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May 24, 2023
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THE TOP
Happy Wednesday morning.
There are eight days until the U.S. government potentially defaults on its $31 trillion-plus debt.
The status of negotiations over the debt limit is extremely fluid. Members of the House GOP’s negotiating team — Reps. Patrick McHenry (R-N.C.) and Garret Graves (R-La.) — have told allies on Capitol Hill that talks have seesawed between positive and on the brink of a breakdown.
“There is a significant gap between where we are and where they are on finances… and unless and until the White House recognizes that this is a spending problem, we’re going to continue to have a significant gap,” Graves said Tuesday.
In fact, Speaker Kevin McCarthy and his negotiators repeatedly have warned the White House that a deal won’t be possible unless they agree to cut spending next year.
The White House, for its part, has tried to secure some Democratic wins without success. Administration officials looked to close tax loopholes and broaden prescription drug price negotiations for Medicare, but they were rebuffed by Republicans.
White House officials also offered a spending freeze at FY2023 levels. McCarthy said that’s not a compromise he’s interested in.
McHenry, Graves and the Republican leadership have criticized the White House for not empowering negotiators Steve Ricchetti, the counselor to the president, and Office of Management and Budget Director Shalanda Young to cut a deal. Here’s McHenry:
Outside of the spending dispute, the other elements of any deal are far from resolved. The White House and House Republicans aren’t close to an agreement on tightening work requirements for social-welfare programs. This issue has become a critical one for many Democrats, and the White House walked back from earlier comments by President Joe Biden where he seemed open to such an approach.
“To be clear, the White House and the president have been the hard drivers on work requirements,” McHenry said. “And his team has been very difficult on work requirements.”
Part of any legislative negotiation is trying to get the upper hand — and exploiting it once you do. McHenry, for one, has been especially aggressive in trying to do that.
The North Carolina Republican told Ricchetti and Young that the administration made an “error in judgment” by not negotiating earlier with McCarthy.
“Your strategy didn’t work,” McHenry declared to the pair, according to sources in the room.
Furthermore, House Republicans have been surprisingly successful at setting the overall public narrative for the negotiations as the endgame unfolds. McCarthy is speaking to reporters a half-dozen times per day. Graves and McHenry are accessible. The White House negotiators haven’t spoken once to reporters outside the daily briefing.
There’s also growing frustration for Hill Democratic leadership that the White House isn’t hammering Republicans consistently enough. House Minority Leader Hakeem Jeffries is really the only top Democrat trying to make the party’s case publicly. And while he’s been repeatedly and frequently gaggling with reporters to forcefully push back on the GOP message, he’s mostly outnumbered by a chorus of Republican voices.
A new CNN poll released Tuesday showed that a stunning 60% of respondents thought Congress should cut spending while increasing the debt limit. Just 24% said Congress should hike the limit no matter what.
The White House, for its part, wants to see Jeffries and other Hill Democrats go after McCarthy while giving Biden room to negotiate a deal. Officials pointed to what Biden was able to accomplish with Republican support during the last Congress as proof this approach works.
“The president’s goal is to reach a bipartisan agreement that protects the economic progress we’ve made,” a White House official said. “He is focused on doing what will bring us closer to that goal and protect hardworking Americans’ paychecks and retirement accounts, not scoring political points.”
In addition, Democrats pointed to an NPR/PBS NewsHour/Marist poll that showed a slight majority of the American public wants to raise the debt limit without implementing spending cuts.
Yet the Biden administration’s apparent failure to secure any clear Democratic wins as part of the ongoing talks — and House GOP negotiators’ unwillingness to budge on anything — is causing internal problems too. Jeffries suggested Tuesday night that without Democratic priorities included in any final package, nobody should expect his rank-and-file members to support it.
“Democratic votes in the House are going to be necessary to avoid a default,” Jeffries noted.
And Republicans, Jeffries added, are taking the position that raising the debt limit is somehow a concession to Democrats, not part of responsible governance.
Jeffries and Democratic leaders continue to make the case that a spending freeze was a reasonable position that, “everyone in Congress [should] consider” because it’s less than Biden’s budget request but isn’t as “draconian” as the proposed GOP spending cuts.
But, with no deal imminent, McCarthy has signaled that he’d likely send lawmakers home Thursday evening, anticipating that negotiations will drag into next week.
“If I was looking at a crystal ball right now, I would encourage members to go home on Thursday when we finish up but also tell them you’re going to be back,” Graves said.
News: Treasury Secretary Janet Yellen is scheduled to appear in front of the House Financial Services Committee June 7, according to multiple sources familiar with the matter. This will, theoretically, be shortly after Congress lifts the debt limit.
