WASHINGTON -- President Joe Biden on Tuesday threatened to veto legislation being pushed by House Republican leaders that would condition support for raising the debt ceiling on deep spending cuts, calling it "a reckless attempt to extract extreme concessions as a condition for the United States simply paying the bills it has already incurred."
In a statement officially announcing its opposition to the bill, the White House said: "The President has been clear that he will not accept such attempts at hostage-taking." It added that "House Republicans must take default off the table and address the debt limit without demands and conditions, just as the Congress did three times during the prior Administration."
The House Rules Committee was preparing Tuesday to consider the legislation.
The GOP proposal would slash federal spending dramatically and unwind some of Biden's priorities, including student debt cancellation and efforts to address climate change. In exchange, Republicans would agree to increase the debt ceiling -- the statutory cap on how much the U.S. government can borrow to pay its bills.
The so-called Limit, Save, Grow Act of 2023 would cap federal agency spending over the next decade, achieving more than $3 trillion in savings, according to GOP estimates. It also would repeal key climate investments and impose new work requirements on recipients of federal aid, including Medicaid.
In its Statement of Administration Policy, the White House said Biden would veto the legislation if it reaches his desk. It is not headed there in its current form.
Last week, Senate Majority Leader Charles Schumer, D-N.Y., said the bill has "no chance" of making it through his chamber and criticized the McCarthy-backed package as a "partisan wish list masquerading as legislation."
During a speech Tuesday afternoon to union workers, Biden chastised House Republicans for risking default on the nation's debts.
"They're saying if ... Biden doesn't agree with them and agree to all the cuts ... they're going to let the country default on its debt," he said at a conference in Washington of the North America's Building Trades Unions.
"I can't imagine anyone ever thinking of using the debt ceiling as a negotiating wedge," Biden added. "America is not a deadbeat nation. We pay our bills."
The White House policy statement sought to spotlight some of the real-world consequences of the bill's spending reductions.
"This legislation would force severe cuts to education (including for students with disabilities), food safety inspections, rail safety, healthy meals for seniors, research on cancer and other diseases, border security, public safety, and veterans' medical care," the statement said.
It also noted that the GOP plan envisions repealing tax credits in the Inflation Reduction Act that the White House said "are leading to hundreds of billions of dollars in private-sector investment in the United States, creating thousands of manufacturing jobs."
It stated that repealing Biden's student debt-relief plan would affect more than 40 million "hard-working Americans."
House Speaker Kevin McCarthy, R-Calif., is hopeful that House passage of the bill will prompt Biden to negotiate with him directly over conditions for raising the debt limit. So far, Biden has insisted on a clean bill lifting the ceiling and said he would be open to discussing budget priorities after that.
Biden unveiled his budget March 9. House Republicans have been unable to agree to a budget.
CALLS FOR NEGOTIATION
The vast majority of Republicans have quickly gotten in line behind the proposal, which aims to bolster McCarthy's negotiating stand against the White House and congressional Democrats.
That includes newly elected moderate Republicans from the New York City suburbs like Rep. Mike Lawler, who are facing an all-out Democratic push to oust them in 2024.
"The president must negotiate with the speaker," Lawler said. "We must cut spending and we must not default."
McCarthy has maintained that Republicans hope to avoid a default on its debt by the United States if the ceiling isn't raised by Congress in coming weeks. In a speech at the New York Stock Exchange last week, McCarthy sought to blame Biden for the standoff.
The Biden administration repeatedly points out that Republicans raised the debt ceiling three times when Donald Trump was president without any demands for spending cuts. Biden and others also have cited Ronald Reagan and Trump, both of whom insisted that debt limit brinkmanship is reckless.
"McCarthy's been at the table. And he has offered to negotiate with the president. Now we're going to put our terms on a piece of paper, get 218 Republicans, and we're going to put the ball in their court," said Rep. Jodey Arrington, R-Texas, the leader of the House Budget Committee, in an interview on Fox News.
Sen. Tom Cotton, R-Ark., sent a letter to Biden on Tuesday urging him to stop playing politics on debt limit negotiations, meet with Speaker McCarthy, and negotiate a package to reign in federal spending while raising the debt limit.
"The solution is simple: Work with Speaker McCarthy on a legislative package that will start getting our spending under control, while raising the debt limit to give the country breathing room to implement those reforms," Cotton wrote. "The stakes are too high. Mr. President, do the right thing. Put the nation you serve over your party's political interests. The American people deserve it."
