(Bloomberg) — Republican and White House negotiators are closing in on an agreement to raise the debt limit and cut federal spending for two years, according to people familiar with the matter, as time runs out for a catastrophic avert American bankruptcy.
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According to the people, the two sides have narrowed the differences in talks in recent days, although the agreed details are preliminary and a final agreement is still not in hand. The two parties must agree on the size of the limit.
Under the terms of the pending agreement, defense spending would be allowed to increase by 3% next year, in line with President Joe Biden’s budget request.
The accord would also include a measure to upgrade the country’s power grid to accommodate renewable energy, a key climate goal, while accelerating permitting for pipelines and other fossil fuel projects the GOP approves, people familiar with the deal said. deal.
The deal would save $10 billion from an $80 billion budget increase for the Internal Revenue Service that Biden won as part of his infrastructure bill. Republicans have warned of a wave of agents and audits, while Democrats said the increase would pay for itself through less tax evasion.
What takes shape would be much more limited than the Republicans’ opening bid, which called for a debt ceiling increase through March in exchange for 10-year spending caps. House conservatives were already coy about the idea of a small deal on Thursday, with the House Freedom Caucus sending a letter to McCarthy demanding he stand his ground.
The tentative agreement on the two-year increase in the debt limit was previously reported by the New York Times.
Read more: Modeling US debt ceiling risk as talks x-date approaches
“We know where our differences lie,” House Speaker Kevin McCarthy told reporters at the Capitol, adding that he planned to work there through the holiday weekend.
“We don’t have an agreement yet. We knew this wasn’t going to be easy. It’s hard, but we’re working. And we’ll keep working until we get this done,” he said.
US Treasury yields rose across the board. Equities opened slightly higher in Japan and South Korea, with the Australian benchmark showing little change. The Hong Kong market is closed for a holiday.
Read more: McCarthy vows to spend a long weekend working on a debt settlement
Should a deal be reached soon, Tuesday is the likely day for a vote in the House. The Senate would then have to act quickly to send it to Biden’s desk before June 1, the date Treasury Secretary Janet Yellen has said her department could run out of money.
The next day, a payment is due to millions of Social Security beneficiaries, pressuring politicians to break the deadlock.
‘Glad the market is closed’
Representative Patrick McHenry, a North Carolina Republican and one of the negotiators, asked Thursday night what he would tell investors about the progress of the talks, joking, “Glad the market is closed.” McHenry, the chairman of the Financial Services Committee, is one of McCarthy’s chief negotiators.
Fitch Ratings on Wednesday put the AAA rating for the US on hold for a possible downgrade. The US lost its AAA rating at S&P Global Ratings during a similar partisan standoff over the debt ceiling in 2011.
The White House and Treasury said Fitch’s move showed the urgency of a speedy resolution of the dispute. But McCarthy said he wasn’t concerned about Fitch’s announcement and that negotiators didn’t need the rating agency to remind them of the importance of closing a deal.
Negotiators disagree on the scale and length of spending limits that must be included in a bill to raise or suspend the debt ceiling. Economists have warned that even with a deal that avoids a devastating default, caps on government spending could help push the US into recession.
The administration has also objected to Republican moves to expand job requirements for some federal aid recipients. A White House official said Thursday that both sides are looking into the issue and that the president opposes policies that drive Americans into poverty or take away their health care.
–With assistance from Jarrell Dillard, Steven T. Dennis, Erik Wasson, Josh Wingrove, and Jennifer Jacobs.
(Updates to add contributor.)
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