WASHINGTON (Reuters) – Negotiators for Democratic President Joe Biden and Republican Congressman Kevin McCarthy met at the White House on Wednesday to try to strike a deal to raise the $31.4 trillion U.S. debt ceiling and avert a catastrophic default.
Time is running out, as the Treasury Department has warned that the federal government may not be able to pay all of its bills by June 1 — just eight days later — and it will take several days for the legislation to pass through a narrowly divided Congress.
US bond giant Pimco said it believed negotiators needed to conclude an agreement by the middle of this week to meet the deadline.
Biden and McCarthy, the speaker of the House, remain deeply divided over how to proceed.
McCarthy told reporters on Wednesday that any agreement must cut discretionary spending, not keep it flat as Biden proposed, and not increase taxes.
“I will send our negotiating team to the White House to try to finish the negotiations,” McCarthy said. “The slope here is to solve the problem – to spend less than we did last year. It’s not that hard.”
He said he believed the two sides would reach an agreement and avoid default.
Any deal Biden and McCarthy reach will have a narrow path through a divided Congress, with McCarthy Republicans holding a 222-213 majority in the House of Representatives and Biden’s Democrats controlling the Senate by a margin of 51-49.
And the compromises needed to win the approval of both houses would cost each party some votes from its more partisan members.
The months-long standoff has spooked Wall Street, weighing on US stocks and pushing up the country’s cost of borrowing. US stocks fell on Wednesday.
Treasury Secretary Janet Yellen said Wednesday that the United States will not be able to pay all of its bills by early June, adding that it is difficult to be precise about the exact day the government will run out of resources.
Economists say that would cause a Wall Street crash and push the US economy into recession. Medical providers that rely on government payments may be among the first to feel the pinch.
Republicans want to cut discretionary spending for the 2024 fiscal year that begins in October by about 8%, while Democrats have pushed to keep it steady at this year’s rate.
“Both sides need to understand that they’re not going to get everything they want,” White House spokeswoman Karen Jean-Pierre said at a news briefing on Tuesday.
Negotiators disagree over Republican proposals to impose new work requirements on benefit programs for low-income Americans and relax energy permit rules.
The White House has offered to limit discretionary spending over the next two years, in line with previous bipartisan budget agreements. Republicans have offered spending caps for the next six years.
Congress regularly needs to raise the country’s self-imposed debt limit to cover the cost of the spending and tax cuts it has already approved. It has done so three times during Republican nominee Donald Trump’s four years in the White House without provoking a similar confrontation.
The last time the federal government came close to this default was in 2011, with a similar division of power in Washington — a Democratic president and majority in the Senate, and a Republican-controlled House.
Each party also faces opposition to insider talks, with hawkish Republicans insisting on the sharp spending cuts they passed in a House bill last month, and progressive Democrats opposing spending cuts or new business requirements.
Biden spent months saying he would not negotiate a debt limit hike only to reverse course and begin talks with McCarthy in the past few weeks.
Editing by Scott Malone and Lincoln Feist.
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