WASHINGTON, May 22 (Reuters) – President Joe Biden and House Speaker Kevin McCarthy failed to reach an agreement on Monday on how to raise the U.S. government’s $31.4 trillion debt ceiling within 10 days. Keep talking.
The Democratic leader and top congressional Republicans have struggled to strike a deal as the president pushes new taxes rejected by Republicans as McCarthy pressures the White House to agree to spending cuts in the federal budget that Biden considers “radical.”
Both sides stressed the need to avoid a default on a bilateral deal after Monday evening’s meeting and signaled they would continue to talk in the coming days.
A source familiar with the situation said White House negotiators returned to Capitol Hill Monday night to resume talks.
“We reiterated that default is off the table and is the only way forward in good faith toward a bipartisan deal,” Biden said in a statement after the meeting, which he called “productive.”
McCarthy told reporters after more than an hour of talks with Biden that negotiators were “going to get together and work through the night” trying to find common ground.
“I believe we can still go there,” McCarthy said. He is unwilling to consider Biden’s plan to reduce the deficit by raising taxes on the wealthy and closing tax loopholes for the oil and pharmaceutical industries, and focuses on cutting spending in the 2024 federal budget.
Democrats and Republicans have until June 1 to raise the government’s self-borrowing limit or trigger an unprecedented debt tranche that could bring on a recession that economists warn.
Treasury Secretary Janet Yellen on Monday offered a sobering reminder of how little time remains, saying the previous estimated default date was June 1 and that it was “highly likely” the Treasury would not be able to pay off all government obligations by early June. The debt ceiling has not been raised.
Republican Rep. Patrick McHenry, who was at the White House meeting, ruled out any partial budget deal to raise the debt ceiling. He said nobody was going to agree to anything until there was a final deal.
He said the tone of the Biden meeting was still very positive.
Any deal to raise the cap would have to pass both houses of Congress and would therefore depend on bipartisan support. McCarthy’s Republicans control the House 222-213, while Biden’s Democrats hold the Senate 51-49.
Failure to raise the debt ceiling could roil financial markets and trigger defaults that would raise interest rates on everything from car payments to credit cards.
US markets rose on Monday as investors awaited updates on the talks.
If Biden and McCarthy come to an agreement, it will take several days to push the legislation through Congress. McCarthy said a deal must be reached this week to pass Congress and be signed into law by Biden to avoid default.
Cuts and clawbacks
Republicans favored discretionary spending cuts, new work requirements for some programs for low-income Americans and a clawback of COVID-19 aid approved by Congress but not yet spent in exchange for a debt ceiling increase to cover lawmakers’ costs. Previously approved spending and tax deductions.
Democrats want to keep spending steady at this year’s levels in 2024, while Republicans want to return to 2022 levels next year and limit spending growth in the coming years. A plan passed by the House last month would cut government spending by 8% next year.
Biden, who has made the economy a centerpiece of his domestic agenda and is running for re-election, has said he would consider spending cuts along with tax changes, but called the Republicans’ latest offer “unacceptable.”
The president tweeted that he will not support “Big Oil” subsidies and “rich tax cheats” while jeopardizing health and food assistance for millions of Americans.
Both sides must weigh any concessions against pressure from hard-line factions within their own parties.
Some members of the far-right House Freedom Caucus insisted on halting the talks, demanding that the Senate take up their House-passed legislation, which was rejected by Democrats.
McCarthy, who made extensive concessions to right-wing hardliners to win the speakership, risks being fired by members of his own party if he doesn’t like the cut deal.
After losing the 2020 election to Biden, former Republican President Donald Trump has pushed for a default if Republicans don’t meet all of their goals, downplaying any economic consequences.
Liberal Democrats have pushed back against any cuts that would harm families and low-income Americans. Hakeem Jeffries, the top House Democrat, accused Republicans of holding “hostage negotiations” with the negotiations and said he would seek Republican votes for a discharge petition that could raise the debt ceiling.
Biden has offered to freeze spending at this year’s levels, an offer rejected by Republicans, Jeffries said.
Reporting by David Morgan, Richard Cowan and Andrea Shalal; Written by Susan Hevey; Editing by Lisa Shumaker and Stephen Coates
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