Clock ticking, 'optimistic' Biden and McCarthy meet on debt ceiling

The Democratic president and the top congressional Republican have struggled to make progress on an agreement, as McCarthy pressures the White House to agree to spending cuts in the federal budget that Biden has called "extreme." They have just 10 days to reach a deal - until June 1 - to increase the government's self-borrowing limit or trigger an unprecedented debt default that economists warn could bring on a recession.

President Joe Biden and House Speaker Kevin McCarthy met in the White House on Monday about raising the U.S. government's $31.4 trillion debt ceiling, with the U.S. economy at risk of crashing if no deal is reached in 10 days. The Democratic president and the top congressional Republican have struggled to make progress on an agreement, as McCarthy pressures the White House to agree to spending cuts in the federal budget that Biden has called "extreme."

They have just 10 days to reach a deal - until June 1 - to increase the government's self-borrowing limit or trigger an unprecedented debt default that economists warn could bring on a recession. Biden told reporters as the meeting started that he was "optimistic" they could make some progress. Both sides need a bipartisan agreement to "sell it" to their constituencies, he said, adding there may still be some disagreements.

Treasury Secretary Janet Yellen on Monday offered a sobering reminder of how little time is left, saying the earliest estimated default date remains June 1 and that it is "highly likely" that Treasury will no longer be able to pay all government obligations by early June if the debt ceiling is not raised. White House aides met with Republican negotiators on Capitol Hill for two hours on Monday, and early indications were that the talks had gone well.

"I firmly believe what we're negotiating right now, a majority of Republicans will see that it is a right place to put us on the right path," McCarthy told reporters. Any deal to raise the limit must pass both chambers of Congress, and therefore hinges on bipartisan support. McCarthy's Republicans control the House 222-213, while Biden's Democrats hold the Senate 51-49.

A failure to lift the debt ceiling would trigger a default that would shake financial markets and drive interest rates higher on everything from car payments to credit cards. U.S. markets rose on Monday as investors awaited updates on the negotiations.

It will take several days to move legislation through Congress if and when Biden and McCarthy come to an agreement. McCarthy said that a deal must be reached this week for it to pass Congress and be signed into law by Biden in time to avoid default. A White House official on Monday said that Republican negotiators had last week proposed additional cuts to programs providing food aid to low-income Americans, and emphasized no deal could pass Congress without support from both parties.

CUTS AND CLAWBACKS Republicans want discretionary spending cuts, new work requirements for some programs for low-income Americans and a clawback of COVID-19 aid approved by Congress but not yet spent in exchange for a debt ceiling increase, which is needed to cover the costs of lawmakers' previously approved spending and tax cuts.

Democrats want to hold spending steady at this year's levels, while Republicans want to return to 2022 levels. A plan passed by the House last month would cut a wide swath of government spending by 8% next year. Biden, who has made the economy a centerpiece of his domestic agenda and is seeking re-election, has said he would consider spending cuts alongside tax adjustments but that Republicans' latest offer was "unacceptable."

The president tweeted that he would not back "Big Oil" subsidies and "wealthy tax cheats" while putting healthcare and food assistance at risk for millions of Americans. Both sides must also weigh any concessions with pressure from hardline factions within their own parties.

Some far-right House Freedom Caucus members have urged a halt to talks, demanding that the Senate adopt their House-passed legislation, which has been rejected by Democrats. McCarthy, who made extensive concessions to right-wing hardliners to secure the speaker spot, risks being removed by members of his own party if they do not like the deal he cuts. Former President Donald Trump, a Republican who is seeking another term after losing to Biden in the 2020 election, has urged members of his party to force a default if they do not achieve all their goals, downplaying any economic consequences.

Liberal Democrats have pushed back against any cuts that would harm families and lower-income Americans, with some urging Biden to act on his own by invoking the Constitution's 14th Amendment — an untested move which the president said on Sunday would face constraints. The amendment states that the "validity of the public debt of the United States ... shall not be questioned," but the clause has been largely unaddressed by the courts.

Biden is racing for a solution after refusing for months to negotiate on the debt ceiling and insisting that Republicans should pass a "clean" unconditional increase before he would agree to any spending negotiations. In Japan on Sunday, he acknowledged the political implications, saying some far-right House Republicans "know the damage that it would do to the economy" if there was a default and accused Republicans of hoping the blame would fall to him and thwart his re-election.

Congress three times raised the debt limit under Trump, without a similar demand from Republicans for sharp spending cuts.