Political calculus complicates path to US debt ceiling deal

Joe Biden is facing one of the most politically treacherous moments of his presidency as he tries to defuse an escalating crisis over the debt ceiling in tense fiscal talks with Congress due to start this week.

The US president is scheduled to meet congressional leaders of both US political parties on Tuesday, with a looming deadline of early June for new legislation to lift the country’s $31.4tn borrowing limit or risk a default on US debt and other government payments.

But while public opinion polling suggests a slim majority of Americans are sticking with Biden in the stand-off with Republican House Speaker Kevin McCarthy, analysts warn his political edge is fragile: he continues to suffer from low approval ratings, particularly on the economy, even after last month’s launch of his 2024 re-election campaign.

A potential default, or even a brush with default, could shake the financial sector and deliver a blow to the broader economy.

“The longer it goes on, especially if you start talking about disrupting markets . . . people tend to blame the president more than they blame Congress,” said Doug Heye, a Republican strategist.

Biden has for months said he is unwilling to negotiate over the debt ceiling. He has called on Republicans to do what they did in previous years under former President Donald Trump: raise the borrowing limit without preconditions.

Republicans in Congress, meanwhile, have sought to tie raising the debt limit to steep spending cuts — something Democrats argue amounts to holding the US economy “hostage”.

If we have learned anything over the past five or six years, much less the past 10, it is that assuming something is not going to happen because it is unprecedented is foolish.

But Biden’s hand was weakened last month when Republicans passed a House bill that would raise the debt ceiling by $1.5tn or until March of next year, whichever comes first.

“Democrats can reject the premise that the debt ceiling should be negotiated, but in terms of optics, McCarthy comes across as reasonable and there’s no clear message to voters that one side is to be held responsible for a default ,” said Ben Koltun of Washington-based Beacon Policy Advisors.

The Republican bill cuts spending for government programmes, some of them popular, as well as a rollback of many Biden administration policies, including clean energy tax credits.

The legislation is destined to fail in the Democrat-controlled Senate. Even so, prominent business groups and some centrist members of Biden’s own party have called on the president to use it as a starting point for talks with McCarthy.

But any deal appears far away. Both Biden and McCarthy are practised in politics based on relationships and “always looking to prove naysayers wrong. If there was a deal to be made on the debt ceiling that would avoid blowback with their respective bases, they would both take it in a heartbeat,” Koltun said.

“But both were inherently distrusted by their respective party bases and have made pains to win them over to attain power,” Koltun added. “That has left them further apart on policy and process than if they were left to negotiate a deal on their own.”

Most Democrats still back Biden’s willingness to negotiate on budgetary matters and his refusal to attach conditions to the debt ceiling. Many are wary of Republicans’ motivations in any talks, fearing they are simply looking for ways to hurt the economy and blame Biden for it.

“The White House is correct is separating these discussions,” Bill Foster, an Illinois Democrat on the House Financial Services Committee, said. “It’s quite possible that we have to see a bad reaction in the markets before we see a sensible way out of this,” Foster said.

A Washington Post/ABC poll published last week found Americans were sharply divided over who to blame if the government defaults on its debt, with 39 per cent of respondents saying they would mainly blame Republicans in Congress and 36 per cent saying they would pin the blame on Biden. Sixteen per cent said they would blame both sides equally.

The same survey found that more than half — 58 per cent — of Americans sided with Biden’s stance that the debt ceiling and federal budget should be handled separately. But support for the president’s position was down 7 percentage points since February, when the question was previously asked. Alarmingly for the White House, a separate Washington Post/ABC poll released on Sunday found Trump leading Biden in a potential 2024 presidential rematch.

McCarthy faces his own challenging calculus. His political future is still tenuous after he allowed rule changes that made it easier for members of his own party to call a vote of no confidence in him, part of a deal that enabled his election as Speaker this year. That means rightwing members of his caucus wield an outsized influence and can reject any potential concessions to the Democrats.

“Sometimes I think they will just make a last-minute deal like they always do. But part of me thinks that in this Republican caucus, you have more Marjorie Taylor Greene types who were not there 10 years ago,” said J Miles Coleman of the non-partisan University of Virginia Center for Politics, referring to the rightwing congresswoman from Georgia.

In the last major debt ceiling stand-off in 2011, then vice-president Biden negotiated an eleventh-hour agreement with House Republicans. But the brinkmanship stoked market turmoil and led Standard & Poor’s to downgrade America’s triple-A credit rating.

While many in Washington are quietly optimistic for another last-minute deal, others warn that the polarised environment — and complicated political calculations in both parties — sets the stage for a fiscal showdown. On Sunday, Janet Yellen, the US Treasury secretary, warned there were no good alternatives to raising the debt ceiling.

“There is sort of this assumption here that we are not going to breach the debt limit because we never have before,” said Heye. “If we have learned anything over the past five or six years, much less the past 10, it is that assuming something is not going to happen because it is unprecedented is foolish.”