Furthermore, Federal Reserve Chair Jay Powell is slated to testify in front of Financial Services at the end of June. He met privately with some moderate House Democrats on Tuesday but didn’t discuss the debt-limit negotiations.
— Jake Sherman, Andrew Desiderio, Heather Caygle, John Bresnahan and Brendan Pedersen
Don’t forget: Join Punchbowl News Founder Jake Sherman on Tuesday, June 13 at 9 a.m. ET for a conversation on digital equity and opportunity with Rep. Steny Hoyer (D-Md.). RSVP now to join us in-person or on the livestream.
Mounting default fears collide with a shaky economy
There’s never a good time to default on America’s sovereign debt or come close to it. But now might be a particularly bad one. The U.S. economy is in a weird, precarious place.
After several years of solid growth, the U.S. economy is just beginning to slow down. Inflation remains too high. The Federal Reserve has been hiking interest rates hard and fast for over a year, weighing on banks, consumer credit, new housing construction and consumers.
Then there’s commercial real estate — a financial sore spot since the pandemic that’s giving Wall Street increasingly heavy heartburn as workers and employers reevaluate coming into the office every day. Small and mid-sized regional banks hold a significant chunk of the CRE market, and they’re already under pressure.
You’ve probably heard a lot by now about the economic impacts that followed 2011’s near default. But the U.S. economy wasn’t exactly great during that debt-limit fight as we trudged out of a financial crisis and the Great Recession.
Twelve years later, our economy is, by many metrics, doing pretty well. Washington is still holding out for a “soft landing.” Consumer spending, the heart of the American economy, remains strong. The unemployment rate is basically as low as it’s ever been.
Put simply, we’ve got more to lose now. There are other headwinds en route. Some lawmakers are increasingly concerned about the “perfect storm” potentially brewing underneath the debt-limit fight.
Rep. Pramila Jayapal (D-Wash.) said it’s “a particularly precarious time” for the economy. “We were able to get a lot of good things done in the last few years, but families are still struggling,” she said.
Other Democrats are worried that the Republican attitude toward default is bordering on fiscal nihilism.
“I’m really nervous about it,” Rep. Sean Casten (D-Ill.) told us, “not the least because the people who have the ability to make this go away believe that they can tank the economy, hurt [President] Joe Biden, and that it won’t blow back on them.”
“I think it’s impossible to look at what the Republicans are doing right now and not conclude that they see that perfect storm and say, ‘this is awesome, because we can blow up the economy,”’ Casten added. “And they believe they will be held blameless for it.”
Republicans, meanwhile, continue to draw a direct line between federal spending and inflation. It’s really that simple. Rep. Dusty Johnson (R-S.D.) told us that economic uncertainty “makes it clear why these negotiations are so important.”
“What triggered the bank failures?” Johnson asked. “It was rapidly increasing interest rates. What caused hyperinflation? … It was too much government spending during Covid.”
Rep. French Hill (R-Ark.) echoed that sentiment, pointing to inflation and the “avalanche of federal spending” he said caused it. Hill also argued that wouldn’t change in a recessionary environment.
Financial markets are just beginning to react to debt limit dysfunction. We don’t know what changes credit agencies like Standard & Poor’s or Moody’s may consider to ratings of U.S. debt.
All we know is that the world is watching Congress, and there’s a lot for Americans to lose.
— Brendan Pedersen
HOUSE DEMOCRATS
Dems fret over debt-limit mess
Things aren’t looking good for congressional Democrats in the debt-limit talks. On two fronts — messaging and a last-ditch effort to move a clean debt-limit hike — Democrats fear they’re falling short.
House Democrats focused their weekly caucus meeting on efforts to convince Republicans to sign onto a debt-limit discharge petition. At this point, 211 out a possible 213 Democrats have done so.
Yet on Tuesday, we found absolutely no appetite for this among the most vulnerable GOP members for any such move.
“That right now is not on the table,” Rep. Mike Lawler (R-N.Y.) told us.
Rep. Anthony D’Esposito (R-N.Y.) wasn’t interested either. “I think that we’re in a good place. Negotiations are there,” D’Esposito insisted. “Speaker McCarthy and his team are doing what they need to do and we’ll come to a consensus.”
Rep. Mike Garcia (R-Calif.) told us a discharge position was “not a realistic” option.
“No, I’m staying with the speaker,” Rep. John Duarte (R-Calif.) said when asked if he’d back a discharge effort.
