first pay the bondholders who own U.S. Treasury debt, even if it delayed other financial obligations like government salaries or retirement benefits.So far, the Treasury seems to have ruled that out as an option. Ms. Yellen has said that such an approach would not avoid a debt “default” in the eyes of markets.“Treasury systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another,” Ms. Yellen told reporters earlier this year. More

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    Debt Ceiling: U.S. Could Run Out of Cash by June 1, Yellen Warns

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    President Biden said he would meet with lawmakers on May 9 to discuss ways to avoid a default.WASHINGTON — Treasury Secretary Janet L. Yellen said on Monday that the United States could run out of money to pay its bills by June 1 if Congress does not raise or suspend the debt limit, putting pressure on President Biden and lawmakers to reach a swift agreement to avoid defaulting on the nation’s debt.The more precise warning over when the United States could hit the so-called X-date dramatically reduces the projected amount of time lawmakers have to reach a deal before the government runs out of money to pay all of its bills on time.The new timeline could accelerate negotiations between the House, Senate and Mr. Biden over government spending — a high-stakes standoff between the president and the House Republicans who have refused to raise the limit without deep spending cuts attached.In response to Ms. Yellen’s new timeline, Mr. Biden on Monday called the top four leaders in Congress to ask for a meeting on May 9 to discuss fiscal issues. The president reached out to Speaker Kevin McCarthy and Representative Hakeem Jeffries of New York, the minority leader, along with Senator Chuck Schumer of New York, the majority leader, and Senator Mitch McConnell of Kentucky, the minority leader.Economists have warned that failure to raise the debt limit, which caps the total amount of money the United States can borrow, threatens to rock financial markets and throw the global economy into a financial crisis.Because the United States runs a budget deficit — meaning it spends more money than it takes in — it must borrow huge sums of money to pay its bills. In addition to paying Social Security benefits, along with salaries for the military and government workers, the United States is also required to make interest and other payments to the bondholders who own its debt.The Treasury Department had previously projected that it could run out of cash sometime in early June, but the new estimate raises the alarming prospect that the United States could be unable to make some payments, including to bondholders, in a matter of weeks.“Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments,” Ms. Yellen said in a letter to Congress.The Congressional Budget Office also warned on Monday that time was running out more quickly than previously thought. The nonpartisan budget office said tax receipts from income payments that were processed in April were smaller than it had anticipated and that future tax payments were unlikely to have much impact.“That, in combination with less-than-expected receipts through April, means that the Treasury’s extraordinary measures will be exhausted sooner than we previously projected,” Phillip Swagel, the C.B.O. director, wrote in an analysis posted on the agency’s website.White House officials had not expected the date of possible default to arrive so soon, and the accelerated timetable could scramble the president’s approach to the potential crisis.Mr. Biden has continued to insist he will not negotiate directly over the limit, saying Congress must raise the cap without conditions. The newly compressed calendar leaves little time for the president and congressional leaders to find agreement on raising the limit. Mr. McCarthy is traveling in the Middle East this week. Later this month, Mr. Biden is scheduled to attend the Group of 7 nations leaders’ summit in Japan, then travel on to Australia for a summit with the leaders of Japan, India and Australia.House Republicans passed legislation in April that would raise the debt limit in exchange for deep spending cuts and roll back recent climate legislation that Democrats passed along party lines. Mr. Biden has blasted that bill, saying it would hurt working families while benefiting the oil and gas industry, and he has accused Republicans of putting America’s economy on the line.On Monday, the president called on Republicans “to make sure the threat by the Speaker of the House to default on the national debt is off the table.”“For over 200 years, America has never, ever, ever failed to pay its debt. To put in the capital — in colloquial terms, America is not a deadbeat nation. We have never, ever failed to meet the debt,” Mr. Biden said.Republican Senators reacted to the news on Monday by emphasizing the onus was now on Mr. Biden to negotiate to avoid economic calamity.“It is very scary,” Senator Joni Ernst of Iowa and a member of Republican leadership said of the looming crisis. “President Biden needs to step it up and get to the table. Kevin McCarthy and the folks in the house, they did their part.”Some expressed optimism that the approaching deadline would force action.