Don’t expect a breakthrough when Biden and McCarthy meet on the debt ceiling this week

With a federal default potentially just weeks away, President Biden is finally set to meet with Congressional leaders on Tuesday to discuss the debt ceiling.

At the moment, all signs point to a continued stalemate, with no obvious path to resolution. It may take some kind of outside shock — most likely, markets starting to panic — to prod things forward.

House Republicans, led by Speaker Kevin McCarthy, are still insisting that they will not vote to lift the government’s borrowing limit without significant budget cuts. They got backup over the weekend from 43 of their Senate GOP colleagues, who signed a letter saying that they too would oppose “any bill that raises the debt ceiling without substantive spending and budget reforms.”

Democrats also appear dug in for the time being. Party leaders have said they are willing to discuss potential savings, but want Republicans to take the threat of default off the table first. “Negotiations should not take place with a gun really to the head of the American people,” Treasury Secretary Janet Yellens told ABC’s George Stephanopolous on Sunday.

Asked about Tuesday’s meeting, a White House spokesman told Semafor that Biden would “stress that Congress must take action to avoid default without conditions” and “discuss how to initiate a separate process to address the budget and FY2024 appropriations.”

One way to tell nobody is expecting a quick breakthrough? The White House has already said Biden is planning a trip to New York on Wednesday — where several of the most vulnerable Republican House members reside — where he’s planning a speech trashing the debt ceiling bill Republicans recently passed through the house.

An odd thing about this high-risk standoff is that, if you read between the lines, it isn’t hard to imagine what a spending deal between the sides might look like.

The debt ceiling bill House Republicans passed last month was a conservative wish-list meant to appease hardline conservatives in their conference that would make deep budget cuts and repeal most of Biden’s signature climate legislation. But it seems clear already that many GOP members would accept far less: One moderate lawmaker told Axios this weekend that the House bill was a “fairy tale.” A Freedom Caucus Member acknowledged that, “you might not get 100% of what the House passed, but we put Kevin in a very good negotiating position.”

Meanwhile, the reporters at Punchbowl — who are known to be especially close with McCarthy’s office — recently claimed that the Speaker “isn’t looking for some global agreement to reshape U.S. society. He wants a budget caps deal, some spending cuts and [energy] permitting reform.”

Democrats aren’t even entertaining the idea of negotiations yet. But I was struck by comments from one former administration official, who told me they thought Biden’s team might swallow a compromise if it only involved cuts to discretionary spending, which gets negotiated each year as part of the regular budget process. Among other things, that would take Biden’s climate programs off the chopping block.

“I think the White House is going to want to maintain credibility that Republicans didn’t get anything beyond what they would have achieved in the budget negotiation that would have happened anyway,” the former official said.

Maybe rescind some unused COVID funds as well, throw in a big prize for Republicans like permitting reform that already has strong bipartisan interest, and a potential bargain starts to look sharper in focus.

The conflict isn’t primarily about the specifics of a deal, however. Democrats don’t want to reward — and thus, legitimize — what they see as blackmail tactics, full stop. That’s what makes it difficult to imagine a compromise that would allow each side to claim victory.

A win-win isn’t impossible. One idea that’s generated some chatter among journalists involves suspending the debt ceiling until the end of September, so it coincides with the budget deadline. In theory, that might allow Republicans to say they’re negotiating over the borrowing limit and Democrats to say they’re negotiating over the budget. So far though, nobody with any actual power in Washington seems to be talking about that route (the White House declined to comment when I asked about it).

And there are obvious ways this could all escalate. On Friday, the president declined to shut the door on the idea of declaring the debt ceiling unconstitutional under the 14th amendment, saying only: “I’ve not gotten there, yet.” If his team does think that’s a viable path, then the odds of this fight going beyond the brink get even higher.

Mark Zandi, the chief economist at Moody’s Analytics, recently testified before Congress about the economic devastation that would follow a default. But he told me he still only attached “a 10% probability to a scenario in which the debt limit is breached” — uncomfortably high, but still optimistic. “We’ve had debt limit battles of varying intensity over the past century, and lawmakers have always come through,” he said.

Yellen appeared to tamp down the possibility of ignoring the debt ceiling Sunday on ABC, saying that “there is no action” that Biden could take to avoid financial catastrophe if Congress didn’t raise the debt ceiling. But she declined to explicitly rule out invoking the 14th amendment when pressed.