WASHINGTON, May 8 (Reuters) – President Joe Biden and top Republicans and Democrats sat down this week to resolve a three-month impasse over the $31.4 trillion U.S. debt ceiling and avoid a crippling default before it ends. May.
The Democratic president is calling on lawmakers to unconditionally raise the federal government’s self-imposed debt ceiling. House Speaker Kevin McCarthy, a Republican, said his chamber will not approve any deal that does not reduce spending to address the growing budget deficit.
Biden is scheduled to meet with McCarthy at the White House on Tuesday for the first time since Feb. 1, along with Senate Majority Leader Chuck Schumer and top Senate Republican Mitch McConnell. Senior Democrat Hakeem Jeffries will also join the talks.
Analysts do not expect an immediate deal to prevent a historic blunder, which the Treasury Department has warned could come as soon as June 1. Forecasters warn.
But the start of active talks has calmed investor nerves, forcing the central government to pay its maximum interest rate for a one-month debt issue last week.
“We have a lot of frothy water right now. We need to calm them down. Some of that may come from saying, ‘We’ve found areas of agreement, we’ve found areas of disagreement, we’re going to come together again.’ And work toward a solution,” said Republican Senator Thom Tillis. told reporters last weekend.
Participants in past fiscal negotiations and outside observers, including business lobby groups, have largely framed possible compromises around extending the debt ceiling beyond the November 2024 presidential election while freezing spending.
Legislative conflicts are nothing new in a country with deep partisan divisions, where Republicans hold a slim majority in the House of Representatives and Biden’s Democrats control the Senate by two votes.
But the stakes of the debt ceiling standoff are much higher than the budget debates that have caused partial shutdowns of the federal government three times in the past decade.
“It’s painful. It’s difficult. But it’s not catastrophic,” said Democratic Senator Chris Coons, referring to past shutdowns and adding that “the default would be catastrophic.”
For months, Biden has insisted that raising the debt ceiling, a measure needed to offset spending and tax cuts already approved by Congress, should not be tied to budget talks.
“The two are completely unrelated,” Biden said Friday. “Those are two separate issues, two. Let’s get that straight.”
Uncertain timeline
McCarthy has called on Democrats to either offer their own plan or pass the House-approved package. At the end of March.
In March, Biden proposed a budget that aimed to reduce the $3 trillion deficit over 10 years by raising taxes on corporations and people making more than $400,000 a year.
Lawmakers face an uncertain deadline: The Treasury warned last week that it may not pay all of its bills by June 1, but could go weeks longer.
The Bipartisan Policy Center, a think tank that specializes in budget issues, is set to release its own revised forecast on Tuesday, further muddying the talks if it lags behind the Treasury.
In 2011, the nation last normalized with a similarly divided government, with a Democratic president and a Republican-led Senate.
Congress eventually came around and averted a default, but the economy suffered severe shocks, including the first downgrade of America’s top-tier credit rating and a massive stock selloff.
Concerns about a default have already begun to weigh on financial markets, but a default would have the most immediate effect on average Americans.
“The thing for everyday people is that the decline in their retirement savings, the increase in interest rates that affect their monthly payments on cars or houses — that’s going to affect a lot of people, and it affects low- and middle-income people the most,” said Democratic Senator Tim Kaine.
Adding to the challenge of striking a deal, McCarthy agreed to a change in House rules to call for the ouster of only one member of the speakership, which would give more power to hardliners, including about three dozen members of the House Freedom Caucus.
Reporting by David Morgan, additional reporting by Anne Safir, Dan Burns, Trevor Hunnicutt and Moira Warburton; Editing by Scott Malone and Deepa Babington
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