- Republican House Speaker Kevin McCarthy reiterated his demand that Democrats agree to spending cuts as a condition of lifting the debt ceiling.
- Congress must lift or suspend the debt ceiling in order to avoid defaulting on government debts, which could severely damage the economy.
- Republicans and Democrats are at an impasse, with President Joe Biden demanding the debt limit be raised unconditionally.
- The debt limit, set by Congress, restricts how much money the government can borrow to pay for spending that lawmakers have previously authorized.
There could be no defusing the looming debt ceiling crisis—and its potentially dire economic fallout—unless President Joe Biden and fellow Democrats agree to cut federal spending, according to Top Republican lawmaker Kevin McCarthy.
McCarthy, a congressman from California, laid out his party’s negotiating demands in a speech at the New York Stock Exchange Monday morning. They included cutting the federal budget to its 2022 level, limiting future increases to 1% a year, and imposing more work requirements for beneficiaries of social safety net programs. McCarthy didn’t mention specific programs to be cut, and said Social Security and Medicare would remain untouched under a proposal the house would pass in the coming weeks to raise the limit for one year.
“Defaulting on our debt is not an option. But neither is a future of higher taxes, higher interest rates, more dependency on China, and an economy that doesn't work for working Americans,” McCarthy said. “A no-strings-attached debt limit increase will not pass.”
McCarthy’s speech underscored the lack of progress that Democrat and Republican leaders have made in reaching an agreement to raise or suspend the debt ceiling as the clock ticks down towards a potentially catastrophic default on the national debt.
In January, the government exceeded the $31.4 trillion limit that Congress has imposed on the amount of debt the treasury can owe in order to pay obligations that Congress has previously authorized, such as Social Security benefits and military salaries. The Treasury Department has been relying on stopgap accounting measures to pay the government’s bills ever since, and Treasury Secretary Janet Yellen has warned those measures may run out as soon as early June.
Should that happen, the government would be unable to pay all of its bills—a scenario economists and federal officials say could cause economic havoc. A prolonged breach of the debt ceiling could decimate financial markets and cause the unemployment rate to more than double to 8%, Mark Zandi, chief economist at Moody’s Analytics, said in an analysis last month.
President Biden has called for Congress to raise the debt ceiling unconditionally. In remarks published ahead of McCarthy’s speech, White House deputy press secretary Andrew Bates said the debt ceiling showdown should be resolved “without brinksmanship or hostage taking.”
Republican lawmakers have used the debt ceiling to extract concessions from Democratic presidents before, notably in 2011 and 2013, when last-minute bargains between Republicans and the Obama administration averted the government defaulting on its debt, though not before causing significant damage to the economy.