Exploring Potential Solutions to the US Debt Ceiling Increase: Kevin McCarthy’s Call for Negotiations with President Biden

(Bloomberg) — Spokesman Kevin McCarthy called on President Joe Biden to begin negotiations with Republicans on a “responsible” debt ceiling increase that avoids any U.S. default while addressing the nation’s longer-term fiscal challenges.

Most read by Bloomberg

“We need a different approach — not drawing lines in the sand and saying, ‘It’s my way or the highway,’” McCarthy said in a speech at the Capitol Monday night. “But most importantly, no blank checks for out-of-control spending.”

The comments come a day before Biden delivers his annual State of the Union address, when he is expected to sound the alarm about a debt ceiling clash that has the potential to rock financial markets this summer.

McCarthy said, “Mr. President, Republicans in Congress stand ready to act to save America and make our country stronger. I hope you will join us.”

He called the national debt the “biggest threat” to the US and blamed it for rising prices for things like eggs.

The White House countered McCarthy in a statement, accusing Republicans of seeking deficit-worsening tax cuts and the President as the leader of fiscal good governance that had already reduced the deficit.

The US government is currently unable to borrow net new money after hitting a legal limit of $31.4 trillion last month. The Treasury Department has told Congress it can use special accounting maneuvers until at least early June to avoid a default.

Two-year cap

Congress was deadlocked raising the cap, with House Republicans insisting that spending cuts be appended to any bill to increase it, and Democrats demanding a “clean” raise with no strings attached.

McCarthy and Biden met last Wednesday to discuss the debt ceiling and came out in optimistic mood. McCarthy said he hopes to agree a two-year budget cap based on the talk with the president, though the two leaders didn’t delve deeply into politics during the meeting. He said the next step is for Biden to call him to set up another meeting.

The White House said that while a debt ceiling hike is non-negotiable, Biden is willing to have a “separate” discussion on fiscal deficits.

White House budget secretary Shalanda Young said she expected such deficit talks to be a “marathon”.

Monday was the legal deadline for the White House to release its proposed budget for fiscal 2024, but that document is now scheduled for March 9. House Republicans intend to present their own budget resolution by April, with the leadership targeting a budget balance in 10 years.

It’s unclear what spending cuts the GOP will propose and whether the party can agree on a single plan once the cuts are released. If entitlement programs and defense are shielded and tax increases kept off the table, the plan would likely have to cut non-defense discretionary programs — areas like medical research, national parks, and public housing — by about 85% or more.

McCarthy said he has no plans to discuss Social Security and Medicare cuts as part of deficit talks with the White House, but many of his own members are eager to put those programs on the table.

–Assisted by Laura Litvan.

Most Read by Bloomberg Businessweek

©2023 Bloomberg LP

Source