WASHINGTON — There is growing concern that President Joe Biden will be left defending a faltering economy if the government fails to avoid a default on the nation’s debt, according to sources inside the White House and on Capitol Hill.
The White House has maintained that the responsibility to lift the debt ceiling falls on Congress, insisting that Biden will accept a proposal to raise the nation’s borrowing limit only with no strings attached and dismissing Republican’s demands for concessions as “hostage-taking.”
But the standoff between the White House and congressional Republicans appeared to quickly shift this week as Biden invited House Speaker Kevin McCarthy, R-Calif., to the White House to discuss the country’s fiscal policy next week alongside the other top Republican and Democratic congressional leaders.
Failing to raise the borrowing limit to address the nation’s $31.4 trillion debt could trigger panic on Wall Street and prove politically disastrous for Biden, rattling the public’s confidence in the economy and his leadership as he heads into his re-election campaign.
The worst-case scenario would be “a catastrophic political consequence that almost dictates the outcome of the 2024 election,” said a senior Democratic aide, who requested anonymity to speak frankly about internal discussions.
Americans won’t be weighing the nuance of “who is at fault or what a default would mean, but what they will understand is who’s in charge,” the source said, adding that Americans “will blame one person.”
Even the threat of default could result in devastating consequences for Biden, who would be left holding the pieces as his re-election campaign gets underway — a risk that discussions with about 10 sources inside the White House and the Capitol revealed is front of mind for some aides, but also being dismissed by others who insist that the real political blame will land on Republicans.
In 2011, as negotiations with House Republicans over the debt faltered, the U.S. suffered its first credit downgrade, shaking markets and consumer confidence and cratering the stock market.
“What he can’t have happen is the economy collapses,” a Democratic lawmaker, who requested anonymity to speak frankly, said of Biden.
Placing the blame
One White House official pushed back on the idea that Biden would take the blame amid a standoff.
“If you look at 2011 and 2013 polling, Republicans were blamed and it’s clear who is threatening this,” a White House official said. “The president is trying to provide an immediate and quick solution and has said repeatedly [said a] default has to be avoided. If you look at what Republicans have said, they haven’t always said that so it becomes clear who is engaging in this.”
A Democratic strategist argued that Americans had heaped responsibility on Republicans during past fights and suggested Donald Trump’s decision to wade into the dispute could hamper the former president’s in his 2024 presidential bid.
“If you’re looking toward 2024, remember the 2011 and 2013 polling and remember this,” the strategist said, pointing to Trump in January urging Republicans to use the debt limit as leverage to draw concessions from Democrats.
Republicans won control of the Senate in the 2014 midterm elections, even after polling showed the public blamed the GOP for the 2013 government shutdown.
A Democratic congressional source indicated Biden could use the monthly unemployment report scheduled for Friday to make his case about the debt ceiling by using the presidential bully pulpit. Biden’s public calendar for the week runs only through Wednesday, however, the president regularly delivers remarks after the job numbers become public, and the source said the White House has indicated he will seek to highlight his successes and warn that a default threatens an immediate, steep decline in job growth that wouldn’t quickly revert.
The White House has insisted that Biden isn’t changing his position and that the invitation to McCarthy isn’t a shift on the debt ceiling but a willingness to discuss other fiscal issues on a parallel track.
There are few expectations that the meeting next week will produce any tangible progress — upping the risk that already nervous markets will respond negatively should the leaders emerge with a plan.
But multiple White House aides and Democrats on Capitol Hill — who requested anonymity to offer frank assessments — were astonished McCarthy was able to pass a Republican debt limit measure last week, sources and lawmakers say, and they were surprised again Monday when Treasury Secretary Janet Yellen alerted lawmakers that the U.S. could reach the debt limit as early as June 1, shrinking the time frame for Congress to avert a default.
Within hours of Yellen’s warning, Biden had invited all four congressional leaders to a meeting at the White House on May 9, calling McCarthy, who is in Israel on official travel.
