WASHINGTON — President Biden will meet with Speaker Kevin McCarthy at the White House on Wednesday afternoon for a discussion that carries high stakes: the need to raise the nation’s borrowing limit in order to avoid a financial crisis.
The meeting will be the first between the two leaders since Republicans assumed control of the House and conveyed the speaker title on Mr. McCarthy after a protracted fight.
Republicans have refused to raise the statutory debt limit unless Mr. Biden accepts deep cuts in federal spending. The president has said repeatedly that he expects Congress to raise the borrowing cap with no strings attached — and that he will not negotiate conditions for an increase.
Wednesday’s meeting will take place behind closed doors, but the hours leading up to it have highlighted the differences between the White House and the Republicans who now control the House. On Tuesday, Mr. Biden and Mr. McCarthy blamed each other for the impasse in raising the debt ceiling. The president called the speaker a “decent man” who had caved to extremists in his party to take power.
He made “commitments that are just absolutely off the wall for a speaker of the House to make,” Mr. Biden told reporters on Tuesday.
Understand the U.S. Debt Ceiling
What is the debt ceiling? The debt ceiling, also called the debt limit, is a cap on the total amount of money that the federal government is authorized to borrow via U.S. Treasury securities, such as bills and savings bonds, to fulfill its financial obligations. Because the United States runs budget deficits, it must borrow huge sums of money to pay its bills.
The limit has been hit. What now? America hit its technical debt limit on Jan. 19. The Treasury Department will now begin using “extraordinary measures” to continue paying the government’s obligations. These measures are essentially fiscal accounting tools that curb certain government investments so that the bills continue to be paid. Those options could be exhausted by June.
What is at stake? Once the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt and pay its bills. The government could wind up defaulting on its debt if it is unable to make required payments to its bondholders. Such a scenario would be economically devastating and could plunge the globe into a financial crisis.
Can the government do anything to forestall disaster? There is no official playbook for what Washington can do. But options do exist. The Treasury could try to prioritize payments, such as paying bondholders first. If the United States does default on its debt, which would rattle the markets, the Federal Reserve could theoretically step in to buy some of those Treasury bonds.
Why is there a limit on U.S. borrowing? According to the Constitution, Congress must authorize borrowing. The debt limit was instituted in the early 20th century so that the Treasury would not need to ask for permission each time it had to issue debt to pay bills.
Mr. McCarthy said Mr. Biden’s refusal to negotiate over raising the debt limit was “childish.”
“Why would you put the economics of America in jeopardy?” Mr. McCarthy asked reporters. “Why would you play political games? I’m not.”
The Treasury Department is employing a range of “extraordinary measures” to ensure that the United States can continue paying its bills, including interest payments to creditors. But at some point, the country will need to borrow more money to finance its obligations. The nation runs a budget deficit, which means it spends more than it earns, and it borrows huge sums of money to pay everything from military salaries to Social Security benefits.
Economists have widely warned of economic catastrophe if lawmakers do not raise the limit before the government loses the ability to pay all its bills at once, which could happen as soon as June. If the United States cannot borrow more money, it would not be able to make good on a range of financial obligations, including paying bondholders, plunging the nation into default.
Republicans are seeking to use the threat of those consequences to force Mr. Biden into a debate over taxes, spending, debt and the size of the federal government.
Both sides have sought to frame the discussion in favorable terms. Republicans have assailed Democrats for runaway spending, pointing to the stimulus package that Mr. Biden signed into law. They blame that spending for fueling rapid inflation last year, though price increases have since eased. Republican lawmakers say current federal debt levels are unsustainable and risk undercutting economic growth.
Mr. Biden has said frequently that he is willing to reduce deficits by raising taxes on high earners and corporations — moves Republicans oppose. The president and his aides have tried to push Republicans into detailing specific parts of the federal budget they want to cut, betting on a voter backlash to any proposals that touch popular programs like government health care, education and retirement spending.
“Any serious conversation about economic and fiscal policy needs to start with a clear understanding of the participants’ goals and proposals,” Brian Deese, the director of the National Economic Council, and Shalanda Young, the director of the Office of Management and Budget, wrote in a memo on Tuesday.
Mr. McCarthy is expected to gather his Republican colleagues in a room beneath the Capitol on Wednesday morning to discuss the negotiations and identify red lines for raising the debt ceiling.
“As you can imagine, there are different factions within our party that have different ideas, and we’re trying to come together to see what that might look like over the next couple of weeks and months,” said Representative Nancy Mace of South Carolina. “It’s a conversation that we need to have. You have to have a plan. And I don’t know what that looks like yet, but that’s part of our process, having these meetings, debates and discussions, and mapping that out.”
Those meetings — termed “listening sessions” by Mr. McCarthy — were a key part of his strategy in 2011, when he needed to persuade unyielding conservative lawmakers swept into power by the Tea Party movement to vote to raise the debt ceiling.
In his Capitol office, Mr. McCarthy, then the majority whip, gently nudged holdouts into naming concessions from the Obama administration that would be substantial enough to pave the way for them to vote for a debt limit deal.
The Republicans’ meeting on Wednesday also serves as an effort by Mr. McCarthy to pull his restive conference in closer before the White House negotiations. The move may insulate Mr. McCarthy from the distrust that plagued Speaker John A. Boehner, Republican of Ohio, during the 2011 debt ceiling crisis.
When Mr. Boehner negotiated with President Barack Obama, the discussions stoked concerns among hard-right lawmakers skeptical of the establishment-styled speaker that the two men would privately shake hands on a deal that betrayed conservative values. Mr. McCarthy is trying the opposite approach.
Luke Broadwater contributed reporting.