Treasury Secretary Janet Yellen warned Congress on Monday that the U.S. could be unable to pay its bills as early as June 1 if lawmakers do not raise the federal debt limit, putting a more specific deadline on the showdown between the White House and congressional Republicans.
Ms. Yellen informed House Speaker Kevin McCarthy and other congressional leaders in a letter that incoming tax revenue has been lower than expected, moving up the date by which lawmakers need to act or risk default.
“Our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1,” wrote Ms. Yellen.
Since January, the Treasury Department has undertaken “extraordinary measures” to stave off default after the government hit its $31.4 trillion borrowing capacity. Those emergency tactics only give the government enough room to cover day-to-day expenses.
“Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments,” wrote Ms. Yellen.
The announcement puts both President Biden and Mr. McCarthy, California Republican, in a high-stakes game of chicken.
SEE ALSO: Yellen warns Congress must pass debt limit hike by June 1 or risk default
House Republicans have long demanded spending cuts in exchange for lifting the debt ceiling, and approved legislation last week to achieve that goal. Mr. Biden has refused to negotiate, saying both Democrats and Republicans have contributed to the national debt.
With time running out, it’s not clear whether Mr. Biden’s position will hold. The House-passed legislation would raise the debt ceiling by $1.5 trillion until May 2024 in exchange for $4.8 trillion in spending cuts.
Apart from raising the debt limit, the GOP bill would cut federal spending by $130 billion for the upcoming fiscal year and limit budget growth to 1% annually over the next decade.
The legislation also rescinds at least $90.5 billion in unspent pandemic relief, imposes new work requirements on welfare, cancels Mr. Biden’s student loan forgiveness program, and scraps $200 billion in green-energy tax credits.
“If you look at this package, it represents the most common sense, straightforward approach to addressing the spending problem that got us here as we confront the debt ceiling,” said House Majority Leader Steve Scalise, Louisiana Republican.
The U.S. can’t legally default on its debt, but a failure by Congress to raise the cap on how much the federal government can borrow could spark a funding crisis for major programs. Treasury officials said Monday they expect the government to borrow more than $1.4 trillion from April through September to meet its spending obligations.
Many Republican and Democratic lawmakers agree that the Constitution requires the federal government to honor its debt. That means even if Congress and the White House can’t agree on raising the debt ceiling, incoming tax revenue will be used to pay the roughly $500 billion in annual interest owed to the nation’s creditors.
But the government would only be able to spend what it takes in from taxes, which means it would stop paying — or default — on some of its obligations.
Despite the U.S. coming close to the brink of a first-ever default, Democrats say the bill passed by Mr. McCarthy is a non-starter. In fact, the White House and Senate Majority Leader Charles E. Schumer are launching a full-scale push to discredit the legislation.
Mr. Schumer, New York Democrat, is planning to hold a public hearing this week on the legislation to “expose its true impact” on everyday Americans.
“We’ll show the American people how the ‘default act’ would rip away [food stamp] benefits for over a million recipients and eliminate Pell grants for tens of thousands of student loan borrowers,” said Mr. Schumer.
Democrats are hoping to capitalize on the fact that House Republicans circumvented the standard committee process to pass the bill and then departed Washington for a week-long recess.
“No [House] committee with jurisdiction over spending issues had a chance to hold a hearing or a mark-up,” said a senior Senate Democratic aide. “The American people don’t know what’s in the bill because of that process, but we’re happy to show them.”
Democrats believe that, with Mr. McCarthy and his lieutenants absent from Washington, they can succeed in defining the bill on their terms.
“We’ll show the American people how the [bill] would cut critical funding to nearly all sectors of American life, leading to fewer jobs, higher costs, and leave policemen, first responders, border patrol, and our brave veterans all hanging out to dry,” said Mr. Schumer.
Even before the hearing was announced, White House officials were warning that if all of the GOP’s proposed cuts are implemented, at least 2,000 border patrol agents and 81,000 healthcare workers at the Veterans Affairs Department could be laid off.
The argument stems from the GOP’s reluctance to explain where the $130 billion in immediate cuts would be made. Republican lawmakers have said any spending bill for the upcoming fiscal year will have to be $130 billion less than the $1.7 trillion government funding bill passed by Congress in December.
Democrats say if the cuts are implemented across the board, the move could be particularly painful.
The Department of Veterans Affairs similarly has said it could see a 22% percent cut under the GOP’s debt limit bill. The VA said that would translate to high backlogs and worse services for America’s veterans.
“The proposal would mean 30 million fewer veteran outpatient visits, and 81,000 jobs lost across the Veterans Health Administration… The Veterans Benefits Administration would eliminate more than 6,000 staff, increasing the disability claims backlog by an estimated 134,000 claims,” the VA said in a press statement.
The GOP legislation does not cite specific cuts to the VA or its programs, but it also does not include safeguards to ensure the agency is not affected by the proposed spending decreases.
House Republicans say budget cuts would be targeted at domestic programs and not aimed across the board at every single federal department.
“Let me repeat this again, and we’re going to repeat it several times,” said House Committee on Veterans’ Affairs Chair Mike Bost, Illinois Republican. “No cuts to the VA budget. No veteran will lose benefits. Their benefits are owed to them.”
• Haris Alic can be reached at halic@washingtontimes.com.