White House Threatens Veto of Republicans’ Debt Limit Budget Plan

The standoff over the federal debt ceiling heated up Tuesday, with the White House threatening to veto the Republicans’ proposed budget bill.

In a letter sent to the House of Representatives, President Joe Biden’s Office of Management and Budget (OMB) said the president would reject the Republicans’ plan to lift the debt ceiling, which House Speaker Kevin McCarthy is working to pass this week. 

McCarthy’s “Limit, Save, Grow Act,” introduced last week, would raise the debt ceiling—averting a looming financial crisis—while gutting several of Biden’s policies including student loan forgiveness and green energy tax credits. 

“The bill stands in stark contrast to the President’s vision for the economy,” the OMB wrote. “Therefore, if the President were presented with the Limit, Save, Grow Act of 2023, he would veto it.”

The two sides are clashing over the limit that Congress imposes on how much the government is allowed to borrow to pay the obligations that Congress has previously authorized—all of the federal government’s expenses, including things like military salaries and Social Security payments. 

The Treasury went over the limit in January, and since then has continued to pay bills with accounting measures designed to postpone default. Those measures are set to run out this summer. 

Republicans, who narrowly control the House of Representatives, have demanded spending cuts in exchange for lifting the ceiling, while Democrats have insisted the limit be raised unconditionally.  

The parties are quickly running out of time to reach an agreement. The “X-date” when the government can no longer pay all of its bills will likely arrive in mid-August, but there’s an outside chance it could come as soon as early as June, depending on how much the government collects in taxes, according to an analysis by economists at Wells Fargo Securities released Tuesday. 

The sides are still far apart on their ideas for the budget and traded barbs on Tuesday. House Speaker Kevin McCarthy urged Biden to “finally come to the table and negotiate a responsible debt limit increase to avoid the first default in our history,” in a Twitter post Tuesday morning. 

The White House called McCarthy’s tactics “hostage-taking” in the OMB letter.

Treasury Secretary Janet Yellen repeated the administration’s demands that Congress raise the debt ceiling unconditionally in a speech at the Sacramento Metropolitan Chamber of Commerce Tuesday.

“In my assessment–and that of economists across the board–a default on our debt would produce an economic and financial catastrophe,” she said, according to prepared remarks released by the department. “Many residents in Sacramento could ultimately lose their jobs. Household payments on mortgages, auto loans, and credit cards would rise. And American businesses would see credit markets deteriorate.”

Taxing the Rich vs. Cutting Spending

Democratic and Republican leaders have both proposed budget bills that would reduce the federal deficit–they differ on how to get there.

President Biden’s spending plan would reduce the deficit by $3 trillion over the next 10 years, mainly by raising taxes on the wealthy. Republican House Speaker Kevin McCarthy’s proposed budget would achieve $4.5 trillion in savings in the same timespan by killing BIden's student loan forgiveness plans and by cutting social programs, and would raise the debt limit until next March at latest.

McCarthy’s bill would prohibit Biden’s plan to forgive up to $20,000 of federally-held student loans per borrower from going into effect. It would also nix his proposal for a new income-driven repayment plan that would reduce monthly payments for future borrowers.

Discretionary spending—that is, spending outside of mandatory Social Security and Medicare expenses—would be capped at 2022 levels and growth would be limited to 1% per year. Assuming military spending went untouched as Republicans have proposed, that would equal a 22% cut across all other federal programs, according to White House estimates. 

Other budget-saving measures include introducing or expanding work requirements for food and health care assistance programs SNAP; TANF; and Medicaid; and rolling back the green energy tax credits authorized by the Inflation Reduction Act of 2021. 

Also on the chopping block: Biden’s expansion of the IRS. The latter measure may actually increase the budget deficit by leaving room for tax cheating, according to an analysis by the nonpartisan Center for a Responsible Federal Budget think tank.