White House, GOP abruptly break off debt ceiling talks as deadline nears

The White House and congressional Republicans abruptly broke off negotiations over the federal budget and debt ceiling on Friday, suspending talks with less than two weeks until a key deadline when the U.S. government could run out funds to pay all of its bills.

White House officials and Republican leaders immediately began blaming each other for the impasse, sending financial markets reeling and raising questions about whether they will be able to cut a deal and rally bipartisan support before payments on things like Social Security, Medicare, and a range of other programs are impacted early next month.

The Treasury Department has warned that it cannot guarantee it will have enough money to pay all of its bills after June 1 if the debt ceiling isn’t raised by Congress. Government officials from both parties have said failing to raise the debt ceiling could lead the United States to default on its debt and risk sparking a global financial crisis that could tip the nation into a recession.

The looming deadline and potential calamity has led lawmakers to seek a compromise, but the leading negotiators – President Biden and House Speaker Kevin McCarthy (R-Calif.) – have come under immense pressure from their respective flanks in recent days not to give too much to the other side.

The unexpected breakdown in talks, confirmed by several people close to the discussions and publicly by McCarthy, narrows the window for lawmakers as they try to untangle a series of legislative knots ahead of the deadline. McCarthy said he needed an agreement in principle by this weekend for the House to ensure the debt ceiling is not breached – a target that is now all but sure to be missed.

The two groups earlier Friday had not agreed on when to meet again, according to a person familiar with the conversations.

Despite the breakdown, some on Capitol Hill are interpreting the pause as a potential negotiating ploy from leaders aimed at assuring their bases that they are fighting aggressively for their sides’ priorities. Biden has faced mounting criticism from some Democrats over his decision to entertain the idea of requiring new work requirements on certain federal benefit programs. Some liberal lawmakers have urged Biden to end the standoff by choosing to unilaterally ignore the debt ceiling. Meanwhile, McCarthy faced fresh attacks from the conservative House Freedom Caucus on Thursday over signs the deal would not cut spending by as much as many Republicans have demanded, fueling concern on the right that the GOP would not extract sufficient concessions.

“It’s hard to know how much of the apparent stalling out of talks is gamesmanship, and how much is a stubborn difference of opinion that’s defying attempts to resolve them,” said Tobin Marcus, a former Biden policy adviser now at Evercore ISI, an investment advisory firm.

The souring of discussions comes after lawmakers had appeared to make progress on the contours of the agreement. Negotiators were in talks to temporarily raise the debt limit, claw back some unused money meant for coronavirus relief programs, approve bipartisan permitting reform, and create new work requirements on certain federal programs. But that left unresolved what has long appeared to be the most intractable division between the parties, which is deciding how much money government appropriators will approve for the budget year that begins in October and what potential restrictions might be put on that funding in subsequent years. Republicans have sought trillions of dollars in cuts to a huge portion of the federal budget, while Democrats have resisted those changes.

News that the talks were paused sent financial markets lower on Friday, a sign of investor unease that a protracted standoff could roil the economy. The Dow Jones Industrial Average suddenly dropped 300 points from its high for the day before recovering slightly.

Even if talks resume next week, White House officials and congressional negotiators will face an extreme time crunch if they want to cut a deal before the June 1 date that Treasury Secretary Janet L. Yellen has suggested could be when she can no longer guarantee all government payments can be met. On June 1, $10 billion in military pay and retirement funds are scheduled to be issued, followed by $25 billion in Social Security benefit payments on June 2. It’s unclear what would happen to those payments if the government doesn’t have enough cash on hand.

Several people close to the negotiations said lawmakers remained divided over the extent and duration of new restrictions on federal spending. House Republicans have pushed for spending limits on a substantial pool of federal funding that excludes programs such as Social Security and Medicare, but otherwise aim to restrain the growth of spending on an enormous part of the U.S. government. In talks, GOP negotiators have pushed these “spending caps” on domestic spending – including education, transportation, and scientific programs – to reduce the deficit by trillions of dollars.

Democratic lawmakers are wary of these plans, in part because they believe similar measures enacted during the Obama administration contributed to significantly slower economic growth and could hurt important government programs.

One core dispute in talks has been over how long these spending “caps” should remain in effect. Democrats want the spending cuts to only last for roughly two years, after which time appropriators could more easily increase the budget. But Republicans have sought to extend the duration of the restrictions to a decade because the amount of deficit reduction goes up substantially the longer the restrictions are in effect.

“This was always going to be an issue,” said G. William Hoagland, a senior vice president at the Bipartisan Policy Center, a Washington-based think tank. “Republicans are looking for major savings over the next 10 years, while the administration clearly does not want to lock in 10-year numbers and are looking at a much shorter time frame.”

Perhaps even just as difficult is how steep the first year of spending cuts should be. McCarthy has pushed for a $100 billion cut starting the upcoming fiscal year, reflecting the internal pressure he faces among Republicans to deliver spending cuts that cannot later be reversed. But Democratic lawmakers strongly resist such measures for the same reason, believing that spending cuts that are scheduled to occur years from now are less likely to ultimately take effect.

Earlier this week, Biden met with congressional leaders – including McCarthy and Senate Minority Leader Mitch McConnell (R-Ky.) – at the White House to try to break the impasse. They emerged from the meeting sounding optimistic that they would reach an agreement before the June 1 deadline.

At the time, Biden described the meeting as “good, productive,” and McCarthy had said it would be possible to reach a deal by the end of this week.

“It’s not that difficult to get to an agreement,” McCarthy said then.

Lawmakers from both parties have agreed that if the United States defaulted on its debts for the first time in history it would be catastrophic. White House economists said in an analysis earlier this month that an extended breach of the nation’s borrowing limit could wipe out more than 8 million jobs and cause “severe” economic damage.

Biden has insisted that Congress vote to increase the debt ceiling with no conditions attached – as Republicans and Democrats did three times during the administration of his predecessor, Donald Trump. But Republicans in control of the House with a Democratic president have demanded deep spending cuts in exchange for raising the debt limit.The limit is a cap on the total amount of money that the United States is authorized to borrow to fund the government and fulfill its financial obligations. It is not new spending but rather allows the country to spend money on programs that Congress has authorized.

John Wagner contributed to this report.