WASHINGTON, May 24 (Reuters) – Negotiators for Democratic President Joe Biden and top congressional Republican Kevin McCarthy were set to reconvene on Wednesday morning, seeking a deal to raise the United States’ $31.4 trillion debt ceiling and avoid a catastrophic default.
Time is running short for a deal, as the Treasury Department has warned that the federal government could be unable to pay all its bills by as soon as June 1 — just eight days away — and it will take several days to pass legislation through the narrowly divided Congress.
The U.S. bond giant PIMCO said it believed negotiators needed to strike a deal by the middle of this week to make that deadline.
Biden and McCarthy, the House of Representatives Speaker, remain deeply divided on how to move forward. McCarthy told reporters on Wednesday that he and Biden have not spoken since a Monday meeting at the White House but that talks between their negotiating teams have been “productive.”
“We’ll get together this morning,” McCarthy said, referring to the negotiators.
Republicans are pushing for sharp spending cuts while Democrats are offering to keep spending flat, instead using new taxes to help reduce the federal government’s debt.
The months-long standoff has spooked Wall Street, weighing on U.S. stocks and pushing the nation’s cost of borrowing higher. U.S. stocks were expected to open lower on Wednesday.
Biden and McCarthy’s negotiating teams reported no significant progress after a two-hour meeting at the Capitol on Tuesday.
“The biggest gap we have is the funding issue,” said McCarthy’s lead negotiator, Representative Garret Graves, after Tuesday’s talks. Republicans want to cut spending for the 2024 fiscal year beginning in October back to 2022 levels, while Democrats have pushed to hold it steady at this year’s rate.
White House spokesperson Karine Jean-Pierre called the talks “incredibly tough.”
“Both sides have to understand that they’re not going to get everything that they want,” Jean-Pierre said at a briefing.
Negotiators differ over Republicans’ proposals to impose new work requirements on benefits programs for low-income Americans, loosening energy permitting rules and clawing back some unspent funds Congress authorized to fight the COVID pandemic.
A source familiar with the White House’s negotiations said Biden is “willing to meet the Speaker halfway” and has offered a compromise, which includes a spending freeze, rescinding significant unspent COVID relief funds and a two-year cap on spending in line with previous bipartisan budget agreements.
The source said McCarthy “claims he wants to negotiate, but today he said the only concession he is willing to make is to prevent default — a basic Constitutional responsibility of his job.”
Congress regularly needs to raise the nation’s self-imposed debt limit to cover the cost of spending and tax cuts it has already approved. It did so three times during Republican Donald Trump’s four years in the White House without triggering a similar standoff.
The last time the federal government came this close to default was in 2011, with a similar power divide in Washington – a Democratic president and Senate majority and a Republican-controlled House.
Each party also faces opposition to the talks from within, with hardline Republicans insisting on the sharp spending cuts they passed in a House bill last month and progressive Democrats opposed to spending cuts or new work requirements.
Biden spent months saying he would not negotiate on raising the debt limit only to reverse course and begin talks with McCarthy in the last few weeks.
Editing by Scott Malone and Lincoln Feast.
Our Standards: The Thomson Reuters Trust Principles.
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