The negotiators on Wednesday had trouble reaching an agreement on curbing government spending, which has become a major obstacle in negotiations to raise the debt ceiling; A potential government deficit is now only a week away.
US stocks extended losses on Wednesday, reflecting heightened concerns about the debt ceiling, with the Dow Jones Industrial Average falling for a fourth straight session.
The White House has presented plans to freeze spending next year, while Republican negotiators have insisted that any deal must be based on lower discretionary spending, a key step in beginning to tackle America’s growing debt problem. Current US debt is $31.4 trillion.
“The government has to spend less than it did last year. It’s not that hard to do that,” House Speaker Kevin McCarthy, a Republican from California, told reporters. He said that negotiators had been talking on a range of issues and that the negotiators “were able to find some ways that we could get results on some issues”.
The chief negotiator, Rep. Garret Graves, R-Louisiana, said the administration “believes they can continue to follow the same (spending) path moving forward. And we’ve made it clear that that lies flat and that doesn’t solve the problem.”
Democrats say Republican calls for spending cuts are unreasonable, especially given that the White House has previously suggested it might agree to freeze discretionary spending next year and increase spending by just 1% in fiscal 2025. Discretionary spending makes up less than a third of the federal budget, with the rest going to mandatory spending programs like Social Security and Medicare and interest payments on debt.
White House spokeswoman Karine Jean-Pierre accused Republicans of holding the US economy hostage, calling the fight against debt an “artificially created crisis” and pointing to Republicans’ reluctance to act on the compromise.
Negotiators met for four hours on Wednesday in the Eisenhower Executive Office Building at the White House. Neither the White House nor McCarthy have said when they will meet again.
The debate over spending is seen as a major obstacle in discussions to raise the debt ceiling. The US Treasury Department has warned that unless Congress acts, the federal government could run out of money to pay its bills as early as June 1, which could lead to a deficit that would roil markets and address the US economy.
US Treasury Secretary Janet Yellen reiterated on Wednesday that the US will soon run out of cash to pay its bills. “We almost certainly won’t get past the beginning of June,” he told a Wall Street Journal CEO Council event.
Republicans in the talks are demanding wider spending cuts while trying to increase military spending, which Democrats have blasted. The increase in non-defense spending and defense spending have been correlated for years, and what the Republicans want would break that convention.
Republicans also rejected a White House proposal to allow Medicare to negotiate drug prices more broadly, a measure the administration says would reduce the deficit. According to people familiar with the matter, some people in the US government currently feel that there is no way out in the negotiations.
In essence, both sides have reached an agreement on the recovery of unused new crown relief funds. But Biden’s negotiators are resisting a Republican push for tighter job requirements for some federal relief programs, an idea Biden initially signaled he was open to, people familiar with the matter said.
Progressives in Congress have fiercely opposed any measure that would address work requirements for federal relief programs.
The baseline for House Republicans’ position in debt ceiling negotiations is their proposed Limit, Save, Grow Act of 2023. In April, the bill narrowly passed the House of Representatives. The bill would restore discretionary government spending to fiscal year 2022 levels and limit spending growth to 1% per year for the next decade.
McCarthy has expressed his determination to get the government to cut spending, but has yet to state a goal of bringing government spending back to 2022 levels. He has blasted the Republican Party that his deal with Biden could include smaller spending cuts than the one passed by House Republicans.
Members of the House Freedom Caucus said McCarthy should not accept any deal that does not meet the conditions of the Republican package. The Liberal Caucus was created to use hard line tactics to pursue conservative goals. Liberal Caucus leader Rep. Chip Roy (R-Texas) released a memo Wednesday imploring Republicans to stick with the bill passed by the House, which included provisions to restore funding for the IRS.
Another member of the House Freedom Caucus, Rep. Bob Good, R-Va., that he “stands by what we passed as it is.”
Any spending cuts are rare. According to the Office of Management and Budget, Congress cut discretionary spending to $1.059 trillion in 2011 from $1.085 trillion the previous year, reflecting the Obama administration’s aggressive Debt Ceiling Agreement. Discretionary spending has largely been on the rise since then.
In January, trying to win the Senate, McCarthy promised conservatives that he would try to return spending to 2022 levels. He also agreed to change the rules of the House of Representatives so that any lawmaker could force a vote to remove him as speaker, as part of he made some concessions. Those concessions empower rank-and-file lawmakers and could put McCarthy at a disadvantage.
“I think this one-man-start-to-pull rule gives us the best Speaker McCarthy, and I think he’s done a good job,” said Rep. Matt Gaetz, R-Fla. ., at the news website Semafor.
If there was a vote to remove McCarthy, the outcome would be unpredictable. Many members of the Liberal Caucus and other critics say they don’t plan to. The election of the speaker requires the presence of a majority of members to vote. The Republicans and Democrats in the House of Representatives hold 222 seats and 213 seats respectively. As long as McCarthy loses no more than four votes from the Republican Party, he is certain to continue to serve as speaker. Some Democrats said they would vote for McCarthy if the speaker meant raising the debt ceiling.
“We live in an age where political courage should be rewarded,” Rep. Dean Phillips, D-Minnesota, said earlier this month. “If the Speaker is willing to do the right thing for the country, I will be one of those who support him.”
McCarthy’s allies said he would not be deterred if opponents sought to overthrow him. His task is to eventually rally a majority of Republicans behind a deal and rally enough Democrats to pass the bill.
“The speaker is doing the right thing. Go get the best deal,” said Rep. Kevin Hern, R-Okla., chairman of the Republican Study Committee, which represents a large group of House conservatives.
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