Republican negotiators rejected a White House offer to limit spending next year on both the military and a wide range of critical domestic programs as part of high-stakes negotiations over the federal debt ceiling, according to three people with knowledge of the matter, who spoke on the condition of anonymity to describe private talks.
Republicans are pushing instead for higher defense spending and more significant domestic spending reductions, the people said, posing a challenge to White House negotiators aiming to resolve the debt ceiling standoff without agreeing to what they see as draconian changes to federal programs.
During talks ahead of a deadline that could arrive in less than two weeks, Biden aides offered what they viewed as a key concession by proposing that Congress largely hold spending constant on a wide swath of domestic programs, including education, scientific research and housing aid. The president’s negotiators also proposed essentially holding military spending flat for next year. The president’s budget earlier this year sought major increases to both funded by higher taxes, and holding their funding constant instead would amount to a cut of as much as 5 percent due to year-over-year inflation.
But GOP leaders rebuffed that offer as insufficient, as they seek to leverage the nation’s debt ceiling — which must be raised to avoid an economic calamity — to demand major reductions to domestic programs. Congressional Republicans are also insisting on increasing spending for the military, veterans’ care and border security, which means any domestic spending cuts must be significantly larger for the deal overall to still reduce the deficit.
GOP leaders have said they will not support a bill that funds the government at higher levels next year than this year, as lawmakers could decide to reverse any caps on future growth in later years. One person close to the negotiations, speaking on the condition of anonymity to reflect the private talks, said the White House offer still would have increased spending on domestic programs by “billions” of dollars for next year, though it would spend far less than simply adjusting for inflation.
“They actually want to spend more money than we spent this year,” House Speaker Kevin McCarthy (R-Calif.) told reporters in the Capitol on Saturday. McCarthy said it would be difficult for talks to resume before President Biden returns Sunday from his trip to Asia. “We can’t do that. We all know how big this deficit is.”
Freezing the domestic programs and defense spending next year could reduce the federal debt by as much as $1.1 trillion over the next 10 years, assuming spending then increases in line with prior projections, according to estimates by the Committee for a Responsible Federal Budget, a nonpartisan think tank. That is because those programs would cost less in every subsequent year than originally projected, although lawmakers could later change that.
“If we were to actually freeze spending at last year’s levels, that would amount to real savings, relative to current projections,” said Marc Goldwein, senior vice president at the think tank.
The nonpartisan Congressional Budget Office, the official arbiter of how much legislative proposals cost, would score such a freeze as a cut, because its current projections expect spending to rise in tandem with higher prices.
Congress allocated roughly $757 billion this fiscal year to a part of the federal budget that encompasses education, veterans’ care, scientific research, housing aid and dozens of other initiatives. (This bucket of federal funding excludes programs such as Social Security and Medicare, as well as smaller programs such as Medicaid and food stamps.) It also allocated roughly $858 billion to the military budget.
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End of carouselWhat is the debt ceiling?
It’s a restriction Congress has put on how much money the federal government can borrow to pay its bills, which has been in place since 1917. Because the government usually spends more than it takes in, Congress needs to raise the debt ceiling fairly frequently to pay for its operations (sort of like a credit card bill).
What is a default?
If Congress doesn’t raise the debt ceiling, the government can’t borrow and might not be able to pay its bills (like bond interest) on time. That’s called a default, and it’s never happened before on this scale (though the U.S. got close in 2011). It would probably tip the U.S. into a recession and shake the global economy.
Why does the U.S. keep raising the debt limit?
Congress needs to raise the debt ceiling so the U.S. can keep issuing bonds, which investors around the world buy because they’re seen as a safe and reliable investment. In turn, the government can fund projects from the military to social programs.
Why is raising the debt limit a fight?
Until recently, it was routine for Congress to raise the debt ceiling. Since 1960, Congress has intervened 78 times to change it in some way. But it has become a political battle because it is one of the few must-pass bills, so lately Republicans have seen it as an opportunity to make demands.
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Republicans’ internal divisions on military spending complicate McCarthy’s push to demand aggressive spending reductions on other programs. The White House has sought to increase military spending, a push many GOP lawmakers support. Conservatives are therefore skeptical that defense spending would remain flat in the long term, meaning they believe bigger domestic reductions are necessary now to constrain the debt.
“In the context of a one- or two-year deal, if defense spending is going to go up, your ability to generate any savings from a freeze goes right out the window — and you’re right back at where you started needing to show deficit reduction,” said Donald Schneider, who once served as a top aide to Republicans on the House Ways and Means Committee.
But the White House risks massive blowback from its allies if it goes too far in pushing spending reductions in a deal with the GOP.
In a letter earlier this week, several dozen members in the Congressional Progressive Caucus sent a letter to Biden urging him not to surrender to “extremist demands” to strip families of rental assistance and nutrition aid and create other “catastrophic human consequences.”
Discrepancies in federal budget accounting standards may be leading lawmakers to starkly contrasting interpretations of the White House’s offer.
For instance, the White House and congressional lawmakers have differed by as much as $16 billion over the current amount of spending on domestic programs, which serves as the starting point for negotiations, said Brian Riedl, senior fellow at the Manhattan Institute, a libertarian-leaning think tank.
That might seem like not much in the context of more than $1 trillion in annual spending on these programs. But lawmakers are seeking to reduce the budget over 10 years, so the different starting place has big implications — meaning the two parties could be looking at the same proposal as representing two very different trajectories.
“Essentially, $16 billion is the difference between a 1 percent hike and a freeze,” Riedl said. “You could say they’re fighting over 1 percent, but in Republicans’ defense, that could be a couple hundred billion dollars over a decade.”
The national debt is currently about $31.4 trillion — which is also the current borrowing cap set in the law. The CBO projects it would be about $52 trillion after 10 years without any changes.
Behind the scenes, top Biden administration officials have also expressed reluctance on another Republican proposal — clawing back roughly $60 billion in unspent money from prior coronavirus aid packages.
GOP leaders included the rescission in the debt ceiling legislation the House passed last month, and Biden at one point in recent days appeared open to the idea. But some officials have privately raised the alarm that taking back unspent aid could undermine key federal programs that provide housing to the poor, supply funding for public health and address a wide array of other areas, from small business loans to broadband.
Biden is due to return to Washington from a trip to Japan for the G-7 summit of economic powers on Sunday, after canceling some planned additional travel to make it back to the capital for talks over the budget.
The dispute over federal spending levels highlights just how difficult it may be for the White House and congressional Republicans to come to an agreement ahead of a June 1 deadline. Treasury Secretary Janet L. Yellen has said she cannot guarantee that the U.S. government will be able to pay all its bills after that date, raising the prospect of a default that could rattle the global economy.
Lawmakers had appeared to make progress in recent days, with the contours of an agreement emerging to lift the federal debt ceiling, claw back unused covid aid and approve new permitting reform to spur energy development.
The brief breakdown in talks Friday intensified concerns that lawmakers will fail to reach a deal in time and sent shudders through Wall Street. Asked at a news conference in Hiroshima on Saturday with Australia’s prime minister if he was concerned about the direction of debt ceiling talks, Biden replied: “Not at all.”
“It goes in stages. And what happens is the first meetings weren’t all that progressive. The second ones were. The third one was,” Biden told reporters. “And then, what happens is they — the carriers go back to the principles and say, ‘This is what we’re thinking about.’ And then, people put down new claims.”
Tyler Pager contributed to this report.