The US could be unable to pay all of its obligations as early as June 1, Treasury Secretary Janet Yellen announced Monday in a letter to Congress, sooner than some analysts expected. Yellen’s letter adds even more urgency to the need for Democrats and Republicans to agree on a deal to raise or suspend the debt ceiling to head off a potential default, which could send shockwaves through the global economy.
Last week, House Republicans were actually able to come together and pass their opening bid on the debt ceiling, known as the Limit, Save, Grow Act. The bill was approved by 217 Republicans, with just a handful — four — defecting. As late as Wednesday morning, April 26, whether Republicans could unite behind a proposal had been in doubt, with House Speaker Kevin McCarthy making a series of last-minute concessions to win over holdouts.
The bill will not advance, given Democratic control of the Senate and opposition from the White House. But the measure, for the first time, lays out a Republican position on the debt ceiling, which includes slashing government spending in exchange for a suspension or a $1.5 trillion increase. Additionally, the bill would roll back several investments in the Democrats’ Inflation Reduction Act, including funding for the IRS and clean energy tax credits. And it would make notable policy changes, including adding controversial work requirements for Medicaid and undoing President Joe Biden’s proposal to forgive student loan debt.
Given these provisions, Democrats have already panned the legislation as a nonstarter and emphasized that they remain committed to a “clean” increase on the debt ceiling, which doesn’t include other cuts as a tradeoff. “[I will] meet with McCarthy, but not on whether or not the debt limit gets extended,” Biden said ahead of last Wednesday’s vote. “That’s not negotiable.” The Democrat-led Senate is also not expected to take up the legislation, with Senate Majority Leader Chuck Schumer calling the legislation “dead on arrival.”
Despite the bill’s dim prospects of moving forward, House Republicans heralded the vote as a success, largely because it, at least for now, resolves some of the very vocal disputes in Republican ranks and could strengthen their hand in negotiations with the White House. “He either has to negotiate now or we’re the only ones that have raised the debt limit,” Speaker McCarthy told reporters after the vote.
What comes next
Republicans’ passage of the legislation sets up the next phase of this stalemate and raises questions about whether Democrats will put forth a counter at some point. As of yet, Biden hasn’t budged on the matter, and urged lawmakers to separate discussions of the debt ceiling from those of future spending.
Biden’s reluctance to negotiate with Republicans stems from past standoffs over the debt ceiling, including an especially close call in 2011, when the US came within 72 hours of defaulting. That year, the Obama administration spent weeks negotiating with Republicans only to have talks collapse close to the default deadline. Congressional leaders ultimately arrived at an agreement, which included an increase to the debt ceiling paired with spending caps, and the establishment of a supercommittee to identify more cuts.
Biden “has no eagerness to jump back in [negotiations] because he saw what they were like, saw that nothing good came out of them,” Jason Furman, an economist involved in the 2011 talks on behalf of the White House, previously told Vox.
That leaves Democrats and Republicans at a familiar standoff. While Biden has pushed a clean debt ceiling increase, McCarthy’s more conservative members aren’t interested in a deal that’s watered down from the current House bill. The two positions set up an impasse that could stretch into the coming months as the deadline for a debt default looms: Estimates suggest that the US could end up doing so as early as June. If the US defaults, that effectively means it won’t be able to cover its bills, leading to increases in interest rates, market volatility, and a surge in unemployment. This would likely trigger a domestic economic crisis, if not an international one as well.
Now, the question will be whether either side will blink. Negotiators from the 2011 debt ceiling crisis previously told Vox that it’s possible Democrats will have to offer Republicans some type of exchange so that GOP members can claim they got something out of the talks. “We might end up with something that’s more modest but that Republicans can sell back to their voters as having achieved something in the fight. Everybody needs something to save face,” Brian Riedl, a former economic policy staffer for Sen. Rob Portman, previously told Vox.
Update May 1, 4:45 pm ET: This story was originally published on April 27 and has been updated with new information from Treasury Secretary Janet Yellen.