© Reuters. FILE PHOTO: The sun sets behind the US Capitol Building in Washington on October 6, 2021. REUTERS/Lea Melis/File Photo
Written by Moira Warburton and Kathryn Jackson
WASHINGTON (Reuters) – Republican Congressman Kevin McCarthy said Saturday he was making “progress” in negotiations with Democratic President Joe Biden on raising the federal government’s debt ceiling, as the nation faces the risk of default in just over a week.
Time is short. The Treasury Department said Friday that the government will run short of funds to pay all of its bills on June 5th without action from Congress, a slightly later date but more resolute than its previous forecast of a default as early as June 1st.
Any agreement in principle between Biden and House Speaker McCarthy would be the beginning of what could easily be a week-long process of shepherding legislation through a narrowly divided Congress.
“We don’t have a deal,” McCarthy told reporters. “We’re not there yet.” We’ve made progress, and we’ve been working really well early this morning. We’re back to that now.”
Hardline Republicans have threatened to block any bill that does not meet their expectations, including sharp cuts in spending.
Progressive Democrats have also threatened to withhold support for some of the compromises that have been raised, particularly regarding imposing new labor requirements on federal anti-poverty programs.
“It’s very close, and I’m hopeful,” Biden told reporters on Friday.
Republicans control the House of Representatives by a margin of 222-213, while Democrats enjoy a 51-49 majority in the Senate, leaving a narrow path for any agreement by the Democratic and Republican House Speaker to pass into law.
Republicans sought to sharply rein in government spending over the next ten years to slow the growth of America’s debt, which is now equal to the economy’s annual output.
But the initial agreement is likely to fall far short of their goal.
The two sides tentatively reached an agreement that would raise the debt ceiling enough to cover the country’s borrowing needs until the presidential elections in November 2024.
It will boost spending on military and veterans care, and restrict spending on many domestic discretionary programs, according to people familiar with the talks.
McCarthy said Republicans are also still pushing for energy permit reforms, including making it easier to drill for gas and oil.
Even before a deal was reached, some members of McCarthy’s restive caucus were raising objections. Republican Representative Dan Bishop has reacted angrily to the idea of extending the debt ceiling during the upcoming presidential election.
“If the Speaker’s negotiators return in substance a clean increase in the debt limit … an increase so large that it shields Biden from the issue in the presidency … it’s war,” wrote Bishop, a member of the hawkish House Freedom Caucus. Twitter on Saturday.
sticking points
Republicans have rejected Biden’s proposed tax increases, and neither side has shown a willingness to take on fast-growing health and retirement programs that will cause debt to grow sharply in the coming years.
Biden’s signature green infrastructure and energy laws will remain intact, while the Internal Revenue Service will see its latest budget increase slightly.
But safety net programs remain a sticking point. Republicans want to tighten labor requirements for the Medicaid health plan for the poor and the SNAP food assistance program. Democrats say that would create more barriers for people already struggling to make ends meet.
Both programs expanded greatly during the COVID-19 pandemic but have been scaled back in recent months.
The failure of Congress to raise its self-imposed debt ceiling before June 5 could trigger a default that would rattle financial markets and push the US into a deep recession.
Several credit rating agencies said they were placing the United States under review for a possible downgrade of its rating, which would raise borrowing costs and undermine its position as the backbone of the global financial system.
A similar standoff in 2011 led Standard & Poor’s to downgrade its US debt rating, rattling markets and raising government borrowing costs.