Debt ceiling deadline is extended to June 5, Yellen says

WASHINGTON —  Treasury Secretary Janet L. Yellen said Friday that the projected debt ceiling deadline was extended to June 5, four days later than previously estimated.

But in a letter, she renewed her warning to Congress that failing to raise the borrowing limit would “cause severe hardship.”

Yellen’s latest letter to lawmakers on the “X-date” came as Congress broke for the long Memorial Day weekend. She said the Treasury Department had deployed an extraordinary measure not used since 2015 to get the nation’s finances to this point.

The X-date is when the government no longer has the financial cushion to pay all of its bills, having exhausted the measures it’s been using since January to stretch existing funds.

Earlier Friday, House Speaker Kevin McCarthy (R-Bakersfield) said Republican debt negotiators and the White House had hit “crunch” time and were straining to wrap up a deal with President Biden to curb federal spending and lift the nation’s borrowing limit before the deadline.

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May 26, 2023

The parties had hoped to strike a deal by this weekend to end weeks of talks. If government money starts running out a week from Monday, it could send the U.S. into a catastrophic default with global repercussions.

Anxious retirees, social service groups and others were making default contingency plans as lawmakers left town for the holiday weekend. The next batch of Social Security checks are due to go out next week.

“The world is watching,” said International Monetary Fund Managing Director Kristalina Georgieva after meeting with Yellen on Friday. “Let’s remember we are now in the 12th hour.”

The Democratic president and the Republican speaker were narrowing differences, trying to lock in details on a two-year deal to restrain spending and lift the borrowing limit until after the presidential election.

Any deal would need to be a compromise, with support from Democrats and Republicans to pass the divided Congress.

“We know it’s a crunch,” McCarthy said as he arrived at the emptied-out Capitol, acknowledging more progress needed to be made.

In remarks at the White House honoring the Louisiana State University champion women’s basketball team, Biden gave a shout-out to one of this top negotiators, Office of Management and Budget Director Shalanda Young, saying she was “putting together a deal, hopefully”

While the contours of the deal have been taking shape to cut spending for 2024 and impose a 1% cap on spending growth for 2025, the two sides remain stuck on various provisions. The debt ceiling, now at $31 trillion, would be lifted for two years to pay the nation’s incurred bills.

A person familiar with the talks said the two sides were “dug in” on whether to agree to GOP demands to impose stiffer work requirements on people who receive food stamps and cash and healthcare assistance.

House Democrats say such requirements for food and healthcare are a nonstarter.

Asked whether Republicans would relent on work requirements, Rep. Garret Graves of Louisiana, a top GOP negotiator, fumed: “Hell no; not a chance.”

House Republicans have pushed the issue to the brink, showing risky bravado in leaving town for the holiday. Lawmakers are not expected back at work until Tuesday.

Biden will also be away. He was to depart Friday for the presidential retreat at Camp David, Md., and to head to his home in Wilmington, Del., on Sunday. The Senate is also on recess until after Memorial Day.

“Each time there is forward progress, the issues that remain become more difficult and more challenging,” said one negotiator, Rep. Patrick McHenry (R-N.C.), at midday Friday.

Weeks of negotiations between Republicans and the White House have failed to produce a deal. The Biden administration initially resisted negotiating in response to GOP threats on the debt limit, arguing that the country’s full faith and credit should not be used as leverage to extract partisan priorities.

“We have to spend less than we spent last year. That is the starting point,” said McCarthy.

One idea is to set the topline budget numbers but then add a “snap-back” provision to enforce cuts if Congress is unable in its annual appropriations process to meet the new goals.

On work requirements for aid recipients, the White House is resisting measures that could drive more people into poverty or take their healthcare, said the person familiar with the talks, who was granted anonymity to describe closed-door talks.

On a GOP demand to rescind money for the Internal Revenue Service, it’s not clear whether the sides will compromise on letting the funds be pushed into other programs, the person said.

In one potential development, Republicans may be easing their demand to boost defense spending beyond what Biden had proposed, according to another person familiar with the talks.

The teams are also eyeing a proposal to boost energy transmission line development to facilitate the buildout of an interregional power grid.

McCarthy is feeling pressure from the House’s right flank not to give in to any deal, even if it means blowing past the deadline.

“Let’s hold the line,” said Rep. Chip Roy (R-Texas), a Freedom Caucus member.

McCarthy said former President Trump, who is again running for office, told him: “Make sure you get a good agreement.”

Democrats are also pressing Biden. The top three House Democratic leaders, led by Rep. Hakeem Jeffries of New York, spoke late Thursday with the White House.

Even if negotiators strike a deal soon, McCarthy has promised to abide by the rule to post any bill for 72 hours before a vote. The Democratic-led Senate has vowed to move quickly to send the package to Biden’s desk.

Meanwhile, Fitch Ratings agency placed the nation’s AAA credit on “ratings watch negative,” warning of a possible downgrade.

The White House has continued to argue that deficits can be reduced by ending tax breaks for the wealthy and some corporations, but McCarthy has said tax hikes are off the table.

While Biden has ruled out, for now, invoking the 14th Amendment to raise the debt limit on his own, House Democrats announced they had all signed on to a process that would force a debt ceiling vote. But they need five Republicans to set the plan forward.

Some $30 billion in unspent COVID-19 funds will almost certainly be clawed back now that the pandemic emergency has officially been lifted.

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Associated Press writers Mary Clare Jalonick, Stephen Groves, Fatima Hussein, Farnoush Amiri and videojournalist Rick Gentilo contributed to this report.