By LISA MASCAO, STEPHEN GROVES and SEUNG MIN KIM (Associated Press)
WASHINGTON (AP) – House Speaker Kevin McCarthy said Wednesday he was sending Republican negotiators to the White House to end debt ceiling talks.
But McCarthy, R-Calif., said the two sides are “still far apart.”
THIS IS A BREAKING NEWS UPDATE. Previous AP story follows below.
WASHINGTON (AP) – Debt ceiling negotiations are deadlocked in a classic problem that has previously vexed, divided and disrupted Washington: Republicans led by House Speaker Kevin McCarthy want to cut federal government spending, while President Joe Biden and other Democrats do not.
Time is short to reach an agreement. Treasury Secretary Janet Yellen said Wednesday that it “looks almost certain” that the U.S. will not make it through early June without a default. That would be catastrophic, as the government risks running out of cash to pay its bills as early as June 1.
“We’re already seeing some stress in the Treasury markets,” Yellen said at a Wall Street Journal event.
“Even before a deal, when one happens, there can be substantial difficulty in the financial market, we’re seeing only the beginnings,” Yellen said.
The political standoff is pushing the country closer to a crisis, affecting financial markets and threatening the global economy. Anxious retirees and social service groups are among those making default contingency plans. Negotiators head to the White House to resume talks at noon.
Buoyed by a conservative House majority that swept him into power, McCarthy, R-Calif., was not swayed by a White House counteroffer to freeze spending. “A freeze is not going to work,” McCarthy said.
“I don’t understand where the Democrats think they can’t find $1 to cut,” McCarthy said Wednesday morning.
“We have to spend less than we spent last year. This is the starting point.”
Washington’s long-running debate over the size and scope of the federal government now has just days to resolve. Failure to raise the nation’s debt ceiling, now at $31 trillion, would risk a potentially chaotic federal default that would almost certainly cause economic turmoil at home and abroad.
Dragging into a third week, negotiations to raise the nation’s debt limit were never supposed to get to this point.
The White House insisted from the start that it was unwilling to trade off the need to pay the nation’s bills, demanding that Congress simply raise the ceiling as it has done many times before without compromise.
But the new speaker-elect visited Biden in the Oval Office in February, urging the president to come to the negotiating table for a budget package that would cut spending and the nation’s growing deficits in exchange for a vote to allow future debt.
“I told the president on February 1,” McCarthy explained. “I said, Mr. President, that you will not raise taxes. You have to spend less money than has been spent this year.”
Negotiations are focused on finding an agreement on the cap for fiscal year 2024. Republicans have dropped their demand to roll back spending to 2022 levels, but say next year’s government spending must be lower than it is now. But the White House offered to freeze spending at current numbers through 2023.
By sparing defense and some veterans accounts from the cuts, Republicans would shift most of the spending cuts to other federal programs, an approach that breaks with a tradition in Congress of even budget limits.
Agreement on this higher level of spending is vital. It would allow McCarthy to offer spending restrictions to conservatives without being so severe that he would drive away the Democratic votes that would be needed in a divided Congress to pass any bill.
But what, if anything, Democrats would gain if they accepted deeper spending cuts than the Biden team has proposed is uncertain.
The White House has continued to argue that deficits can be reduced by ending tax breaks for the wealthiest households and some corporations, but McCarthy said he told the president at their February meeting that raising revenue through increases of taxes is off the table.
Negotiators are now also debating the length of a 1 percent cap on annual spending growth going forward, with Republicans scaling back their demand for a 10-year cap to six years, but the White House is offering just one year, for 2025.
Typically, the debt ceiling has been raised for the duration of a budget deal, and in this negotiation the White House is seeking a two-year deal that will outlast the presidential election.
Past talks on the debt ceiling have resulted in budget deals in which both sides have won some concessions on a woman and a dam.
Republicans, however, are pushing for additional priorities as negotiators focus on the more than $100 billion difference between the 2022 and 2023 spending plans as a place to cut.
They want to strengthen work requirements for government aid to recipients of food stamps, cash assistance and the Medicaid health care program that the Biden administration says would affect millions of people who rely on assistance.
All parties have looked at the possibility that the package would include a framework to ease federal regulations and speed up the development of energy projects. They are sure to recover about $30 billion in unspent COVID-19 funds now that the pandemic emergency has officially been lifted.
The White House has countered by keeping defense and non-defense spending next year, which would save $90 billion in fiscal year 2024 and $1 trillion over 10 years.
McCarthy promised lawmakers he would abide by the rule to release any bill for 72 hours before a vote, making any action in doubt until the weekend, just days before a potential deadline. The Senate would also have to approve the package before it could go to Biden’s desk for signature.
McCarthy faces a hard-right flank in his own party that is likely to reject any deal, and that has led some Democrats to encourage Biden to resist any compromise with Republicans and simply invoke the 14th Amendment to raise the debt ceiling on your own an unprecedented action that the president has now resisted.
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Associated Press writers Fatima Hussein, Kevin Freking, Chris Megerian, Darlene Superville and Mary Clare Jalonick contributed to this report.
