House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke late Monday as they tried to broker a debt ceiling and budget deal with just days left before Congress plans to leave for the rest of the summer.
The talks took on new urgency after Pelosi shot down a White House fallback plan that would have Congress raise the debt ceiling — potentially for just a short period of time — by late next week if they failed to reach a budget agreement.
Pelosi, the California Democrat, said the idea of raising the debt ceiling on its own and not in conjunction with a budget agreement was not “acceptable to our caucus” and therefore did not stand a chance of passage in the House of Representatives.
Mnuchin had floated the alternative publicly during remarks at the White House, when asked what would happen if the debt ceiling wasn’t raised before lawmakers departed for a lengthy summer break. Mnuchin has said he is concerned that Treasury could run out of money to pay the government’s bills by early September and that Congress must act before they leave to ensure he doesn’t miss any payments.
“I’m very hopeful we can come to an agreement quickly,” Mnuchin told reporters at the White House. But, “if for whatever reason,” a budget deal isn’t reached, “before they leave, I’d either expect them to stick around or raise the debt ceiling."
Pelosi has also said she is hopeful that she can reach a deal with the White House, but on Monday she made clear that the White House would not dictate the fallback plan if the talks falter. Pelosi wants the White House to agree to a specific budget deal that would dictate spending levels for the next two years.
People involved in the negotiations said they were not panicking and that there were still multiple options to avoid a full-blown crisis, and they also said that all sides were working hard to reach a resolution. One option would be for lawmakers and the White House to reach an agreement in principle on the budget before the August recess, temporarily raise the debt ceiling, and then agree on specifics in the intervening months.
White House officials also remain unsure whether Pelosi will be able to whip up enough Democratic votes to pass a budget compromise, and some congressional aides remain wary of whether Trump will ultimately agree to whatever budget deal Mnuchin brings to him.
White House officials began discussing the need for such a short-term fix with some congressional aides in recent days as they worried that they might not have enough time to reconcile differences over a two-year spending deal. Democrats and many Republicans want the debt ceiling vote to be part of a two-year budget deal, which they believe will make it easier to win passage in Congress.
If that spending deal remained out of reach by next week, when lawmakers are expected to leave for a lengthy recess, some White House officials wanted Congress to consider a plan that would temporarily raise the debt ceiling, by perhaps just a few weeks, to give them more time to negotiate a budget package.
The chaotic planning comes after Mnuchin has spent more than a week trying to negotiate a broader budget and debt limit deal with Congress.
Mnuchin met with President Trump about the budget talks on Monday morning, and he spoke with House Minority Leader Kevin McCarthy (R-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.) about the negotiations over the weekend. Democrats want the White House to agree to increase spending levels for defense and nondefense programs over the next two years. White House officials have agreed to increase spending levels, but not as high as the levels demanded by Democrats.
Lawmakers pressed the White House to try to continue broader negotiations, and some expressed major reservations about the idea of pursuing a short-term debt ceiling deal.
“That was a topic we talked about some today and nobody fully understands — I think — what they’re thinking about with a short-term proposal,” Sen. Roy Blunt (R-Mo.) said. “I’d want to see it first, but I think we need to solve both these problems at the same time.”
Asked what would happen if the White House and Congress did not reach a budget and debt ceiling deal by the end of next week, Pelosi said late Monday “I’m not going into the theoretical. I’m into the actual.”
Mnuchin on Monday hinted at what one of the primary hangups has been so far as lawmakers and the White House remain unable to agree on a two-year budget deal. He said the White House was seeking “offsets” for any spending increases, which is a way of saying the White House wants budget reductions for some programs in exchange for increases elsewhere.
As these talks drag on, some White House officials have pushed for the consideration of a separate measure that would simply raise the debt ceiling to ensure that they have more time to negotiate without worrying about whether the Treasury Department can pay all of its bills.
But lawmakers from both parties have told the White House that they aren’t sure if they have the votes to raise the debt ceiling unless it is part of a broader budget agreement. Mnuchin’s decision to float the option publicly on Monday could signal that he believes time is running out, though some Democrats believe that the White House has been trying to pressure them to raise the debt ceiling without offering concessions in the budget talks.
Mnuchin has warned that the Treasury Department could run out of money in early September if a debt ceiling deal isn’t crafted before the August recess, a position that some outside experts have also said is accurate.
If the debt ceiling isn’t raised in time, and the Treasury Department is squeezed for cash, it could lead to a spike in interest rates and stock market crash, among other things, because it could call into question the full faith and credit of the United States.
The U.S. government spends much more money than it takes in through revenue. To pay all of its bills, the Treasury Department issues debt as a way to borrow money. But it can only issue debt up to a limit set by Congress. Last year, Congress suspended this debt limit until March 2019. After this suspension expired, the Treasury Department began taking steps to delay a default by doing things like suspending certain investments. But it will run out of flexibility soon, Mnuchin has warned.
The U.S. government had roughly $19 trillion in debt when Trump took office, and now total government debt has surpassed $22 trillion.
Many Republicans decried raising the debt limit during the Obama administration, saying the government should do more to cut back on borrowing. But they have mostly gone along with Trump’s efforts to widen the debt through tax cuts and large spending increases. Still, lawmakers do not like to hold votes that simply raise the debt ceiling and prefer to do it as part of a package, which is why many have pushed for including the debt ceiling increase as part of a broader budget deal.
Lawmakers must craft a new budget deal by the end of September, because that’s when funding for many agencies is set to expire. If lawmakers don’t fund the agencies after Sept. 30, there will be another government shutdown. Mnuchin said on Monday that the White House does not want to see another shutdown, but he said they didn’t have enough time to wait until late September to deal with the debt ceiling and budget talks, as the debt ceiling deadline could be much sooner.
Sen. Rob Portman (R-Ohio) said lawmakers might have little choice but to pursue the short-term debt ceiling deal if they can’t reach the broader agreement. While not ideal, he said, it would be “better than nothing.”