[1/2] U.S. President Joe Biden holds debt ceiling talks with House Speaker Kevin McCarthy (R-CA) in the Oval Office of the White House on May 22, 2023 in Washington, U.S. REUTERS/Leah Millis
WASHINGTON, May 27 (Reuters) – U.S. President Joe Biden and top congressional Republican Kevin McCarthy have reached a tentative deal to raise the federal government’s $31.4 trillion debt ceiling, ending a months-long impasse, two sources familiar with the negotiations said on Saturday.
Negotiators for the White House and House Republicans have reached an agreement in principle to block the debt repayment, two sources familiar with the situation said.
“But I don’t know that it’s fully resolved. There’s probably one or two little things they need to finish. But maybe close enough to move forward,” said a second source.
Biden and McCarthy had a 90-minute phone call Saturday evening to discuss the deal.
The deal would avoid an economically disruptive default unless they win a deal through a narrowly divided Congress, which the Treasury Department warned would happen Friday if the debt ceiling is not raised because it lacks the money to cover all of its obligations. June 5.
Republicans, who control the House of Representatives, have pushed for steep cuts in spending and other conditions, including new work requirements on some benefit programs for low-income Americans and stripping funding from the Internal Revenue Service, the U.S. tax agency.
They said they wanted to slow the growth of the U.S. debt, which now equals the annual output of the nation’s economy.
The exact details of the final deal were not immediately available, but negotiators have agreed to limit non-defense discretionary spending for two years through 2023 in exchange for a debt ceiling increase over the same period, sources told Reuters earlier.
Both sides must carefully inject themselves into finding a compromise that could clear the House, which has a 222-213 Republican majority, and the Senate, which has a 51-49 Democratic majority.
The prolonged standoff spooked financial markets, weighed on stocks and forced the U.S. to pay higher interest rates on some bond sales. A default would take a very heavy toll, economists say, pushing the nation into recession, shaking the global economy and leading to rising unemployment.
Biden has for months refused to negotiate with McCarthy on future spending cuts, demanding that lawmakers first pass a “clean” debt ceiling increase without other conditions, and presented a 2024 budget proposal to oppose what he released in March. Two-way negotiations between Biden and McCarthy began in earnest on May 16.
Democrats accused Republicans of playing a dangerous game on the economy. Republicans say recent increases in government spending are fueling the growth of the U.S. debt, which now equals the economy’s annual output.
The country was closest to normalization in 2011, when Washington had a Democratic president and a Senate and Republican-led House.
Congress eventually blocked default, but the economy suffered severe shocks, including the first downgrade of the US’s top-tier credit rating and a massive stock selloff.
This time, House Speaker McCarthy strengthened his hand by overseeing the passage of an April bill that combined $4.8 trillion in spending cuts with a $1.5 trillion debt-ceiling hike. The bill is unlikely to pass the Democratic-controlled Senate, but it showed McCarthy has the ability to hold together his slim majority four months into his top leadership role.
Their work is far reaching. McCarthy promised to give House members 72 hours before bringing the legislation to a vote. It will test whether enough moderate members support compromises in the bill to overcome opposition from hard-right Republicans and progressive Democrats.
Then it must pass the Senate, where it needs at least nine Republican votes to win. Each room has many opportunities to slow down the process.
Both sides struggled to find common ground on spending levels. Republicans have pushed for an 8% cut in discretionary spending next fiscal year, followed by 1% annual increases for several years.
Biden has proposed keeping spending steady through the 2024 fiscal year, which begins Oct. 1, and raising it by 1% thereafter. He also called for closing some tax loopholes that Republicans rejected.
Reporting by Moira Warburton, Steve Holland and Catherine Jackson; By Andy Sullivan; Editing by Scott Malone, Frances Kerry, Daniel Wallis and Heather Dimmons
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