Biden is set to meet McCarthy, House Minority Leader Hakeem Jeffries, D-N.Y., and Senate leaders Chuck Schumer, D-N.Y., and Mitch McConnell, R-Ky.
Changed landscape
The White House argument for months has been that House Republicans need to put forth their own plan and that Biden would consent to negotiate over the budget or spending but not the debt ceiling. The bill passed by House Republicans outlines conservative priorities and stands little chance in the Senate, but it has upended the White House messaging that Republicans are the holdup.
White House officials had high hopes that McCarthy’s debt bill would go nowhere and were “caught off guard” when he delivered the votes, a senior administration official said.
McCarthy’s bill, which would extend the borrowing limit by $1.5 trillion or through March 31 — whichever comes first — is packed with trillions of dollars in federal spending cuts, some of which take aim at Biden’s signature climate legislation. It passed by a vote of 217 to 215 after appeals to conservative members in the final stretch rallied a divided Republican caucus to Democrats’ dismay.
“I don’t think anyone thought McCarthy would get anything passed in the House,” the Democratic lawmaker said.
“I don’t think anyone thought McCarthy would get anything passed in the House.”
A Democratic lawmaker said
A person familiar with the discussions echoed the view in the White House and among Democrats on Capitol Hill that “no one thought the McCarthy bill would pass.”
The changed landscape altered the administration’s “no-talks” stance about dealing with McCarthy, the senior official said, whom Biden has not met with since early February. “You have to at least negotiate about negotiations,” this person said.
The White House denied that officials had not accounted for McCarthy’s success.
“We were not surprised and planned for either outcome, as demonstrated by the fast action we’ve taken every day since to hold House Republicans accountable for their vote,” said White House spokesperson Andrew Bates.
Bates, in a statement to NBC News, said Biden is defending his agenda against Republican cuts and “giveaways,” and that the president’s position is consistent with past standoffs over the debt limit.
“Nearly every House Republican just went on record to their constituents saying they will single-handedly kill jobs, businesses, and retirement accounts unless they are able to defund law enforcement, make unprecedented cuts that break the nation’s promises to veterans, and pass tax giveaways to the rich,” Bates said.
The White House has driven the argument that Republicans face more risk.
“The biggest threat to the economy is a self-inflicted default threatened by House Republicans, which would kill millions of jobs, raise costs for businesses and families, and increase the risk of a recession,” White House spokesperson Michael Kikukawa said.
“The biggest threat to the economy is a self-inflicted default threatened by House Republicans, which would kill millions of jobs, raise costs for businesses and families, and increase the risk of a recession.”
White House spokesperson Michael Kikukawa
But with no clear indication of how the ordeal can be resolved, the Biden administration is refusing to rule out options like invoking the 14th Amendment, testing an obscure constitutional provision that a Treasury official confirmed Tuesday was under discussion. The legal theory argues the government can raise the debt ceiling unilaterally by deeming the debt limit statute unconstitutional. The Obama administration backed away from the idea in 2013, and there are questions about whether it is legally viable.
Another senior administration official urged caution amid reports that the White House was seriously entertaining the theory. A White House official said that the solution rests with lawmakers, and that the administration will continue to make this case.
“This is on Congress to act and we’re not going to let Congress off the hook,” the official said.
The stakes for Biden are rising. A default would be a gift to Republicans who are eager to push him into a corner as concerns escalate over what could happen if the government runs out of money to pay its bills, weighing him down ahead of a bitter presidential race.
“Republicans want to shift the narrative to Biden’s economy,” the Democratic aide said, highlighting the political peril for Biden.
While Biden has emphasized that it is up to Congress to raise the debt limit, a developing crisis could call into question his pitch to voters that he is best equipped to steer the nation through a crisis and lend fodder to Republicans who are looking to turn the consequences of default back on him.
“What do you run on in 2024 if you default on America’s debt?” the source asked.
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