President Joe Biden will meet with House Speaker Kevin McCarthy and other congressional leaders Tuesday in what will likely be the first of many negotiations aimed at averting a default by the federal government.
The meeting could be contentious as the country comes closer to running out of money to pay its bills. The White House says there should be no conditions on raising the debt ceiling in order for the country to maintain its full faith and credit. House Republicans say spending cuts need to be part of the discussion if the debt ceiling is to be raised.
Biden announced a meeting with congressional leaders following the House passage of a bill that paired a debt-ceiling hike with sweeping spending cuts.
Senate Majority Leader Chuck Schumer, D-New York, said he would not schedule that bill for a vote on the floor of the Senate.
Biden has said he will not negotiate with McCarthy on any spending cuts as long as they are linked to increasing the debt ceiling.
“President Biden will never force middle class and working families to bear the burden of tax cuts for the wealthiest, as this bill does,” White House press secretary Karine Jean-Pierre said in a statement, slamming House Republicans for voting to enact cuts to government programs.
As negotiations appear to be starting, here’s a look at what they will be talking about.
What is a debt ceiling, why does the federal government have debt, and what happens if we default?
Here’s what we know now:
What is the debt limit or ceiling?
The debt limit, sometimes called the debt ceiling, is the maximum amount the United States can borrow to pay the government’s debts.
The amount must be approved by Congress. Congress has raised that debt limit some 100 times since the limit was enacted in 1917.
The debt limit covers more than 99% of all federal debt.
Why does the federal government have debt?
The government spends vast amounts of money each day. As of Tuesday morning, the federal government has spent $3,148,899,565,520 — that is a little over $3 trillion — in fiscal year 2023, which started in October 2022.
Federal programs, including Social Security, Medicare and the Supplemental Nutrition Assistance Program (food stamps) are funded with money collected from taxes. When the government spends more on programs than it brings in through taxes and other revenue, it must borrow money to pay for those programs.
What does it mean to raise the debt limit?
Raising the debt limit means allowing the government to borrow more money to fund the programs currently in place.
Congress must approve any increase in the limit.
What does it mean if Congress fails to raise the debt limit?
“Every item of federal spending is going to be affected — whether you’re talking about payments that individuals receive, federal benefits, paychecks to civilian and military employees, grants to state and local governments — all of these are going to be touched,” Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities, told Fortune the last time there was a debate on raising the debt ceiling.
In addition to such programs as Social Security, Medicare and Medicaid, the paychecks of 1.4 million members of the U.S. military and nearly 3 million government employees would be at stake.
Grants that states receive that cover things like school programs, Medicaid and public transit would dry up.
Nearly a third of the money states spend comes from the federal government.
Why approve a debt limit increase?
Approval of a debt limit increase allows the federal government to pay the nation’s bills and maintain the full faith and credit of the U.S. government — or the reputation of the country to pay its bills.
If an individual fails to pay his or her bills, they become a credit risk, meaning it is more difficult to borrow money because creditors are not sure they will be paid back.
The same things happen when a country cannot pay its bills. If the country’s credit rating falls then borrowing money becomes more expensive because the government will be charged a higher rate of interest on loans.
What are the arguments for and against borrowing more money?
Some House Republicans want to tie legislation to raise the debt limit to federal spending cuts.
“Look, you only have so many leverage and negotiating points. The debt ceiling is one of those. Nobody in America wants us to blindly just raise the debt ceiling again if we don’t get structural reforms around here. Nobody wants that,” Rep. Chip Roy, R-Texas, told reporters earlier this year.
On the other side, Sen. Brian Schatz, D-Hawaii, said Democrats were not interested in negotiating over what should happen to pay the bills the government already owes.
“In exchange for not crashing the United States economy, you get nothing,” Schatz said in January about Republicans’ request for Democrats to join them at the negotiating table.
“We have to tell them there is no table,” Schatz said.
If the limit is not raised, what will the Treasury Department do?
Republicans have suggested that if the debt ceiling is not raised, legislation should be passed that would direct the Treasury to give priority to certain bills, such as payments to bondholders and benefits to Social Security recipients, over other government obligations.
Democrats are against it and Treasury Secretary Janet Yellen says there is no mechanism in place to make such decisions.
What is the debt limit now?
The debt limit today stands at $31.4 trillion.
When was the last time it was increased?
The last time the debt ceiling was lifted (increased) was in December 2021.
What is the difference between a debt-limit increase and a government shutdown?
A shutdown of the government happens when annual funding for ongoing federal government operations expires and Congress does not renew it by Oct. 1, the first day of the fiscal year.
Failure to raise the debt ceiling means the government cannot borrow money to pay for government programs.