WASHINGTON — Joe Biden was there in 2011 when Democrats tried to negotiate the type of broad deficit-reduction plan that GOP lawmakers are once again demanding as a condition of raising the federal debt ceiling.
The talks imploded, setting off a brinkmanship-ridden saga that narrowly averted default, led to the first-ever U.S. credit-rating downgrade and hardened both parties’ positions in future debt-limit debates.
Twelve years later, Biden has made clear he remembers the lesson. Biden says he won’t negotiate while the debt limit is held hostage, setting up what veterans of the 2011 ordeal say is looming as an even more fraught showdown over the next several months on raising the borrowing cap.
The president has drawn a firm line in the sand, dismissing out of hand negotiating sharp cuts with House Speaker Kevin McCarthy just to do what the U.S. has always done: avoid default. McCarthy, who won the speaker’s gavel only after 15 drama-filled rounds of balloting, has little room to move off his demands. He’s beholden to a group of ultra-conservatives whose support he needs to maintain his razor-thin majority.
“The debt limit situation is the scariest it’s been in the 25 years I’ve been working on these issues,” said Jason Furman, an Obama-era head of the Council of Economic Advisers who sees a roughly 15% chance of a default. “It still probably will be resolved, but if my doctor told me I was ‘probably’ going to live, I wouldn’t find that diagnosis very reassuring.”
An examination of how the negotiations played out in 2011 provides clues to why Biden, then vice president, and McCarthy’s positions are so far apart this time around. Back then, both parties explored a “grand bargain” of deficit-reducing spending and tax changes, including talks with Biden and then-Majority Leader Eric Cantor.
But Cantor abruptly walked away from the negotiating table, leading to an increasingly acrimonious showdown between President Barack Obama and Speaker John Boehner that would sour the relationship between the White House and the House GOP for the rest of Obama’s time in office.
“It was the first time we found ourselves in a negotiation where there were significant views on the other side that default was truly an option,” said Jack Lew, a former Treasury Secretary who served as Obama’s budget director in 2011 and was deeply involved in the debt-limit negotiations. “We could see the edge of the cliff. We were checking the Asian markets every night to see whether Asia thought we were there.”
Eventually Biden, working with Senate GOP Leader Mitch McConnell, helped seal a last-minute spending cap agreement that avoided a default.
The Tea Party wave that swept Republicans to control of the House in the 2010 midterms set the table for the 2011 debt showdown, similar to how the GOP’s performance in November has this time around.
Republicans again wrested House control from Democrats in November, but with a much smaller-than-expected margin that’s given outsized power to the chamber’s most conservative members. During the balloting over the speakership, McCarthy had to make numerous promises to fiscal conservatives to eventually prevail. So, in reality, he’s got little political wiggle room to negotiate with Biden, even if Biden were interested.
“You can’t have a negotiation where an economic catastrophe is held out as the alternative to reaching agreement,” Lew said.
Twelve years ago, by contrast, a sluggish recovery from the Great Recession and a debt crisis in Europe created an incentive for both parties to pursue comprehensive fiscal reform, and the debt ceiling naturally rolled into bipartisan deficit-reduction talks.
“There was much more of a grand bargain situation than it was a holdup,” Furman said. But now, “no one is talking about this being a great opportunity to compromise.”
The 2011 showdown also occurred the year before a presidential election, with a Democratic president seeking a second term and contending with a GOP-controlled House — in Biden’s case one that includes members who challenged the legitimacy of his 2020 win.
For Biden, the economic stakes are arguably higher: He inherited an economy battered by the COVID-19 pandemic and had to contend with the political fallout from decades-high inflation. Now, with a potential recession looming, he’s looking toward launching a bid for a second term with the debt showdown hanging over Washington.
“My guess is that the president truly believes that no good can come out of a negotiation,” Furman said.
There are also fewer moderates in Congress to lead such talks, and distrust between the parties has grown. Biden and McCarthy don’t have any strong working relationship to speak of, evidenced by the fact that the two men have yet to schedule a sitdown. Biden ignored a shouted question Thursday about when they’d meet.
“In 2011, the Obama-Biden administration negotiated in good faith but congressional Republicans’ recklessness caused an historic blow to our economy. That’s why the administration didn’t negotiate in 2013 or after,” said White House spokesman Andrew Bates.
Treasury Secretary Janet Yellen said last week the federal debt limit had been reached and her department had begun using special measures to avoid a payments default. It’s unclear how long those measures will last, but Congress will likely need to act by late summer or early fall.
House Republican leaders are considering proposing a short-term extension of the debt ceiling to delay the risk of a default until Sept. 30, according to a person familiar with their discussions.
Biden and his aides have held to their position that the president is open to fiscal reform proposals, but the debt ceiling won’t again be used as leverage.
“I will not let anyone use the full faith and credit of the United States as a bargaining chip,” Biden said Thursday. “In the United States of America, we pay our debts.”
The White House and congressional Democrats are pressing Republicans to come forward with a concrete proposal for raising the borrowing cap, a strategy that is likely to highlight GOP divisions over the best approach.
“One of the things we want to do on the debt ceiling is say to the Republicans: show us your plan,” Senate Majority Leader Chuck Schumer said Tuesday after a meeting with Biden. “We don’t know if they can even put one together.”
McConnell said Tuesday that it will fall to Biden and McCarthy to avoid a default, adding that any compromise to raise the debt ceiling and put in place spending cuts will “have to come out of the House.” Any bill addressing the debt ceiling that can get the requisite 60 votes in the Democratic-led Senate won’t pass the narrowly controlled GOP House, he said.
“I think there’s more cause for concern today than in any of the past kind of debt limit showdowns,” said Neil Bradley, executive vice president at the US Chamber of Commerce who was a top Cantor aide in 2011. “That doesn’t mean it’s not going to get done, but the pathway to getting it done seems much less straightforward today and more arduous.”
Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, said she still thinks the actual risk of default is “fairly tiny” but could change.
“The concern about default doesn’t keep me up at night at this point,” she said. “That could change over the coming six months.”