Part of the dynamic here is that the vulnerable moderate Republicans are Speaker Kevin McCarthy’s fiercest backers. So these members — whom Democrats say they are targeting to sign onto a discharge petition — are among the least likely to buck the speaker.
On messaging: As McCarthy floods the zone with public comments about the state of debt-limit talks, some House Democrats are fretting that their party isn’t doing enough to push back.
While talks between the White House and House Republicans continue with little tangible progress, there’s growing angst within the House Democratic Caucus that they’re losing the messaging battle.
“They need to speak more plainly,” Rep. Eric Swalwell (D-Calif.) said of the White House. “When you start saying debt ceiling and discharge petition, you just lose people. This is about paying your tab and we pay our tab. And if we don’t pay our tab, we’re not gonna be welcome at the restaurant next time.”
Rep. Mark Pocan (D-Wis.) told us there’s “frustration” that “we’re not calling [Republicans] out for not actually negotiating.” A constant Republican refrain is that President Joe Biden refused to sit down with McCarthy for three months. But Pocan says that’s not the case.
“The president’s come in and is offering different proposals,” Pocan said. “Republicans keep coming and saying the same thing. That’s not negotiating, it’s sitting at a table.”
Rep. Rashida Tlaib (D-Mich.), a liberal firebrand and member of the Squad, said she expects to see more messaging from Biden on getting a deal done. However, she refuted the idea that messaging is as important as negotiating behind closed doors.
“I don’t think people want press conferences and all this stuff happening,” Tlaib said.
Part of the issue here is that Biden isn’t wired to be a partisan attack dog. And with Senate Majority Leader Chuck Schumer — who’s always happy to play that role — boxed out of negotiations and out of town for the recess, House Minority Leader Hakeem Jeffries is left with the unenviable task of being the main Democrat pushing back, as we noted earlier.
Jeffries is getting help from House Minority Whip Katherine Clark and House Democratic Caucus Chair Pete Aguilar.
Jeffries, for his part, gaggled on the House steps Tuesday evening and slammed the GOP’s negotiating tactics as “unreasonable” and “un-American.” When we asked him whether Democrats are doing a good enough job on the messaging front, here’s what he said:
But with top Republicans talking anywhere and everywhere while Biden and his negotiators stay quiet, the messaging war is quite lopsided.
— Max Cohen, Mica Soellner and Andrew Desiderio
PRESENTED BY INSTAGRAM
AFGHANISTAN OVERSIGHT
McCaul: Kabul ‘dissenters were absolutely right’
After a months-long battle with the State Department, House Foreign Affairs Committee Chair Michael McCaul (R-Texas) finally viewed two key Afghanistan withdrawal documents on Tuesday.
McCaul, along with Ranking Member Greg Meeks (D-N.Y.), traveled to Foggy Bottom in order to gain access to a 2021 dissent cable written by Kabul embassy officials criticizing the U.S. withdrawal from Afghanistan. State also let the two committee leaders view the department’s official response to the dissent cable.
“The dissenters were absolutely right about everything they said,” McCaul told us in an interview. “And it was a warning to the administration about what was going to happen and what they needed to do. [The dissenters] deserve a medal.”
“Unfortunately, the administration didn’t heed all their warnings and we got what we got,” McCaul added.
The Texas Republican subpoenaed State for access to the documents in late March. McCaul was met with continued opposition from the Biden administration. But after pushing back the subpoena deadline multiple times and threatening to hold Secretary of State Antony Blinken in contempt of Congress, State relented last week.
McCaul is still pushing for all members of his panel to be able to view the documents in person at the State Department. And while the markup of the Blinken contempt resolution has been postponed, it hasn’t been canceled altogether.
Meeks, for his past, said there were no revelations disclosed in the dissent cable, the existence of which has been public knowledge for years.
“There’s nothing really that we didn’t know,” Meeks said. “There was a dissent cable, there was a reply and action that was being done.”
Meeks added: “Hopefully that puts to rest this whole thing about having a subpoena and the president is hiding something or whatever it is. That should be put to rest.”
Another wrinkle here: One Foreign Affairs Democrat who’s also an Afghanistan War veteran — Rep. Jason Crow (D-Colo.) — appears to be satisfied with how State has handled the situation.
“While I haven’t seen the dissent cable channel, my understanding is there are no substantive differences from the brief previously provided to the committee,” Crow said.
— Max Cohen
PRESENTED BY INSTAGRAM
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Presented by AARP
48 million family caregivers give everything to help older loved ones. They give time and energy, too often giving up their jobs and paying over $7,000 a year out of pocket. With a new Congress, it’s time to act on the Credit for Caring tax credit.