“Based on the most recent available data, we now estimate that Treasury will have insufficient resources to satisfy the government’s obligations if Congress has not raised or suspended the debt limit by June 5,” Treasury Secretary Janet Yellen wrote in a letter released Friday afternoon.
Yellen wrote that political leaders have “learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.”
“In fact, we have already seen Treasury’s borrowing costs increase substantially for securities maturing in early June,” Yellen added. “If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.”
Negotiations over the country’s debt limit and government spending continued behind closed doors Friday, though the broad parameters of an agreement did begin to emerge.
Speaker Kevin McCarthy, a California Republican, told reporters in the Capitol building Friday morning that the two sides would continue working towards a bipartisan agreement on the open items.
“I thought we made progress last night. We have to make more progress now,” he said, noting he went on a bicycle ride that morning with negotiator Rep. Garret Graves, a Louisiana Republican.
McCarthy reiterated the key disagreement remains on how much the federal government should spend.
He also pressed for enhancing work requirements on able-bodied adults without dependents enrolled in some federal safety net programs. McCarthy has repeatedly tried to make the case for changes during interviews and television appearances as the Biden administration has rejected calls to change the existing requirements.
If Republicans, who control the U.S. House, Democrats, who control the U.S. Senate, and the White House don’t address the debt limit soon, the country could default.
If that happens, payments on hundreds of federal programs would likely be delayed and the economy could begin moving toward a global recession, according to economists.
Yellen wrote in the letter the federal government has enough money on hand to make payments to veterans as well as Social Security and Medicare recipients totaling more than $130 billion on June 1 and June 2.
The week of June 5, she wrote, Treasury is supposed to make $92 billion in payments and transfers, however the government’s “projected resources would be inadequate to satisfy all of these obligations.”
Deputy Treasury Secretary Wally Adeyemo said on CNN’s “This Morning” on Friday that default was “unacceptable.”
“The president is committed to making sure that we have a good-faith negotiation with the Republicans to reach a deal, because the alternative is catastrophic for all Americans,” Adeyemo said.
“People often think about the debt limit as something that only affects financial markets,” Adeyemo added. “But it also would mean that we are unable to meet our commitments to those same recipients you just talked about, to our seniors, to our veterans. And we know that that’s unacceptable.”
Russ Vought, budget director during the Trump administration, said Friday morning on C-SPAN that he was “amazed at how bad the parameters of the deal are that are emerging.”
“It’s basically almost worse than a clean debt limit,” Vought added.
Summarizing his understanding of negotiations, Vought said, it would set spending caps for two years with some exclusions. The negotiators were discussing increasing defense and veterans funding, while freezing other discretionary spending accounts, he said.
“When you increase veterans by that amount of money, and I think they should, you are not going to get to the kind of cuts that are necessary to even be minimally less (spending) than last year,” Vought said.
The talks, he said, would remove a portion of Democrats’ $80 billion increase in funding for the Internal Revenue Services that they approved as part of their signature climate change, health care and tax bill known as the Inflation Reduction Act, though not all.
“I’m actually amazed at how incompetent they have been,” Vought said of McCarthy and his top GOP negotiators.
McCarthy fends off critics
McCarthy, speaking to reporters on Capitol Hill on Friday morning, dismissed criticism from conservative Republicans, including those in his own conference.
McCarthy said since negotiators were still sorting through disagreements and there wasn’t a final agreement, members didn’t know what would be in a final bill.
Discretionary spending accounts for about one-third of all federal funding, with the other two-thirds going to mandatory programs, like Social Security, Medicare and Medicaid.
McCarthy has pledged not to reduce spending on Social Security, Medicare, defense accounts or veterans programs, which leaves any cuts to be made in a fraction of the annual budget.
In fiscal 2022, the federal government spent $4.1 trillion on mandatory programs and about $1.7 trillion on discretionary programs, according to the nonpartisan Congressional Budget Office.
During the same fiscal year, the federal government brought in $4.9 trillion in revenue through taxes and fees, leading to an annual deficit.
In order to pay for the spending Congress approved that wasn’t paid for by revenue, the Treasury Department borrowed money under the authority Congress gave it as part of the debt limit.
Ashley Murray contributed to this report.