Debt ceiling crisis looms as talks end with no deal in sight

·5 min read
US national debt
As early as next month, the US government could reach the legal cap on the national debt

A critical week for negotiations on raising the debt ceiling got off to a rocky start as White House talks ended with no agreement.

The US may default as soon as 1 June, causing a global economic catastrophe, if the limit is not raised by Congress before then.

Democratic leaders are calling for the limit to be raised, but Republicans want spending cuts and other conditions to be agreed first.

On Tuesday, Joe Biden and the House and Senate leaders of both parties met to discuss this impending economic crisis of their own making.

There are risks - and rewards - for both sides. Here's a look at them.

Biden and the Democrats

What do they want?

Debt-limit brinksmanship is a game Democrats don't play. They haven't threatened a default, for instance, if the Republicans refuse to raise the minimum wage, expand government-funded healthcare or raise taxes on the wealthy - all party priorities.

They don't want Republican to play the game, either.

It's been more than a decade since congressional Republicans first used raising the legal cap on the national debt as a means of extracting policy concessions from a recalcitrant Democratic president. Democrats view such a tactic as extremist brinksmanship. Many, including high-ranking Biden administration officials who were around for the first debt-limit showdown, want to put an end to the practice once and for all.

They are calling for a "clean" measure to raise the debt limit - that is, one that is not tied to any other legislative measures. They claim their opponents only care about the national debt when Democrats control the White House. As evidence, they point to the three times the debt limit was raised or temporarily waived during the Trump administration, and the hundreds of billions added to the national debt from Republican-backed spending and tax cuts.

What are the risks?

The closer the nation approaches to the edge of the debt limit brink, the more skittish US and global financial markets may become. The last time this happened, the US saw its credit rating downgraded and interest rates on its existing debt go up. Even if the nation avoids tumbling over the fiscal cliff, the US economy could suffer.

The political consequences for this are difficult to predict. One recent poll shows that opinion on this is evenly divided - while a third of the public would blame Mr Biden in such a scenario, a third would blame Republicans and a third is uncertain. And for the president and Democrats in Congress seeking re-election next year, that uncertainty is the stuff of many sleepless nights.

If the economy is wrecked in this standoff, Democrats - as the incumbents - have more to lose. Because they are in power, they are likely to be blamed when unemployment rises and the stock market tanks. For many Democrats, the cost of defeat at the ballot box is higher than that of any short-term concessions to Republicans. If their party regains unified control of Congress and the presidency next year, these could be reversed, they argue.

Some Democrats in Congress are calling for Mr Biden to yield ground to Republicans. If the party breaks rank, Mr Biden could be forced to back down, angering his party's debt-limit hard-liners. It would make him appear weak at a time some in his party are already worried about his ability to hold up as his party's standard-bearer next year.

Graphic shows rising US debt
Graphic shows rising US debt

McCarthy and the Republicans

What do they want?

Republicans want to roll back the expansion of federal programmes backed by Mr Biden and the Democrats. They want to limit federal spending - or, at least, spending on Democratic priorities. With control of one chamber of Congress, their ability to enact legislation to achieve these ends through the traditional means of negotiation and compromise is limited.

The debt limit gives Republicans in the House of Representatives a method by which to extract larger concessions. For instance, House Republicans unanimously passed legislation over unified Democratic opposition two weeks ago that would tie an increase in the debt limit to budget cuts and spending caps. It has no hope of passing the Senate.

Getting Democrats to agree to even a few of these legislative actions would be a victory for Republicans. However, some hard-liners in the party view the package as the minimum they would accept for a debt-limit increase, not a starting point for negotiations.

What are the risks?

Republicans are playing a dangerous game. Like Democrats, they risk an economic crisis that makes their party the target of public blame and the electoral consequences that go along with it.

While Republicans have fewer incumbents to defend at the ballot box next year, the party's margin in the House of Representatives is exceedingly narrow. Even a modest swing in the mood of the electorate could put the party back in the minority in the chamber. Senate Republicans sense a path back to the majority next year, but one misstep could change that.

If the public views Republicans as a party of extremists incapable of governing, it would play directly into one of the central messages of Mr Biden's re-election campaign.

The debt-limit brinksmanship also presents particular challenges for Speaker of the House Kevin McCarthy. His grip on power in that chamber is tenuous. If he holds the line in negotiations, he could anger centrists eyeing difficult re-election battles. If he negotiates a compromise with Democrats, conservative hard-liners in chamber - ones who only grudgingly supported his speakership - could vote to remove him from his post.