Breathing room: Yellen moves default deadline to June 5

Treasury Secretary Janet Yellen on Friday pushed back the projected deadline when the U.S. will default if Congress doesn’t raise the debt limit.

Mrs. Yellen revised the default timeline in a letter to House Speaker Kevin McCarthy saying that incoming tax revenue had changed the calculus. 

“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,” wrote Mrs. Yellen. 

The announcement comes as negotiators for President Biden and Mr. McCarthy are rushing to craft a deal to increase the U.S. government’s $31.4 trillion debt limit. Initially, Mrs. Yellen warned the U.S. would likely be unable to pay all of its bills starting June 1 without a higher borrowing limit.

“We 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 negatively impact the credit rating of the United States,” wrote Mrs. Yellen. 

Debt limit negotiations are set to take place over the Memorial Day weekend. While progress has been made, both sides remain far apart on spending cuts and imposing new welfare work requirements.

“We had some progress that was made on some key issues,” Rep. Garret Graves, a Louisiana Republican on Mr. McCarthy’s negotiating team. “But I want to be clear: We continue to have major issues that we have not bridged the gap on right now.”

House Republicans want to cut $130 billion in the upcoming budget and cap the growth of federal spending at 1% over the next decade. They also want to tighten requirements that ensure individuals work at least 20 hours per week to receive Medicaid, food stamps, and direct cash assistance.

Mr. Biden has rejected the demands. White House negotiators want to keep spending flat and cap future growth for only two years. They’ve rebuffed expanded work requirements for Medicaid and food stamps, but are open to imposing them on cash payments. 

“Democrats right now are willing to default on the debt so they can continue making welfare payments for people that are refusing to work,” said Mr. Graves. “I’m talking about people that are without dependents, people that are able-bodied between 18 and 55.”