White House Considers Debt-Limit Options to Avoid Default

White House.- The Biden administration and Capitol Hill leaders are working to prevent the first-ever government default that may arrive by June 1. They are taking potential alternative strategies more seriously after months of deadlock over raising the country’s borrowing limit.

Though both Republicans and Democrats continue to stick to their demands publicly, officials and lawmakers in the Biden administration have begun to evaluate other potential options, including a short-term increase in the borrowing limit that would give them more time to reach an agreement. Biden administration officials are looking into experimental ways that could help the U.S. pay the government’s bills if Congress doesn’t raise the debt limit.

Treasury Secretary Janet Yellen’s recent warning that the U.S. could default as soon as June 1 prompted officials to take the issue more seriously. If the U.S. government fails to pay its bills on time, there could be significant financial and economic repercussions. Therefore, President Biden called top lawmakers to a meeting on May 9 at the White House to discuss the issue.

The new, accelerated timeline may leave lawmakers with insufficient time to negotiate an agreement on contentious budget questions. One way to meet the rapidly approaching deadline would be to raise the debt limit enough to allow the government to keep paying its bills for a few more months, instead of a more extended-term solution.

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As Republicans have pushed for spending cuts, President Biden has said that he would negotiate with them over spending and deficits, but only separately from the debt-limit increase. A short-term extension could align the new deadline for raising the debt limit with a separate Sept. 30 one for agreeing to annual government funding. This confluence could create political benefits for both parties: Republicans could argue that the debt-limit increase was contingent on spending cuts, while Democrats could still insist that talks over spending cuts are separate from lifting the debt ceiling.

The Biden administration has already relied on a short-term debt-ceiling increase, and it might have to do it again. Some officials expect that they won’t be able to achieve any spending increases in the annual funding talks, planning instead to hold government funding steady next fiscal year.

Republicans are pushing to cut spending to last fiscal year’s levels and then cap its growth at 1% a year, below the expected rate of inflation, over a decade.

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The idea of a short-term debt-limit increase faces skepticism in Congress, and Republicans are opposing the proposal.

If Congress fails to act by the time the government runs out of funds, there are theoretical measures that the administration could take to continue paying its bills.

One option, considered in 2011 when the Obama administration found itself in a similar debt-limit standoff with a new GOP-controlled House, is for the U.S. to use its available resources to make payments to investors holding U.S. debt. The government may have to resort to such options to avoid the consequences of a default.