© Reuters. FILE PHOTO: U.S. President Joe Biden hosts debt limit talks with U.S. House Speaker Kevin McCarthy (R-CA) in the Oval Office at the White House in Washington, U.S., May 22, 2023. REUTERS/Leah Millis/File Photo
By Steve Holland, Moira Warburton and Rami Ayyub
WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen said on Friday the government would run short of money to pay its bills on June 5, which would trigger a potentially calamitous default, unless Congress raises the $31.4 trillion debt ceiling.
Yellen’s announcement allows a little more time for Democratic President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy to reach an accord to raise the federal government’s self-imposed borrowing limit. Previously Treasury had said the deal needed to be reached as soon as June 1.
Representative Patrick McHenry, one of the Republican negotiators, said they could meet the June 5 deadline.
“We’re not done, but we’re within the window of being able to perform this and we have to come to some really tough terms,” he told reporters.
Biden told reporters he thought the negotiators were very close to a deal.
“Things are looking good. I’m very optimistic,” Biden said.
Negotiators appear to be nearing a deal to lift the limit for two years, but remain at odds over whether to stiffen work requirements for some anti-poverty programs.
Any agreement would have to win approval in the Republican-controlled House and the Democratic-led Senate before Biden could sign it into law – a process that could take more than a week.
Negotiators have tentatively reached an agreement that would cap spending on many government programs next year, according to a U.S. official.
The safety-net programs remained a sticking point. Lead Republican negotiator Garret Graves said his party would not drop its demand that they require more participants to hold a job.
“Hell no. Not a chance,” Graves told reporters.
Biden and his fellow Democrats have resisted a Republican push to require childless adults under age 56 to show they are working or looking for work in order to qualify for the Medicaid health plan and the SNAP food-assistance program.
The Republican proposal would require more participants in those programs to show they are working or looking for work. That would save $120 billion over 10 years but also force more than a million Americans out of those programs, according to the nonpartisan Congressional Budget Office.
Democrats have said the proposal would only create more red tape that would exclude people who would otherwise qualify.
Medicaid and SNAP have scaled back in recent months after expanding dramatically during the COVID-19 pandemic. Biden in particular has resisted the work requirements for Medicaid, which covered 85 million Americans as of January.
A failure by Congress to raise its self-imposed debt ceiling before June 5 could trigger a default that would shake financial markets and send the United States into a deep recession.
Wall Street’s main indexes rose on Friday as investors hoped for progress in the negotiations. A two-year extension would mean Congress would not need to address the limit again until after the 2024 presidential election.
The deal under consideration would increase funding for the military and veterans care while essentially holding non-defense discretionary spending at current-year levels, according to the official, who spoke on condition of anonymity.
The deal might also scale back funding for the Internal Revenue Service, which got an extra $80 billion last year, in part to bolster enforcement and bring in more tax revenue. Republicans have sought to revoke that funding.
The White House is working on a way to preserve its effort to target wealthy taxpayers, the official said.
The Treasury Department had previously warned that it could be unable to cover all its obligations as soon as June 1.
Several credit-rating agencies have said they have put the United States on review for a possible downgrade, which would push up borrowing costs and undercut its standing as the backbone of the global financial system.
A similar 2011 standoff led Standard & Poor’s to downgrade its rating on U.S. debt.
Even if they reach a deal, leaders from both parties will have to work hard to round up enough votes for approval in Congress. Right-wing Republicans have insisted that any deal must include steep spending cuts, while Democrats have resisted the new work requirements for benefits programs.
Most lawmakers have left Washington for the Memorial Day holiday, but congressional leaders have told them to be ready to return for votes when a deal is struck.
House leaders have said lawmakers will get three days to ponder the deal before a vote. Any single lawmaker in the Senate has the power to tie up action for days. At least one, Republican Mike Lee, has threatened to do so.