Debt ceiling standoff: Everything you need to know

As the U.S. veers toward a potentially devastating default on its debts, Republican leaders are set to meet with President Biden on Friday to discuss an end to the impasse.

Republicans said they would tie spending cuts to raising the debt ceiling during last year’s midterms, which saw the GOP take the House with a small majority. House Republicans passed a bill in April that would raise the debt ceiling but attached numerous other provisions that would freeze government spending and gut a number of Biden’s signature programs.

Because Republicans only narrowly control the House, Speaker Kevin McCarthy can afford only a few defections as he tries to keep the various factions in his caucus united behind his plan.

The GOP bill put work requirements for recipients of Medicaid and SNAP benefits (food stamps), slashed tax incentives meant to fight climate change, cut funding to the Internal Revenue Service and blocked Biden’s student debt relief plan. Biden has insisted that he won’t negotiate any spending cuts with GOP leaders until the debt limit is raised.

“I said I’d come back and talk,” Biden said Tuesday. “There’s one thing I’m ruling out is default. I’m not going to pass a budget that, in fact, caused massive cuts.”

The so-called “X-date” of when the government will run out of funds could come as early as June 1, per Treasury Secretary Janet Yellen.

Reuters reported Monday that Yellen was personally calling CEOs to warn them of the “catastrophic” impact of a default, which would likely trigger a devastating recession and kill millions of jobs.

Congress instituted the debt ceiling in 1917 to allow the Treasury Department to issue payments without going through Congress every time it needed to borrow money. It has to be raised periodically because the government spends more money than it takes in.

The debt ceiling is often raised with little drama. Under President Trump, for example, Republicans agreed to raise the ceiling three times without any demands — what’s known as a “clean raise.”

Biden — who was vice president during the debt ceiling showdowns of 2011 and 2013 — wants a clean raise. Republicans, meanwhile, are using the prospect of default as leverage to demand spending cuts.

A constitutional work-around

Following the Tuesday meeting, Biden was asked about the possibility of declaring the debt limit unconstitutional, thereby allowing the Treasury to ignore it. The theory is based on a clause in the 14th Amendment that reads, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

Biden said he was “considering” it but had concerns about the time it would take to be litigated in the courts. He referenced a New York Times column by constitutional law expert Laurence Tribe on Sunday in which he wrote that he had changed his mind and approved of the tactic as “the lesser of two evils when no other options exist.”

Yellen has been less supportive of the idea, saying when asked about the idea in an interview with ABC News on Sunday that there were “simply no good options” outside of congressional action, adding that it would be a “constitutional crisis.”

“I don’t want to consider emergency options,” she said. “What’s important is the members of Congress recognize what their responsibility is and avert what will surely be regardless of how it’s handled, what option is used to handle it, an economic and financial catastrophe.”

What Americans think

As the summer deadline has approached and coverage of America’s latest debt ceiling showdown has intensified, the public has become increasingly aware of the stakes — and increasingly polarized along the usual partisan lines.

A new Yahoo News/YouGov poll shows that more Americans now favor “raising the U.S. debt limit” (40%) than not raising it (35%) — a reversal from January, when more were opposed (40%) than in favor (28%). “Not sure” responses fell from 33% to 25% over the same period.

A growing understanding of the situation seems to have contributed to the change. Roughly a quarter of Americans (26%) still incorrectly believe, as they did in January, that the U.S. House regularly needs to raise the debt limit in order to “authorize new federal spending.” But more now realize that such votes “allow the federal government to pay for spending that Congress has already authorized” (48%, up from 42%), and fewer are uncertain (26%, down from 33%).

Yet even when Americans are given more context — by hearing that Congress “must” soon raise the limit “just as bipartisan majorities have routinely done for the last century” in order “to continue paying Social Security benefits and military salaries without sparking a possible recession” — less than half (44%) favor doing so.

That’s in large part because so few Republicans (38%) or independents (40%) are willing to say they favor raising the debt limit even when the consequences of “defaulting on America’s past debts” are spelled out.

Republicans in particular have become more entrenched since January. Back then, far more Americans favored a clean debt limit vote “without new policy demands” (45%) than one “attaching new policy demands” (24%).

But now Americans are more divided on this question at 37% and 34%, respectively. Why? Because support among Republicans for a bill with new policy demands has increased by 20 percentage points since January (up from 36% to 56%) while support for a clean vote has fallen by 11 points (down from 35% to 24%).

Democrats show little change, meanwhile, favoring a clean vote by a 59% to 22% margin, versus 61% to 19% in January.

Politically, however, the problem for Republicans is that none of their demands are popular. When respondents were shown a list of the various cuts to government agencies and the social safety net the GOP has proposed — and asked to “select all” that they would favor — not a single one polls higher than 36%.

What happens if the debt ceiling isn’t raised

If the debt ceiling isn’t raised or the White House doesn’t find a way around it to allow the federal government to fulfill its spending obligations, the country could default on payments for bondholders and millions of Americans who depend on various forms of government benefits.

According to estimates by the Bipartisan Policy Center, if the treasury runs out of money it could affect payments tied to Social Security benefits, Medicaid, salaries for federal employees and benefits for veterans and SNAP recipients.

In March testimony to Congress, Moody’s Analytics chief economist Mark Zandi estimated that a failure to raise the debt ceiling would cost 7 million jobs, raise the unemployment rate to 8% and wipe out a fifth of the stock market value, eliminating about $10 trillion in household wealth.

“That the U.S. government pays what it owes in a timely way is a bedrock of the U.S. economy and global financial system,” Zandi said, adding, “Lawmakers should put an end to the wrangling over the debt limit and increase it with no strings attached so future generations can enjoy the same benefits.”