The U.S. government will run out of money to meet all its payment obligations on June 5, if Congress does not raise the debt ceiling, Treasury Secretary Janet L. Yellen told lawmakers on Friday, providing a more precise forecast to lawmakers trying to break an impasse.
Yellen had previously told Congress that the United States could run out of funds in early June but “as soon as” June 1. Treasury’s new estimate provides more specificity on when the government will exhaust its funds.
“We now estimate that Treasury will have insufficient resources to satisfy the government’s obligations if Congress has not raised or suspended the debt limit by June 5,” Yellen said in a letter.
President Biden and House Speaker Kevin McCarthy (R-Calif.) have reported progress in recent days on a government spending deal that would also lift the debt ceiling, but as of Friday afternoon no agreement had been made public and negotiators continued to face significant rifts.
The new default date should not be seen as a reprieve, but rather a more firm deadline that “ensures the urgency” of reaching a deal within days, said Rep. Patrick T. McHenry (R-N.C.), one of the key GOP negotiators.
“We’re within the window of being able to perform this, and we have to come to some really tough terms in these closing hours,” he told reporters Friday evening.
Yellen’s warning come as new objections from the right emerged throughout Thursday and Friday to undermine an agreement that had not even been publicly released.
In response to reports about the details of the agreement, leading conservative lawmakers and budget experts raised strong objections, arguing that McCarthy had failed to extract sufficient concessions from the Biden administration in exchange for raising the debt ceiling. McCarthy pushed back in remarks to reporters Friday, saying the criticisms were being leveled by people unaware of the substance of the deal.
Negotiators are closing in on an agreement that would raise the debt ceiling by two years — a key priority of the Biden administration — while also essentially freezing government spending on domestic programs and slightly increasing funding for the military and veterans affairs, said three people familiar with the matter who spoke on the condition of anonymity to reflect private deliberations. Although the deal is expected to include key GOP priorities, such as partially clawing back new funding for the Internal Revenue Service, a growing chorus of conservatives has balked at how little the deal appears to cut government spending overall — especially because it would also give up their party’s leverage on the debt ceiling until after the 2024 presidential election.
Rep. Ralph Norman (R-S.C.), a top member of the far-right House Freedom Caucus, described what he has learned so far of the emerging deal as “watered down.” Norman urged McCarthy to hew closely to the legislation that conservatives helped craft and pass last month, which raised the debt ceiling only into next year and coupled the increase with larger spending cuts than the two parties are now discussing.
“This is totally unacceptable, and it’s not what we agreed to,” Norman said.
Rep. Bob Good (R-Va.), another House conservative, complained about reports that the deal would raise the debt ceiling by more money than the bill approved by the House. Good said the emerging deal would do so “for a whole lot less in return that we need from a policy standpoint, from a fiscal standpoint.” He added: “And if that were true, that would absolutely collapse the Republican majority for this debt ceiling increase.”
Rep. Andy Harris (R-Md.), another House conservative, added of the longer debt ceiling increase: “You’ve got to add things into it, not compromise things away.” Rep. Chip Roy (R-Tex.), a key conservative leader, downplayed the idea that the deal would lead to McCarthy losing his speakership but added of the deal: “I think it’s an exit ramp about five exits too early.”
Asked by reporters about the criticisms on Friday, McCarthy said: “I’m not concerned about anybody making any comments right now about what they think is in or not it. Whenever we come to an agreement, we’ll make sure we will first brief our entire conference.”
The extent and ferocity of the conservative revolt could prove crucial to the ongoing debt ceiling standoff, as well as McCarthy’s future. But it was not exactly clear how many GOP lawmakers shared the objections voiced by Norman and Good. Since the beginning of the negotiations, McCarthy has been widely assumed to be able to lose the roughly three dozen members of the far-right House Freedom Caucus and still manage to pass the debt ceiling increase and retain his position as speaker. If he loses several dozen additional House Republican lawmakers, though, both the deal — and his grip on power — could be on shaky ground.
“These guys were never going to vote for it, so the question becomes how many of them you lose,” one GOP strategist said, speaking on the condition of anonymity to describe internal dynamics.
Exactly when the government will run out of money isn’t certain. Two prominent credit rating agencies warned that they could downgrade the U.S. government’s coveted AAA debt rating in the event of a default.
