More time for debt-ceiling deal as U.S. pushes back possible default date

May 27, 2023 10:34 am

[Source: Reuters]

Democratic and Republican negotiators on Friday got more time to reach a deal to raise the U.S. government’s $31.4 trillion debt ceiling, as Treasury Secretary Janet Yellen said the government was likely to run out of money to pay its bills on June 5, giving four days more breathing room than her prior forecast.

Yellen’s announcement allows a little more time for Democratic President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy to reach an accord to raise the federal government’s self-imposed borrowing limit and avert a potentially disastrous default.

Negotiators appear to be nearing a deal to lift the limit for two years, but remain at odds over whether to stiffen work requirements for some anti-poverty programs.

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Any agreement would have to win approval in the Republican-controlled House and the Democratic-led Senate before Biden could sign it into law – a process that could take more than a week.

The two sides have tentatively reached an agreement that would cap spending on many government programs next year, according to a U.S. official.

But the safety-net programs remained a sticking point. Lead Republican negotiator Garret Graves said his party would not drop its demand that they require more participants to hold a job.

“Hell no. Not a chance,” Graves told reporters.

A Biden administration official briefed on the talks said they could easily slip into the weekend.

Biden and his fellow Democrats have resisted a Republican push to require childless adults under age 56 to show they are working or looking for work in order to qualify for the Medicaid health plan and the SNAP food-assistance program.

The Republican proposal would require more participants in those programs to show they are working or looking for work. That would save $120 billion over 10 years but also force more than a million Americans out of those programs, according to the nonpartisan Congressional Budget Office.

“I do not think it’s right that you borrow money from China to pay people to stay home – that are able-bodied with no dependents,” McCarthy told reporters.

Democrats have said the proposal would only create more red tape that would exclude people who would otherwise qualify.

A failure by Congress to raise its self-imposed debt ceiling before June 5 could trigger a default that would shake financial markets and send the United States into a deep recession.

Wall Street’s main indexes rose on Friday as investors hoped for progress in the negotiations. A two-year extension would mean Congress would not need to address the limit again until after the 2024 presidential election.

The deal under consideration would increase funding for the military and veterans care while essentially holding non-defense discretionary spending at current-year levels, according to the official, who spoke on condition of anonymity.

The deal might also scale back funding for the Internal Revenue Service, which got an extra $80 billion last year, in part to bolster enforcement and bring in more tax revenue. Republicans have sought to revoke that funding.

The White House is working on a way to preserve its effort to target wealthy taxpayers, the official said.

The Treasury Department had originally warned that it could be unable to cover all its obligations as soon as June 1. But it also went ahead with plans to sell $119 billion worth of debt that will come due on that date, suggesting to some market watchers that it was not an iron-clad deadline.

Several credit-rating agencies have said they have put the United States on review for a possible downgrade, which would push up borrowing costs and undercut its standing as the backbone of the global financial system.

A similar 2011 standoff led Standard & Poor’s to downgrade its rating on U.S. debt.

Even if they succeed in reaching a deal, leaders from both parties will have to work hard to round up enough votes for approval in Congress. Right-wing Republicans have insisted that any deal must include steep spending cuts, while Democrats have resisted the new work requirements for benefits programs.

Most lawmakers have left Washington for the Memorial Day holiday, but congressional leaders have told them to be ready to return for votes when a deal is struck.

House leaders have said lawmakers will get three days to ponder the deal before a vote. Any single lawmaker in the Senate has the power to tie up action for days. At least one, Republican Mike Lee, has threatened to do so.