(Bloomberg) -- President Joe Biden agreed to meet House Speaker Kevin McCarthy on Feb. 1 to discuss raising the debt ceiling and avoiding a US default as Republicans seek a deal that includes government spending cuts.
The meeting will pit Biden’s refusal to negotiate over the US debt limit against McCarthy’s call for reductions in federal spending as a condition of any deal.
“I want to find a reasonable and a responsible way that we can lift the debt ceiling, but take control of this runaway spending,” McCarthy said Sunday on CBS’s “Face the Nation,” where he announced the meeting. “Now I know his staff tries to say something different, but I think the president is going to be willing to make an agreement together.”
Biden will make the case that McCarthy has a constitutional obligation to prevent a national default and will ask whether he intends to meet it, a White House spokesperson said later Sunday. The president will argue that Americans’ economic security can’t be held hostage to cuts that would hit working families, according to the spokesperson, who said Biden looks forward to strengthening his working relationship with McCarthy.
Republicans are seeking to extract spending cuts, including on Social Security and Medicare benefits, in exchange for raising the borrowing cap. Biden has urged McCarthy to raise it without conditions.
“I will not let anyone use the full faith and credit of the United States as a bargaining chip,” Biden said at an event in Virginia on Jan. 26.
McCarthy said that while reductions in Social Security and Medicare should be “off the table,” all discretionary spending, including the US defense budget, should be reviewed for waste. The California Republican declined to speculate on the chances of a short-term extension of the federal debt ceiling, a stopgap that House Republican leaders are considering proposing.
“We’re not going to default,” he said.
The White House took aim at McCarthy’s comment on CBS that “strengthening” Medicare and Social Security is a Republican policy goal, though he said he wasn’t calling for lifting the US retirement age.
It’s “the latest giveaway” that House Republicans want to cut both programs, White House spokesperson Andrew Bates said in a statement.
Without congressional action, the Social Security trust funds will be insolvent by 2035 and the Medicare hospital fund will reach that point by 2028. Democrats have proposed raising the payroll tax cap for Social Security, a measure most Republicans have rejected.
While the US has never defaulted on its debt, a 2011 crisis rattled financial markets and led to the first-ever downgrade of the US sovereign debt rating by Standard & Poor’s. It ended when President Barack Obama agreed to about $2 trillion in spending cuts over a decade.
After a hard-fought battle to win the House speakership, McCarthy is under pressure from his caucus to win spending cuts. And two dozen Republican senators warned Biden last week they won’t support a debt-ceiling increase without “structural” changes to US spending.
The US can’t “continue just to spend more money and leverage the debt and the future of America,” McCarthy said Sunday. “We’ve got to get to a balanced budget.”
By law, the federal government’s debt cannot exceed $31.4 trillion, a cap that was reached on Jan. 19. The US Treasury has said it can hold out at least through early June by using special accounting maneuvers, but may default on payment obligations any time after that if the limit isn’t raised.
Treasury Secretary Janet Yellen said in a Bloomberg interview last week that failing to raise the ceiling would be “a calamity.”
--With assistance from Justin Sink, Erik Wasson and Josh Wingrove.
(Updates with White House preview of meeting in fourth paragraph. An earlier version corrected McCarthy’s title.)
©2023 Bloomberg L.P.
BNN Bloomberg Picks
What does a rate hold mean for bonds and equities?
Here's when experts think interest rates might come down
Bank of Canada rate pause: What mortgage holders should know
READ: The Bank of Canada's statement on its latest rate decision
UPDATED: A timeline of Bank of Canada rate hikes
Next six months 'will be quite a challenge': Desjardins CEO