Negotiations to avert a catastrophic US debt default look set to go to the wire, with talks resuming Tuesday after President Joe Biden and the Republican speaker of the House failed to reach agreement ahead of a June 1 deadline.
Both Biden and House Speaker Kevin McCarthy described Monday’s talks as “productive,” but said disagreement remained on key issues.
Biden and McCarthy’s teams have been locked in late-night talks since Sunday to try and shape a deal to raise or suspend the borrowing cap, known as the debt ceiling, in order to cover existing US spending commitments.
Republicans in Congress have so far refused to do so without a commitment from Democrats to cut spending next year and start bringing down the country’s $31-trillion-plus debt burden.
– Bridging the gaps –
Biden and McCarthy met for face-to-face talks Monday, shortly after the president returned from a G7 summit in Japan, breathing new life into the talks and underscoring the urgency with which the negotiations are now taking place.
US Treasury Secretary Janet Yellen says the country could run out of money to pay for existing commitments as early as next week, while the nonpartisan Congressional Budget Office predicts the so-called “X-date” will arrive two weeks later.
After three rounds of talks between Biden and McCarthy, the contours of a potential deal include a debt-limit increase with curbed federal spending, reforms to simplify the approval process for energy projects and a claw-back of up to $70 billion in unspent pandemic relief.
But cutting spending next year to 2022 levels remains a “red line” that Republicans are insisting on, and something the Democrats have so far refused to commit to.
The Biden administration has proposed freezing current spending limits where they are, but wants the Pentagon to share in any budget cuts, which runs counter to Republican objectives to boost military and border security spending.
Biden also wants any deficit reduction to be achieved in part by raising taxes on corporations and the wealthy, not just through spending cuts, which Republicans have ruled out.
– Time is running out –
Even if the two sides manage to bridge their significant differences, the timing will be tight to get the required legislation through Congress before June 1.
Negotiators will still have to turn any agreement into legislative text, obtain an estimate of the final bottom line from the Congressional Budget Office and allow 72 hours for lawmakers voting on the bill to read it first.
Then it has to be rubber-stamped by the Senate, which would normally add a week to the process, although Senate leaders have made clear they would expect to move faster on this occasion.
As the US moves rapidly towards the X-date, economists, political analysts and — if US media reports are correct — the US Treasury, have begun to explore what options policymakers have if the US runs out of money to pay its bills.
Even if Treasury moves to prevent an outright default by temporarily curbing government spending, hitting the debt ceiling would still likely cause financial markets to plummet and interest rates on mortgages to surge.
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