Debt ceiling deal reached, IRS funding in spotlight

WASHINGTON — White House and congressional negotiators edged closer Friday to a compromise deal to raise the debt ceiling for two years, with just six days until the nation faces a serious threat of default. .

Markets rose Friday morning, buoyed in part by optimism that the parties would reach an agreement in time to meet the June 1 deadline set by the Treasury Department. Failure to lift the borrowing limit could hurt the U.S. economy and jeopardize the benefits that millions of people rely on to survive.

House Speaker Kevin McCarthy also appeared optimistic upon arriving at the Capitol on Friday morning.

“I thought we made progress last night. We need to make more progress now,” the California Republican told reporters.

Under the deal currently on the table, House Republicans would achieve at least two of their highest priorities in exchange for a vote to raise the debt ceiling. First, cut base federal spending in 2024 for most discretionary programs. And second, to reverse some of the $80 billion allocated to the Internal Revenue Service under the Cut Inflation Act of 2022, two sources with knowledge of the talks told CNBC.

This canceled IRS money would then be used to cover much of the domestic financing gap created by GOP spending cuts, essentially preserving programs while technically reducing the overall figure. The Pentagon and Veterans Health Benefits would be spared any cuts and see increased funding next year.

Details were still fluid Friday morning, with two officials calling the IRS funding compromise a “real problem.”

A White House spokesman and aides to Senate Majority Leader Chuck Schumer did not immediately respond to requests for comment on the emerging contours.

But on the face of it, the market could offer both sides a win. Republicans could rightly claim that they secured a cut in basic government spending for fiscal year 2024. Likewise, Democrats could say that they have kept the vast majority of national programs at funding levels equal or just lower than the current ones.

Representatives Patrick McHenry of North Carolina and Garret Graves of Louisiana, two of McCarthy’s closest allies, are leading the talks for House Republicans. The White House tapped Office of Management and Budget Director Shalanda Young and Biden adviser Steve Ricchetti to negotiate on behalf of President Joe Biden.

The two teams worked around the clock for more than a week to find a way forward through a bitterly divided Congress in time to avoid a potentially catastrophic default.

On Friday, McHenry expressed frustration with the slow progress.

“We’re here night after night after night. The pressure is greater, the consequences are greater. We recognize that. The White House should recognize that,” he told reporters as he walked into McCarthy’s office. .

The urgency of the negotiators’ task was underscored this week by the announcement on Wednesday evening that financial ratings agency Fitch had placed the US’s triple-A status on “negative watch”.

Treasury Secretary Janet Yellen told Congress that unless the debt ceiling is raised or suspended by June 1, it’s “very likely” the United States won’t be able to to meet some of their obligations.

Even a short-term technical default for a few days could wreak havoc on the domestic economy by driving up interest rates and eroding confidence in the US dollar as the world’s reserve currency. Fitch, for example, has already indicated that it will downgrade America’s credit rating if Congress misses the June 1 deadline.

A prolonged default could force the government to delay payments such as Social Security benefits and food assistance to low-income households, money that tens of millions of Americans rely on to survive.

Still, if negotiators reach a final deal on Friday, it could still be time to meet the deadline and for McCarthy to fulfill his promise to give House members 72 hours to read the bill before a vote.

In that scenario, a House vote to raise the debt ceiling could take place on Tuesday, with the Senate voting on Wednesday, officials said. The June 1 deadline is Thursday.

Republicans hold a narrow majority in the House, while Democrats have a slight advantage in the Senate. Negotiators must therefore craft a bill that can pass through both chambers.

But that doesn’t mean negotiators have to reach a deal that everyone will support. Democrats and Republicans acknowledged this week that any final bill risks losing the votes of extremists on both sides.

“I don’t think everyone will be happy at the end of the day,” McCarthy said Thursday at the Capitol. “That’s not how this system works.”

This is a developing story, please check for updates.


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