Mitch McConnell, (left) Chuck Schumer and Speaker of the House Kevin McCarthy, at the Capitol in Washington, on Wednesday. Associated Press
US President Joe Biden and House of Representatives Speaker Kevin McCarthy, the top Republican in Washington, hope to finalise a deal on the debt ceiling after Biden returns from the Group of Seven meeting in Japan on Sunday. The debt ceiling bill Republicans have passed in the House and Democrat Biden’s 2024 budget are far apart in terms of spending, taxes and other measures. But a vague outline of what may be in a deal, and what will not, has slowly begun to take shape.
Republicans are demanding tougher work requirements for some federal aid programs, like SNAP food assistance. This has raised concerns among Democrats that low-income Americans would suffer. Biden on Wednesday said he is open to some added work requirements in limited cases “but not anything of consequence.” He has ruled out changes in particular to Medicaid and TANF (Temporary Assistance for Needy Families) programmes.
A compromise is possible on reforming the process for energy permits and White House officials say it is being actively discussed. The White House has called on Congress to pass permitting legislation that would help speed up clean energy and fossil fuel projects. Republicans have made permitting reform a priority. Biden told reporters on Tuesday, after meeting with McCarthy in the Oval Office, that Republicans are opposed to raising more tax revenues as a way to pay for government programmes. White House officials say they have brought up proposals like increasing taxes on the wealthy and closing tax loopholes for the oil and pharmaceutical industries, but Republicans have rejected the ideas.
The two sides remain far apart on where to cut spending in the federal budget. A House Republican bill would cut 2024 US discretionary spending back to the 2022 level of $1.664 trillion and limit subsequent annual increases to 1% for a decade. The White House’s 2024 budget request proposes $1.9 trillion in discretionary spending - a 9.4% increase followed by annual increases averaging 1% over a decade. The discretionary spending proposals would add $2.23 trillion to deficits over 10 years, offset by tax increases.
The White House has for the most part ruled out Republican spending cuts. But Republicans are insistent that any debt ceiling deal will have to including spending cuts, and negotiations continue on this front.
Republicans would like to cap federal spending for 10 years. The White House has countered with a proposal for capping spending for two years.
The US government could fall behind on its bills next month — and even default on its debt — if Congress doesn’t raise a $31.4 trillion cap on government borrowing, a failure that could trigger economic calamity and panic on global financial markets.
What follows is a timeline showing how a cascade of missed payments could unfold, based on the US Treasury’s warning that it could run out of cash as early as June 1, and daily tax receipts and spending obligations projected by the Bipartisan Policy Center, a Washington-based think tank.
JUNE 1: The US Treasury’s cash coffers would run dry, causing it to hit the debt ceiling. The day’s $26 billion in tax revenues would not be enough to cover about $101 billion in spending obligations promised by Congress.
Who wouldn’t get paid? Possibly everybody expecting a cheque.
If the Treasury operated under a plan drawn up in 2011, it would not pick and choose which bills to pay and would instead wait until it had enough money to pay a full day’s bills. Medical providers would get stiffed for $47 billion in payments from Medicare, the US public health insurance programme for the elderly. Soldiers also would go unpaid. Wall Street investors could still be paid for now, but there are risks. With debt principal payments coming due — including more than $100 billion on June 1 — the Treasury would borrow just enough to cover what’s due and stay under the debt limit. If investors declined to lend that money out of fear they wouldn’t get paid back, America could start missing payments and enter default on its debt, rocking the global financial system.
JUNE 2: Even if Washington kept paying debts on time, stock markets would likely be swooning. That could put pressure on Republican House Speaker Kevin McCarthy and Democratic President Joe Biden to act quickly. Republicans, who control one chamber in Congress, are demanding steep spending cuts in exchange for their support raising the debt ceiling.
Without a deal, another day of cheques might not go out. Pensioners and other Social Security beneficiaries wouldn’t get $25 billion owed them. States wouldn’t receive $2 billion they are owed for Medicaid health insurance subsidies for the poor. By this time, broad swathes of the country wouldn’t be getting paid.
JUNE 6: Weapons manufacturers and other companies supplying the US military wouldn’t collect $2 billion owed them.
JUNE 7: About a week into the crisis, it’s possible some cheques could finally go out. The US Treasury would have collected about $110 billion in taxes since it stopped being able to add to the debt, enough to cover the bills from June 1. But more bills would keep coming due, and Americans expecting tax refund deposits on June 7 wouldn’t get about $1 billion owed them.
JUNE 8: Education programmes run by state and local governments wouldn’t get $1 billion in planned funding. The crisis would deepen in US hospitals as federal insurance payments fell further behind.
JUNE 15: Things would get extra dicey on June 15 when the Treasury is due to pay investors about $2 billion in interest payments on the national debt. The Treasury said in 2014 — following another near-collision with the debt ceiling — that it is technically capable of prioritising interest payments over other obligations.
Provided that capability panned out, the day’s inflow of business tax receipts would give the Treasury enough cash to make the debt payment. But revenues wouldn’t cover all the other bills due June 15, such as military salaries.