Even if negotiators do reach an agreement soon, they need time to put it into action. House rules require 72 hours for lawmakers to review legislation before a vote. The Senate would also have to act. All told, passage could take days.
“We’re making progress and our goal is to make sure that we get a deal because default is unacceptable,” Deputy Treasury Secretary Wally Adeyemo told CNN on Friday. “The president has said it and the speaker has said it.”
With lawmakers in the House and Senate now back in their districts for Memorial Day weekend, the timeline became more precarious by the hour. McHenry told reporters Friday that talks were “up and down.”
“There is forward progress. But each time there’s forward progress, the issues that remain become more difficult and more challenging,” McHenry said. “At some point, this thing can come together or go the other way.”
The exact contours of a final deal remained unclear even as lawmakers on both sides of the aisle alluded to progress heading into the weekend.
For weeks, negotiators had clashed over GOP demands that would significantly cut federal spending on programs such as nutrition assistance, rental aid and scientific research, which White House aides fear could spark a revolt among Democrats.
McCarthy had demanded that the government spend less money next year than it did this year on a portion of the budget covering domestic programs, while also insisting on substantial increases for the military and border security. Democrats balked at these demands, since they would lead to huge cuts to federal programs such as nutrition aid, housing assistance, education and scientific research.
But negotiators appeared to reach a breakthrough this week. Repurposed money from the IRS and other federal programs will allow Democrats to mitigate the cuts to the domestic programs, while the overall amount of spending will go down — a key McCarthy demand. Spending on veterans and the military will also rise in line with the increases sought by the president’s budget, one person familiar with the matter said.
At least two key issues — new work requirements and permitting reform to spur domestic energy production — remained unresolved. On CNN, Adeyemo wouldn’t say where the negotiations were heading on whether to impose work requirements for recipients of some federal aid programs, which McCarthy has called essential to a final deal.
The Biden administration accused House Republicans of trying to “tie the most vulnerable up in bureaucratic paperwork” disguised as work requirements while calling for tax cuts.
“House Republicans are threatening to trigger an unprecedented recession and cost the American people over 8 million jobs unless they can take food out of the mouths of hungry Americans,” White House spokesman Andrew Bates said in a statement.
Graves, meanwhile, insists GOP negotiators are holding firm on work requirements. Asked Friday whether he would be willing to drop such policies from a final deal, Graves shot back: “Hell no. Hell no. Not a chance. Not happening.”
McCarthy may need those changes as concessions to sell the deal to his base. A freeze on government spending could be estimated to reduce long-term deficits by more than $1 trillion, because projections would show spending lower in every successive year. But conservative budget analysts say that does not go far enough to rein in the roughly $52 trillion debt projected for the United States by the end of the next decade.
“Kevin McCarthy is on the verge of striking a terrible deal to give away thru Biden’s term for little in the way of cuts,” Russ Vought, a conservative leader who served as President Donald Trump’s budget director, tweeted Thursday. “They are lining up Democrats to pass it. The DC cartel is reassembling.”
Congress sets a legal maximum on how much the Treasury Department can borrow to pay the government’s bills, a limit known as the debt ceiling. Failure to raise the debt ceiling in time could put the federal government in default on its obligations, which economists warn could trigger a recession in the United States and a global financial crisis.
Yellen added that even coming close to the deadline — as seems likely to occur given how little time lawmakers have to act — can harm the American economy. She warned of severe consequences if lawmakers fail to act.
“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen’s letter states. “If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.”
What to know about the U.S. debt ceiling
The latest: The House and Senate passed a debt ceiling deal as lawmakers rush to avert a disastrous government default on June 5, sending the bill to President Biden to sign into law. See how each member of the House and Senate voted. If the debt ceiling isn’t raised by the deadline, here’s what a government default means and the payments at risk.
Understanding the debt ceiling fight: Biden and the House Republican leadership have been on a collision course over the national debt limit. In this comic, see how hitting the debt ceiling could unleash chaos. Here’s when the debt ceiling battle could end.
What is at stake? Invoking the 14th Amendment to dodge the debt limit is risky, White House officials say, although Biden has floated it as an option. If the debt limit is breached, Biden warned that it could send the U.S. economy into a free fall. Amid consumer anxiety over the uncertainty, financial experts warn against making fear-based decisions.