WASHINGTON — President Joe Biden and top congressional Republican Kevin McCarthy on Thursday appeared to be nearing a deal to cut spending and raise the government’s $31.4 trillion debt ceiling, with little time to spare to head off the risk of default.
The deal would specify the total amount the government could spend on discretionary programs like housing and education, according to a person familiar with the talks, but not break that down into individual categories. The two sides are just $70 billion apart on a total figure that would be well over $1 trillion, according to another source.
Negotiations are going down to the wire.
The Treasury Department has warned that the federal government could run short of money to cover all its obligations as soon as June 1 — a week away — but on Thursday it announced plans to sell $119 billion worth of debt that will settle on June 1, suggesting to some market watchers that date was not an iron-clad deadline.
Any agreement will have to pass the Republican-controlled House of Representatives and the Democratic-controlled Senate. That could be tricky, as some right-wing Republicans and many liberal Democrats said they were upset by the prospect of compromise.
House Speaker McCarthy said earlier in the day that the two sides were making progress.
“We worked well past midnight last night,” McCarthy told reporters. “There’s still some outstanding issues and I’ve directed our teams to work 24/7 to try to solve this problem.”
His office did not respond to a request for comment about the possible agreement with the Democratic president.
The deal would only set broad spending outlines, leaving lawmakers to fill in the blanks in the weeks and months to come.
It would specify the total amount of military spending, which would be a key sticking point in the talks, one of the sources said.
Rep. Kevin Hern, who leads the powerful Republican Study Committee, told Reuters a deal was likely by Friday afternoon.
Even as Republicans tout progress, McCarthy is preparing to possibly let lawmakers leave Washington on Thursday for a weeklong holiday recess, with the proviso that they need to be ready to return for a vote. The Senate is currently out but on similar orders to be ready to return.
A default could upend global financial markets and push the United States into recession.
Credit rating agency DBRS Morningstar put the United States on review for a possible downgrade on Thursday, echoing similar warnings by Fitch, Moody’s and Scope Ratings. Another agency, S&P Global, downgraded U.S. debt following a similar debt-ceiling standoff in 2011.
The months-long standoff has spooked Wall Street, weighing on U.S. stocks and pushing the nation’s cost of borrowing higher. The yield on U.S. Treasury bills maturing in early June climbed in early Thursday trading, in a sign of investor unease.
Deputy Treasury Secretary Wally Adeyemo said concerns about the debt ceiling had pushed up the government’s interest costs by $80 million so far. “Ultimately that’s money that’s out of the American people’s pockets,” he told an investment industry conference in Washington.
Lawmakers regularly need to raise the self-imposed debt limit to cover the cost of spending and tax cuts they have already approved.
House lawmakers will get three days to read any debt-ceiling bill before they have to vote on it. In the Senate, Republican Mike Lee said he would block a quick vote if he did not like the deal, which could delay action for days.
McCarthy has insisted that any deal must cut discretionary spending next year and cap spending growth in the years to come, to slow the growth of the U.S. debt, now equal to the annual output of the economy.
He also said he had briefly spoken about the negotiations with former President Donald Trump, who has publicly urged Republicans to allow a default if they fall short of their goals.
Biden has offered to freeze spending at current levels next year and proposed several tax increases to help curb the debt.
Lawmakers on the parties’ right and left flanks are growing frustrated by signs of compromise. Republican Rep. Chip Roy, a member of the hard-right Freedom Caucus, has insisted that any deal must include the sharp spending cuts they passed last month.
Some Democrats, meanwhile, say Biden has not been vocal enough about the downsides to Republicans’ proposed spending cuts, a stark contrast to McCarthy who has been briefing reporters multiple times per day.
“I would like him to use his platform even more,” Democratic Rep. Pramila Jayapal, who leads the 101-member Congressional Progressive Caucus, said of Biden.