Source: CNN

A debt limit deal is still not yet close at hand for House Republicans and the White House as lawmakers leave the nation’s capital and the risk of a first-ever default grows.

With no bill to vote on, House lawmakers are leaving for the Memorial Day weekend, though they will be given 24 hours’ notice to return if and when a deal is reached.

Each day that passes without a bipartisan deal to raise the debt ceiling brings the nation closer to default, which could be catastrophic for the global economy and have financial effects on countless Americans.

Speaker Kevin McCarthy on Thursday would not guarantee that a deal will pass by June 1, which the Treasury Department has warned could be the earliest possible “X” date for missing debt payments.

Instead, he pointed to the GOP House-passed debt bill, despite Senate Majority Leader Chuck Schumer saying that he won’t bring it to the Senate floor.

“There is a bill that has passed the House that sits in the Senate,” he told CNN’s Manu Raju. “We passed a bill in April, long before they ever said the deadline was June 1. Republicans have done everything they can.”

In another indication of how far apart the two sides remain, Rep. Patrick McHenry, a lead GOP negotiator on debt limit talks, told reporters on Thursday, “We still have fundamental disagreements we have to resolve. And it’s complicated.”

Asked by CNN if spending levels have been resolved, McHenry said: “Nothing is resolved.”

Negotiators are trying to make progress on a handful of outstanding issues – in addition to how to cut federal spending, which remains a key sticking point.

Issues in play

While little has been closed out in the talks, progress is slowly being made on all the corners of the negotiation from permitting reform to a potential spending caps deal.

As part of the negotiations, the White House and House GOP are discussing a deal that would lift the debt ceiling through 2024 while placing caps on the 12 annual spending bills Congress must pass by the end of the fiscal year to fund the government, a source familiar with the negotiations told CNN.

The idea being discussed is a mechanism that would allow Congress to pass 12 appropriations bills at agreed upon spending levels, and if they don’t then a short-term bill would automatically pare back spending to those levels.

The exact spending levels are still being determined, the source added.

Such an agreement would create a process around how to handle spending cuts and give Congress room to figure out the specifics of how to meet those cuts.

One of the trickier issues that could bedevil talks in upcoming days is the issue of work requirements, which haven’t been as widely hashed out yet.

One thing both sides do seem to have settled on is recapturing unspent funding for the Covid-19 pandemic.

Additionally, negotiators are discussing clawing back some of the $80 billion in funding for new IRS agents that was included in the Inflation Reduction Act, a GOP source confirmed to CNN.

Republicans included a claw back of IRS funding in their House-passed GOP debt ceiling bill, and a group of hardline Republicans renewed their calls for such a provision in a letter on Thursday.

The White House said earlier on in the negotiations that rolling back the IRA was off table. CNN has reached out to the White House for comment.

The Associated Press was the first to report IRS funding is being discussed in the talks.

Warning signs

In public, a messaging war is playing out between House Republicans and Democrats, with each side criticizing the other.

House Democratic leader Hakeem Jeffries slammed the move for the House to go on recess. “It’s my understanding that the designees of both President Biden as well as Speaker McCarthy will continue to talk, but it is unfortunate that House Republicans have chosen to get out of town before sundown.”

Warning signs are also beginning to pop up: Fitch Ratings placed the top-ranked US sovereign credit rating on rating watch negative Wednesday, reflecting the uncertainty surrounding the current debt ceiling debate and the possibility of a first-ever default. The agency, one of the top three credit rating agencies along with Moody’s and S&P, placed the US “AAA” on “rating watch negative,” signaling that it could downgrade US debt if lawmakers do not agree on a bill that raises US Treasury’s debt limit.

“The Rating Watch Negative reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching x date (when the U.S. Treasury exhausts its cash position and capacity for extraordinary measures without incurring new debt),” the company said in a statement, though it said it believes a resolution will be found in time.

Treasury Secretary Janet Yellen has repeatedly said it’s likely that the US Treasury will not be able to pay all of its bills in full and on time as soon as June 1, which is now just a week away. The prospects for enacting a debt limit hike by then are grim, senior sources told CNN, even as negotiators signal they’re starting to make progress on a deal.

McCarthy has repeatedly warned that the White House and House GOP must reach a deal this week to avoid default, and he has said raising the debt ceiling is the only concession he will make.

Negotiators for the White House and McCarthy have met daily, most recently spending several hours on Wednesday afternoon at the Eisenhower Executive Office Building of the White House complex, after spending much of their recent negotiations at the Capitol. McCarthy and President Joe Biden last met in-person on Monday.

If Biden and McCarthy eventually come to a consensus, they will next face the consideration of members of Congress in both chambers. Members of both parties have expressed concerns about possible concessions.

There are also legislative processes that come into consideration.

McHenry, one of McCarthy’s key negotiators, has said the House will need 24-48 hours to write the legislative text, then three days to let members review it before they vote. Then it needs to go to the Senate, where Schumer has said he can accelerate the timeline – but only by so much.

This story has been updated with additional developments.

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