President Joe Biden and House Speaker Kevin McCarthy are set to enter the next stage of the debt ceiling standoff, with a key vote and fresh Treasury data that could raise the urgency for a deal.
The Treasury Department, based on fresh tax revenue data, is set to release an updated estimate of the so-called "X date" when extraordinary measures are exhausted and the U.S. can no longer meet its obligations. The new estimate is expected this week or next.
Biden and McCarthy are locked in an impasse, risking a default that could accelerate the US economy's slide toward a recession in the second half of 2023. Biden is demanding more concrete proposals — and has rejected the spending cuts McCarthy and his fellow Republicans are seeking as a condition of lifting the borrowing cap.
McCarthy faces a big test this week with a planned vote on his $1.5 trillion debt-ceiling increase plan, which includes an estimated $4.5 trillion in spending cuts that Democrats oppose.
"Both sides have been, and continue to be, dug in. But reading the tea leaves, something's got to change," said Shai Akabas, Director of Economic Policy for the Bipartisan Policy Center, which closely tracks the X-date. "It is inching forward toward a negotiation and a conversation between the two sides, and that's ultimately where I think it needs to get to."
Estimates of the default deadline have varied widely because the date hinges on tax collections. The Treasury began employing extraordinary measures earlier this year and said it wouldn't run out of cash before June. The new data will sharply narrow the estimate, possibly warning of a potential default as soon as June — or signaling lawmakers and the White House have more breathing room.
Goldman Sachs Group Inc. has warned that anemic tax returns could result in an earlier deadline, rapidly raising the pressure on Biden and McCarthy. Economists Alec Phillips and Tim Krupa wrote in a note last week that the odds of an X-date in early June are now nearly as likely as their base case of late July.
"Nothing good will come from not talking about how to lift the debt ceiling — we have already delayed many months too long," said Maya MacGuineas, head of the Committee for a Responsible Federal Budget.
The White House position has oscillated between two principles: one demanding a budget from McCarthy while, separately, insisting that the debt limit is distinct from fiscal reform.
White House Press Secretary Karine Jean-Pierre had previously said that fresh Biden-McCarthy talks could happen "once Republicans present their plan."
Since then, the White House has dodged a precise answer on when Biden and McCarthy might meet, with Jean-Pierre at one point saying that it was contingent on the debt ceiling being lifted without conditions.
"They need to do that, and then we can go ahead and have a conversation about the budget," Jean-Pierre said Friday.
Biden last week urged McCarthy and fellow Republicans to "take default off the table, and let's have a real, serious, detailed conversation about how to grow the economy, lower costs, and reduce the deficit."
That goal post shift has left McCarthy with an opening, but it's unclear if he can capitalize.
His first test will come this week, with a planned vote on his proposal. McCarthy is still working to get Republicans on board. Holdouts — both conservative and moderate — have said he hasn't yet won them over, but it looks like they'll have to vote before the Treasury gives them a fresh timeline.
"We will hold a vote this week and we will pass it," McCarthy said on Fox News's "Sunday Morning Futures."
Democrats have long signaled they don't think McCarthy, given his slim margin of control in the House, will muster the votes.
Whatever the outcome, the next steps will be influenced by the new X-date. If tax revenues are enough to extend extraordinary measures to June 15 — when fresh tax installments are due — then they're also likely to bridge the gap to the next available tranche of extraordinary measures on June 30 and ultimately stave off any risk of default until later in the summer.
The Senate, meanwhile, continues to sit on the sidelines. Mitt Romney, a Utah Republican, has called on Biden to sit down for talks if McCarthy succeeds in moving the measure out of his chamber.
The proposal, if passed, "will put the ball back into the administration's court," Romney told Bloomberg Television last week. "The House became Republican. The White House has to recognize that, in order to get something done, both parties have to come to the table."
— With assistance from Alexandra Harris and Erik Wasson
