Biden and Kevin McCarthy's debt ceiling showdown

President Joe Biden and Speaker Kevin McCarthy will sit down together at the White House on Wednesday for a high-stakes meeting on increasing the nation's debt ceiling.

The two men are meeting for the first time since McCarthy won the speakership and their sit down comes amid a stalemate over how to raise the country's $31.4 trillion borrowing limit.

At stake is the ability for the country to pay its debt. The U.S. has never defaulted and economists fear a default could trigger a worldwide recession and damage America's credit rating.

But hope for a breakthrough is slim with neither side shows a sign of budging - McCarthy wants cuts to federal spending and Biden wants to raise the limit with no conditions attached.

Wednesday's Oval Office meeting is expected to the be first of many and the starting point for lengthy negotiations. 

Speaker Kevin McCarthy heads to the White House on Wednesday afternoon to meet with President Joe Biden

Republicans are setting a low bar going into the event.

'I'd say the fact that [Biden] has agreed to negotiate is a good sign. But he's the president of the United States, nothing happens if he doesn't agree to it,' Republican Rep. Tom Cole said.

'They're two very amiable men. So I have no doubt they'll get along well, and at least we'll get the discussion started,' he said.

Going into the meeting, each side had made their case in the court of public opinion.

The White House argues Republicans need to show their hand and lay out what cuts they want to federal spending. The administration also points out Republicans approved 'clean' raises to the debt ceiling under President Donald Trump.

McCarthy, for his part, argues that if the nation is spending too much money, it should cut back on its expenses. 

Republicans have tossed out several ideas on how to make the cuts including taking federal spending back to its pre-COVID pandemic levels. 

The speaker has said he wants to work with Democrats on cuts - despite their stance they won't concede to any - and believes he'll be able to force them into a negotiation down the road as the nation gets closer to a default.

'The only thing I'm really going to gauge is do you want to negotiate or do you want to play politics,' he told Punchbowl News. 'I'm not going to play these games. So you tell me when you want to negotiate. If you think you can beat me up, I'm going to be reasonable. So the sooner we sit down, the sooner this doesn't become a problem.'

'But we're eventually going to have to dance together. So when do you want to play the music, now or later?'

President Joe Biden will press Speaker Kevin McCarthy for specifics on what he wants to cut from the federal budget when the two men meet in the Oval Office

The House GOP met Wednesday morning on Capitol Hill to brainstorm on how to cut federal spending. Republican leadership was looking for general thoughts and ideas on what should be cut from their members.

They did indicate that cuts to Social Security and Medicare would be off the table. Slashing the budget of either program could be a political liability for Republicans with voters. 

'This is a lot more of education for a lot of our colleagues about the different components of debt ceiling,' Rep. Byron Donalds said of their meeting. 

'It's important that you lay a foundation on this kind of stuff. But one thing that is very apparent at this point, and I'm happy that the speaker is going to be meeting with the President later today.'

Republicans have tossed out several ideas including cuts to defense spending and agencies like the EPA but nothing has yet garnered momentum.

'Next week were gonna be really hammering out the details but one thing that we do have consensus on is that Biden is abdicating his duty by refusing to negotiate and just producing a budget,' Rep. Kat Cammack said.

Democrats, in turn, argue that there is nothing McCarthy can propose that will get him the 218 votes he needs among his Republicans to move ahead in the legislative process.

McCarthy can only afford to lose four Republican votes if he wants to pass a debt ceilling increase without Democratic help. 

In their sit-down, Biden will ask McCarthy to promise the that the U.S. would not default on its debt.

Additionally, Biden will press McCarthy on when he will release his federal budget, top White House economic adviser Brian Deese and Budget director Shalanda Young wrote in a memo released on Tuesday.

Biden's budget will be released on March 9th. Republicans have said their budget will be released in April.

'It is essential that Speaker McCarthy likewise commit to releasing a budget, so that the American people can see how House Republicans plan to reduce the deficit — whether through Social Security cuts; cuts to Medicare, Medicaid and Affordable Care Act health coverage; and/or cuts to research, education and public safety — as well as how much their budget will add to the deficit with tax cuts for the wealthiest Americans and large corporations,' Deese and Young wrote. 

Senate Republicans are letting McCarthy take the lead as they stand back to see what happens. 

Senate GOP Leader Mitch McConnell made it clear is taking a hands' off approach.

'I think the deal has to be cut obviously between the House majority and the Democratic president in order to have a chance to survive over here,' he said.

Ahead of the meeting, both side was quick to start pointing the finger at the other. 

Biden on Tuesday called McCarthy a 'decent man' but said he 'had to do to get commitments that are just absolutely off the wall' in order to become speaker.

McCarthy called Biden 'childish' for not wanting to negotiate. 

'Why would you put the economics of America in jeopardy?' he said Tuesday on Capitol Hill. 'Why would you play political games? I'm not.' 

Trump raised the debt limit three times during his presidency without any dramatics or standoff negotiations. During his four years in office, the debt increased from $20 trillion to nearly $28 trillion.

But the debt rose even further due to a slew of post-pandemic spending programs Demcrats enacted to help the country recover economically from its COVID shutdown.

The U.S. debt is now almost equal to the country's gross domestic product, a measure of yearly economic output. It's on track to be 225% of GDP by 2050, according to the Penn Wharton Budget Model. 

The U.S. is expected a hit the ceiling on Thursday, forcing the Treasury Department to start using 'extraordinary measures' so the government can keep paying bills while Congress negotiates to try and avoid an economic meltdown

The federal debt ceiling was raised in December of 2021 by $2.5 trillion to $31.381 trillion, which is expected to hit on Thursday, January 18.

To stabilize the debt near current levels, the government would need to permanently slash all spending by 30%, raise tax revenues by 40% or some combination of both, Kent Smetters, a professor at the University of Pennsylvania and director of the Penn Wharton Budget Model, to the Associated Press.

The U.S. has never defaulted on its debt, but it has come close.

In 2011, House Republicans, who held the majority, demanded then-President Barack Obama negotiate over deficit reduction in exchange for an increase in the debt ceiling.

The back-and-forth debate went down to the wire, with the debt ceiling being raised only two days before the US defaulted.

Just the brinkmanship sparked a major economic crisis for the country, resulting in one of the worst weeks for the markets since the 2008 financial crisis, sinking stock prices, and taking a toll on people's retirement savings.

Mortgage rates spiked, hurting prospective home buyers. 

The standoff also resulted in the US getting its credit rating downgraded and the economy took months to recover.