By David Morgan, Nandita Bose and Richard Cowan
WASHINGTON (Reuters) -Top congressional Republican Kevin McCarthy said on Monday afternoon that talks over raising the U.S. federal government’s $31.4 trillion debt ceiling were “on the right path” hours ahead of a meeting with Democratic President Joe Biden.
The president and the speaker of the House of Representatives, McCarthy, have just 10 days to reach a deal to increase the government’s self-imposed borrowing limit or trigger an unprecedented default.
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.
Biden and McCarthy will meet at 5:30 p.m. EDT (2130 GMT), the White House said, after their negotiating representatives met for more than two hours on Monday.
“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. McCarthy’s Republicans control the House 222-213, while Biden’s Democrats hold the Senate 51-49, making it difficult to reach a bipartisan deal that would secure enough votes to pass.
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. Ongoing uncertainty is already weighing on investors and stocks.
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.
“We can get a deal tonight. We could deal tomorrow but you got to get something done this week to be able to pass it and move it to the Senate,” McCarthy told reporters.
A White House official on Monday said that Republican negotiators had 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 are pushing for 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 an 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. 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.
(Reporting by Richard Cowan, Nandita Bose and David Morgan in WashingtonAdditional reporting by Steve Holland, Andrea Shalal and Susan Heavey in WashingtonEditing by Scott Malone, Nick Zieminski, Heather Timmons and Matthew Lewis)