Biden and McCarthy Show Optimism on Debt Ceiling but Remain Far Apart

Biden and McCarthy Show Optimism on Debt Ceiling but Remain Far Apart

President Biden and congressional leaders from both parties emerged from a White House meeting on Tuesday, offering glimmers of hope over a deal to raise the country’s credit limit, though acknowledging they are still a long way from averting a possible June 1 default .

With time running out to craft a compromise that could make it through Congress in time to avert an economic catastrophe, Mr Biden said he would cut a diplomatic trip to Asia to be ready for a potential breakthrough . Spokesman Kevin McCarthy, a Republican from California, said it’s possible such a deal could happen within days now that the president has agreed to send his top advisers for intensified negotiations.

“We just wrapped another good, productive meeting with our congressional leadership on yet another avenue to ensure the US does not default on its debt,” Mr. Biden said after the hour-long Oval Office session.

Mr McCarthy told reporters he could expect an agreement to be reached “by the end of the week” – a marked change in tone after lamenting the state of talks just hours earlier. In a press release after the meeting, he hailed that “negotiations are taking place”.

Still, he acknowledged that talks on spending cuts were still far from each other and made it clear that both sides had not yet agreed on policy proposals.

Both Republicans and Democrats had signaled they view Tuesday’s meeting as a pivotal moment — far more momentous than a similar White House gathering a week ago and more urgent with just 16 days until the country’s likely default on its debt.

The meeting also appeared to shatter any pretense by Democrats that they would only accept a clean debt ceiling hike with no strings attached from House Republicans. For weeks, Mr. Biden has insisted that negotiations on cuts must not be a condition for raising the ceiling and avoiding a potentially catastrophic default.

But on Tuesday, both New York Democratic leaders, Senator Chuck Schumer, the majority leader, and Rep. Hakeem Jeffries, the minority leader, told reporters at the White House that passing a bipartisan bill in both houses was the only way forward.

“Hakeem and I are committed to pushing through this bipartisan bill,” Mr. Schumer said. “We will not sacrifice our values,” he added. “They probably won’t sacrifice their values. But we have to agree on something that can prevent a default. Default is a disaster.”

The meeting came a day after Treasury Secretary Janet L. Yellen reiterated that the United States could run out of money to pay its bills by June 1 if Congress didn’t pass the debt limit, the legal limit on government borrowing increases or suspends to fund its obligations. Economists say this could result in job losses and trigger a recession.

The government hit the $31.4 trillion debt ceiling on Jan. 19, and the Treasury Department has used a series of accounting maneuvers to keep paying its bills.

Ms Yellen warned on Tuesday that the United States faces “economic and financial disaster” if it defaults, saying the debt ceiling standoff is already having an impact on financial markets and budgets.

“We’re already seeing the impact of this risky move,” Ms. Yellen said in her speech at the Independent Community Bankers of America Summit.

As Tuesday’s meeting began, Mr Biden joked to reporters, “We’re having a wonderful time — everything’s going well.”

However, the session ended without a breakthrough, although wide-ranging negotiation issues have surfaced in recent days, including firm ceilings on federal spending, recovering unspent funds for the Covid-19 emergency, tighter labor requirements for federal benefits and accelerated approval rules for energy projects.

Mr McCarthy commended Mr Biden for appointing two officers to deal directly with his office and Rep. Garret Graves of Louisiana, one of Mr McCarthy’s chief deputies. According to people familiar with his decisions, Mr. Biden chose his senior adviser, Steve Ricchetti, and Shalanda Young, the director of the Office of Management and Budget.

“The structure of our negotiations has improved,” McCarthy said. “It gives you a better chance now, even if we only have a few days to get it done.”

Mr McCarthy also highlighted the proposal to reclaim unspent Covid funds, which Republican officials say could net $50 billion to $60 billion.

“I think it will eventually be in the bill,” McCarthy said.

He also told reporters on Tuesday that any deal would need to tighten labor requirements for safety-net programs like food stamps, a proposal in the House Republican-passed bill Mr. Biden showed some openness to over the weekend but which progressives have ruled unacceptable.

“Remember what we’re talking about: healthy people with no loved ones,” McCarthy said. “It helps people get a job and what does it mean when someone gets a job? They get better pay.”

Tightening labor requirements for programs like food stamps has long been anathema to many Democrats, and the proposal would face stiff opposition in the Democratic-controlled Senate.

“I cannot in good conscience support a debt ceiling proposal that pushes people into poverty,” Pennsylvania Democrat Senator John Fetterman said in a statement Tuesday. “We are already taking a cross-party approach to SNAP in the Farm Bill. But with the threat of default, it is reckless to impede this program with harmful cuts.”

Karine Jean-Pierre, the White House press secretary, said Tuesday that Mr. Biden “will not accept proposals that take away health care and health protection from people.”

Government officials have said they will not repeal any legislation signed by the President, particularly on climate change.

As talks appeared to gain momentum, Mr. Biden said he would cut short a foreign diplomatic trip to Asia to return to Washington for what he called “final negotiations” with congressional leaders. Nevertheless, the President will leave for Hiroshima (Japan) on Wednesday to attend the Group of Seven meeting there. However, he will return on Sunday, skipping scheduled visits to Papua New Guinea and Australia.

Economists on Wall Street and in the White House have warned that a prolonged default could destroy jobs and plunge the country into recession.

Democrats said earlier Tuesday they were awaiting the outcome of the meeting to decide how aggressively to press ahead with a contingency plan they’ve been preparing for months to bypass opposition from Republican leaders and a vote on raising the debt limit to force.

Beginning Tuesday, they have an opportunity to collect signatures on a special dismissal motion that would automatically lead to such a vote if they won the support of a majority of House members. To reach the required 218 threshold, Democrats would need at least five Republicans to join them, and winning them over would be extremely difficult if the crisis had not peaked.

Lawmakers also said there was increasing talk that Mr. Biden would invoke the 14th amendment to unilaterally raise the debt ceiling. They admitted the move would entail a legal challenge – and which Ms Yellen has questioned – but could still avert economic disaster.

Amid the great uncertainty, Senate Democrats were also considering taking a week-long hiatus, which was scheduled to begin on the Monday before Memorial Day weekend.

Alan Rappeport, Michael D. Shear, and Carl Hulse contributed coverage.