“Washington’s at its best when it has a deadline to respond to,” Senator Thom Tillis, Republican of North Carolina, said.Mr. Schumer and Mr. Jeffries urged Republicans to lift the limit immediately with no strings attached. “We do not have the luxury of waiting until June 1 to come together, pass a clean bill to avoid a default and prevent catastrophic consequences for our economy and millions of American families,” the lawmakers wrote in a joint statement on Monday. While there is bipartisan agreement that the nation needs to find a way to reduce the gap between when it spends and what it collects, even the most ardent supporters of fiscal reform say the debt limit must be raised.“We need to raise the debt limit as soon as possible, without drama and without serious risk of default,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget. “To threaten default or drag one’s feet is the height of irresponsibility. Lawmakers need to commence serious discussions immediately.”The possibility of a default by June 1 could compel lawmakers to agree to a short-term increase or suspension of the debt limit to provide more time for negotiations. But even that temporary salve is far from assured given competing factions within the Republican Party.The United States technically hit its $31.4 trillion debt limit in January, forcing the Treasury Department to employ accounting maneuvers known as extraordinary measures to allow the government to keep paying its bills, including payments to bondholders who own government debt. Ms. Yellen said at the time that her powers to delay a default — in which the United States fails to make its payments on time — could be exhausted by early June. She cautioned, however, that the estimate came with considerable uncertainty.Tax receipts depend on a complicated array of factors such as the jobless rate, wages and whether taxpayers submit their returns on time. On Monday, the Treasury secretary underscored the challenges of predicting the default date, noting that the new estimate was based on currently available data that is inherently variable, such as tax payments from individuals.“The actual date that Treasury exhausts extraordinary measures could be a number of weeks later than these estimates,” Ms. Yellen said.A Treasury Department official said that, as of April 30, the government had a cash balance of about $300 billion. Ms. Yellen’s ability to delay a default will depend in part on how much tax revenue comes into the federal government this spring.Payments for the 2022 tax year are still arriving. Goldman Sachs economists projected last week that by the second week of June, the Treasury Department could have about $60 billion of cash remaining, which would allow the government to keep making its payments until late July.Some budget analysts have suggested that winter storms could complicate the Treasury Department’s ability to delay a default. Severe storms, flooding and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service to push the April 18 filing deadline to October for dozens of counties.The I.R.S. also gave those affected areas more time to make contributions to retirement and health savings accounts, potentially affecting their taxable income.Ms. Yellen has already been taking steps to ensure that the federal government has sufficient cash on hand.Earlier this year, she announced that she would redeem some existing investments and suspend new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.Ms. Yellen said on Monday that the Treasury Department was suspending the issuance of State and Local Government Series Treasury securities to help manage the risks associated with the debt limit. She lamented that the move would deprive state and local governments of an important tool to manage their finances.Brinkmanship over the debt limit has revived debates over how far the executive branch can go to avoid a default. Ms. Yellen, however, has dismissed the notion that she could prioritize certain payments or mint a platinum coin worth $1 trillion to ensure that the United States remains solvent.Although markets have broadly remained calm about the prospect of a default, there are some signs that investors are becoming nervous.They have sold government bonds that mature in three months — around the time policymakers have said the United States could run out of cash — and snapped up bonds with just one month until they are repaid.The cost of insuring existing bond holdings against the possibility that the United States will default on its debts has also risen sharply. Still, some analysts say the market reaction would need to be much more pronounced to force a fast deal.In a separate report issued by the Treasury Department on Monday about the risks facing the economy, Eric Van Nostrand, the acting assistant secretary for economic policy, laid out the dire consequences of failing to raise the debt limit.“A default by the U.S. government — including the failure to pay any of the United States’ obligations — would be an economic catastrophe, sparking a global downturn of unknown but substantial severity,” Mr. Van Nostrand said.Catie Edmondson More