He also warned that the adoption of the GOP proposal could carry its own adverse effects, potentially reducing gross domestic product by 0.65% by the end of the fourth quarter of 2024.
McCarthy still has a heavy lift to close the deal, especially since he is asking colleagues to make a potentially dangerous vote for a bill that is purely symbolic.
Rep. George Santos remained on the fence Tuesday about the Republican proposal to raise the debt ceiling in exchange for punishing spending cuts and conservative policy changes.
The controversial Long Island lawmaker has denounced the measure pushed by McCarthy.
He was officially undecided ahead of a planned vote today, a source close to Santos said. It remains unclear whether McCarthy will be able to cobble together the 218 votes he needs in his chamber to pass the legislation. Republicans only have four votes to spare in the narrowly divided House.
Santos said last week he is "solidly" against the bill that would raise the debt ceiling by $1.5 trillion in exchange for harsh spending cuts and a grab-bag of GOP policy goals like work requirements for health benefits.
The New York congressman hasn't laid out any specific demands for his vote. But he may be looking for McCarthy and other GOP establishment groups to avoid opposing his reelection next year.
Along with Santos, a handful of conservative Republicans are holding out against the bill, mostly because they oppose raising the debt ceiling on principle.
Some other lawmakers in the fractious GOP House have specific policy gripes, like the bill's slashing subsidies for ethanol, which helps corn farmers in the Midwest.
INVESTORS 'ON EDGE'
Meanwhile, investors on Wall Street are bracing for the prospect of a protracted, costly standoff in Washington over the debt ceiling, underscoring the economic risks as House Republicans prepare to vote on new legislation as soon as today.
In recent weeks, a drop in yields on government bonds set to mature imminently has suggested a growing panic that the GOP's demands could cause the country to default, touching off what analysts widely believe would be another U.S. recession.
With no resolution in sight, "financial markets are now moving to begin pricing in the more difficult portion of the gridlock over the debt ceiling," Joseph Brusuelas, the principal and chief economist at RSM, an accounting firm, said this week, adding that the uncertain state of the economy has left some investors "on edge."
The financial turbulence highlights the stakes in the nation's capital, more than a decade after Republicans last used the debt ceiling as leverage to seek spending cuts.
On Tuesday, Fitch Ratings raised the prospect that another lengthy standoff could once again carry stark consequences. In a new bulletin, it said that "repeated near-default episodes brought on by debt limit debates could erode confidence" in Washington and its ability to pay, adding that such mishaps "may affect Fitch's view of the sovereign credit profile."
The precarious political environment has not been lost on Wall Street, where investors began to raise alarms shortly after McCarthy's speech.
The primary source of their concern was federal tax collections: In the days before 2022 returns were due, analysts began to notice that tax receipts had come in lower than anticipated.
The drop carries immense implications for the debt ceiling deadline, known in Washington as the "x-date," since it helps determine how long the United States can use a mix of its own revenue and special budgetary maneuvers to stave off a default.
The Treasury Department is expected to release a more complete analysis next month, reflecting taxes collected through the April 18 filing deadline.
"There's nothing like the sight of the gallows to concentrate the mind. That could cause the conversation to become more serious," said David Kelly, the head of the Global Market Insights Strategy Team for J.P. Morgan Chase Asset Management.
In a note last week, analysts at Goldman Sachs said the tax shortfall could shorten the timeline for action -- meaning the government could run out of options in July, though they could not rule out a deadline as soon as early June. In response, investors have started to shift their behavior.
Some have avoided Treasury bills -- bonds issued by the federal government -- that mature around the likely debt ceiling deadline. In their own note last week, analysts at J.P. Morgan Chase noted that yields on a three-month Treasury bill have spiked, while one-month yields have plummeted, a gap they noted is the "widest in over 20 years."
Historically, those yields tend to move in concert, so the gap may reflect investors' fear about a default over the summer.
Other analysts saw early cause for concern a hedge against a default on U.S. government debt, which would pay out if the government does fail to pay bond interest. Prices are "substantially more" than they were at the last debt ceiling crisis in 2011, according to a new analysis by Mark Zandi, chief economist at Moody's Analytics, published late Monday.
Zandi cautioned the market is an imperfect gauge of investor sentiment, particularly given the role of hedge funds in placing such bets. Still, his report found that global investors "appear to be attaching non-zero odds that the debt limit drama will end with a default sometime in June or July."
Information for this article was contributed by John Wagner and Tony Romm of The Washington Post and by Michael McAuliff and Dave Goldiner of New York Daily News (TNS).