- US government reaches its borrowing limit due to political stand-off
- Republicans aim to use debt ceiling for spending cuts
- Treasury officials have emergency measures to avoid default, but risks may emerge in June.
The U.S. government's borrowing limit of $31.4 trillion was expected to be reached on Thursday, due to a disagreement between the Republican-controlled House of Representatives and President Joe Biden's Democratic administration. Republicans, who recently gained a majority in the House, plan to use the debt ceiling to demand spending cuts from Biden and the Democratic-led Senate.
However, Thursday's deadline will have little immediate impact as Treasury officials have prepared emergency measures to avoid default, such as suspending investments in government pension funds, and shifting cash around between accounts. However, there is a greater risk closer to June when the government reaches the "X date" where Treasury would run out of emergency measures and default on its debt.
The Republican plan is to balance the federal budget in 10 years by capping discretionary spending at 2022 levels, and using House oversight to identify federal programs that can be eliminated or scaled back in spending bills that are expected to emerge from the House Appropriations Committee later this year. They are also proposing a "debt prioritization" plan that would seek to avert default by urging the Treasury to prioritize debt payments, and possibly other priorities such as Social Security and Medicare, should the limit be breached during negotiations. Republicans hope to complete the legislation by the end of March.
The prospect for brinkmanship has raised concerns in Washington and on Wall Street about a bruising fight over the debt ceiling this year that could be at least as disruptive as the protracted battle of 2011, which prompted a downgrade of the U.S. credit rating and years of forced domestic and military spending cuts.
The White House Press Secretary, Karine Jean-Pierre, stated that "it is something that should be done without conditions. We should not be negotiating around it. It is the basic duty of Congress to get that done." However, Republicans argue that they are not willing to blindly increase the debt ceiling without making changes to spending.
In the meantime, House Republicans are vowing to reject sweeping government funding bills from Senate Majority Leader Chuck Schumer, akin to the $1.66 trillion bipartisan omnibus package that Congress passed late last year. White House officials also note that Republicans in Congress backed multiple increases to the debt ceiling when Republican Donald Trump was president.
Congress and the White House likely have until early June to find agreement on government funding, before Washington must confront the specter of a first-ever default, according to Treasury Secretary Janet Yellen. Negotiations on debt prioritization and spending are not expected to get into full swing until lawmakers return to Washington next week.
Despite the ongoing negotiations, both sides expressed optimism that a compromise can be reached. Republican Representative Ben Cline stated that "We are optimistic that Democrats will come to the table and negotiate in good faith. There's a lot of room to negotiate when it comes to steps that can be taken to address the fiscal crisis that we find ourselves in."