Biden’s worries over default blame spur debt talks with Republicans

President Joe Biden’s concern that voters could blame him for a U.S. default helps explain why he’s doing something he resisted for months: engaging with Republicans over spending cuts and budget constraints.

Biden and House Speaker Kevin McCarthy plan to speak daily following a Monday night meeting at the White House that both sides described as productive but that ended without a deal to raise the federal debt limit.

Democrats may now have to swallow a series of pandemic funding clawbacks, work requirements for social programs and other spending limits to secure a bill that can clear Congress – a far cry from the White House’s initial demand for a debt limit increase with no conditions.

But those budget-related concessions will almost certainly be less costly for Biden and his party than the political consequences if the nation were to default on its obligations on his watch, with the president acknowledging he would likely shoulder some of the responsibility as he seeks re-election.

“On the politics of it, no one would be blameless,” Biden told reporters Sunday in Hiroshima, Japan.

And, Biden acknowledged, some Republicans in Congress are convinced that the damage inflicted by a default would blow back in his direction.

“Because I am president and presidents are responsible for everything, Biden would take the blame and that’s the one way to make sure Biden is not re-elected,” Biden said.

Biden’s fears are not unfounded. A third of Americans said Biden was to blame for the lack of an agreement on the debt ceiling in an Economist/YouGov poll earlier this month, versus 32% who blamed the president and House Republicans equally and just 27% who said the GOP was most responsible.

That signals a reversal from the last major debt limit showdown in 2011, when polls showed more voters blamed congressional Republicans for the brinkmanship.

Voters who backed Biden in 2020 were twice as likely to blame him for the impasse as those who voted for former president Donald Trump were to blame House Republicans.

Of those surveyed, 73% said that a default would amount to a “major problem” or “crisis,” suggesting voters were attuned to the risk of breaching the borrowing cap. That included 78% of suburbanites and 75% of self-described moderates, underscoring the risks for the president with key voting blocs headed into 2024.

“There’s just utter exasperation that this is just the way that federal policy works now,” said Wendy Edelberg, the director of the left-leaning Hamilton Project, about the public’s response to the negotiations. “They’re sick of paying attention to the squabbles that all seem to get resolved at the last minute.”

A White House official discounted the notion that a default would hurt Biden more than the GOP, noting that Trump had openly agitated for default if House Republicans weren’t given everything they wanted in negotiations. The president and his party have enjoyed success in the two most recent elections by painting Trump as an extremist and the Republican Party as beholden to him.

Still, there’s no doubt that failure to strike an agreement would add to the economic head winds Biden is already facing with inflation – which has remained stubbornly high despite Federal Reserve rate hikes – and the recent failure of several regional banks.

If a default does occur, economists project it could throw the U.S. into recession, spark widespread job losses and other economic consequences that would spill well into the coming election year.

Biden has made his stewardship of the economy a key aspect of his re-election pitch.

House Republicans, despite their narrow majority and infighting, in late April passed a bill to increase the debt ceiling, with a slew of conservative priorities attached. That forced the White House to reconsider its insistence it would not negotiate, said Gordon Gray, director of fiscal policy at the right-leaning American Action Forum.

Republicans “had a narrow, narrow path, and they managed to not stumble off it, which everyone was betting on, and that changed the dynamic,” he said. “It’s wildly inconvenient for the White House, I get it.”

McCarthy said he believed voters would reward Republicans for forcing the White House off its original debt ceiling position after meeting with Biden on Monday evening.

“I hope at the end of the day, when you would sit back and look that the Democrats said they would never negotiate, that it’d just be a clean debt ceiling, I think those in America would say, ‘Good job. You know what, it’s not that,’ ” McCarthy said.

White House officials argue ongoing negotiations are separate from a conversation on the debt ceiling. They note that recent debt ceiling increases were paired with budget agreements, and that the parameters of the deal being discussed by the president and House Speaker are within the bounds of the give-and-take traditionally seen in budget negotiations. Biden’s team does not intend to cede any ground they wouldn’t during regular spending talks, one official said.

“These are two track – two separate conversations that are happening,” White House press secretary Karine Jean-Pierre told reporters over the weekend.

Even if there is a deal, there would still be risks for investors – and Biden – to consider, including a potential U.S. credit rating downgrade, said Isaac Boltansky, director of policy research at BTIG.

“Downgrade risk is real,” he said, citing the first-ever U.S. credit rating reduction in 2011. “We should keep in mind that the last time it happened it was after the deal was inked.”