Debt limit standoff brings tough talk, little action as Biden, world leaders watch for progress

Debt limit negotiations between the White House and House Republicans hung over the weekend with tough talk but little action, as President Joe Biden and world leaders kept watch from afar hoping high-stakes discussions would make progress on avoiding a potentially catastrophic federal default.

The Biden administration and House Speaker Kevin McCarthy, R-Calif., are racing for a budget deal that would pave the way to increase the nation's debt limit. Republicans are demanding steep spending cuts that Democrats oppose as too severe. The two sides are up against a deadline as soon as 1 June to raise its borrowing limit, now at $31 trillion, so the government can keep paying the nation's bills.

With talks frozen on Saturday as each side accused the other of being unreasonable, Biden was frequently briefed on the status of negotiations and directed his team to set up a call with McCarthy on Sunday morning, after he concludes meetings at the Group of Seven summit in Hiroshima, Japan.

The decision to set up a call came after another start-stop day with no outward signs of progress. Food was brought to the negotiating room at the Capitol on Saturday morning, only to be carted away hours later, and no meeting was expected. Talks, though, could resume on Sunday after the two leaders' conversation.

"The Speaker's team put on the table an offer that was a big step back and contained a set of extreme partisan demands that could never pass both Houses of Congress," press secretary Karine Jean-Pierre said in a statement late Saturday.

"Let's be clear: The President's team is ready to meet any time," said Jean-Pierre, adding that Republican leadership is beholden to its extreme wing in threatening default.

McCarthy tweeted that it was the White House that was "moving backward in negotiations."

He said "the socialist wing" of the Democratic party appears to be in control, "especially with President Biden out of the country."

Biden, attending the meeting of the world's most powerful democracies, tried to reassure them on Saturday that the United States would not default, a scenario that would rattle the world economy. He said he felt there was headway in the talks.

"The first meetings weren't all that progressive, the second ones were, the third one was," he said. The president added that he believes "we'll be able to avoid a default, and we'll get something decent done."

For months, Biden had refused to engage in talks over the debt limit, insisting that Congress must not play political games by trying to use the borrowing limit vote as leverage to extract other policy priorities.

But as the deadline approaches as soon as June 1 when Treasury says it could run out of cash, and Republicans put their own legislation on the table, the White House launched on a budget deal that would unlock voting on the debt limit.

The latest proposal from the White House would keep discretionary spending flat from the current 2023 levels into fiscal 2024, according to a person familiar with the talks and granted anonymity to discuss them.

That would essentially cut spending in real terms, when adjusted for inflation, the person said. The spending changes offered by the White House would produce roughly $1 trillion in deficit savings. Biden's team has pushed for policies to raise revenues in order to further increase deficit savings, but McCarthy's representatives are refusing to consider them.

The proposal likely falls short of what McCarthy wants for a deal as he faces a restive hard-right flank demanding budget cuts. House Republicans passed their own bill that would roll back spending to fiscal 2022 levels and impose a 1% cap on spending going forward for a decade.

In negotiations, House Republicans have called for defense spending to increase for the coming 2024 fiscal year, even as they want overall spending to decrease, the person said. The person said education, health care, Meals on Wheels and other programs would then "bear the entire burden of harsh cuts."

Republicans have refused to roll back the Trump-era tax breaks on corporations and wealthy households as Biden's own budget has proposed.

Negotiations heading into the weekend had been dizzying. McCarthy said Friday it was time to "pause" talks but then the two sides convened again in the evening, only to quickly call it quits for the night.

"We reengaged, had a very, very candid discussion," Rep. Garret Graves, R-La., a negotiator on McCarthy's side, said Friday evening.

As the White House team left the nighttime session, Biden counselor Steve Ricchetti, who is leading talks for the Democrats, said he was hopeful. "We're going to keep working," he said.

McCarthy had said resolution to the standoff is "easy," if only Biden's team would agree to some spending cuts Republicans are demanding. The biggest impasse was over the fiscal 2024 top-line budget amount, according to a person briefed on the talks and granted anonymity to discuss them. Democrats contend the steep reductions Republicans have put on the table would be potentially harmful to Americans, and they are insisting that Republicans agree to tax increases on the wealthy, in addition to spending cuts, to close the deficit.

Wall Street turned lower Friday as negotiations came to a sudden halt. Experts have warned that even the threat of a debt default would could spark a recession.

Republicans argue the nation's deficit spending needs to get under control, aiming to roll back spending to fiscal 2022 levels and restrict future growth. But Biden's team is countering that the caps Republicans proposed in their House-passed bill would amount to 30% reductions in some programs if Defense and veterans are spared, according to a memo from the Office of Management and Budget.

Any deal would need the support of both Republicans and Democrats to find approval in a divided Congress and be passed into law. Negotiators are eyeing a more narrow budget cap deal of a few years, rather than the decade-long caps Republicans initially wanted, and clawing back some $30 billion of unspent Covid-19 funds.

Still up for debate are policy changes, including a framework for permitting reforms to speed the development of energy projects, as well as the Republican push to impose work requirements on government aid recipients that Biden has been open to but the House Democratic leader Hakeem Jeffries of New York has said was a "nonstarter."

McCarthy faces pressures from his hard-right flank to cut the strongest deal possible for Republicans, and he risks a threat to his leadership as speaker if he fails to deliver. Many House Republicans are unlikely to accept any deal with the White House.

Biden is facing increased pushback from Democrats, particularly progressives, who argue the reductions will fall too heavily on domestic programs that Americans rely on.