Debt ceiling: Guarded optimism as talks focus on spending caps
Yahoo Finance · 24 May 780 Views

Tuesday began with hope that a debt-ceiling deal could be in sight even as Republicans counseled caution. That guarded optimism largely hinges on some positive signals around the key issue of government spending.

Staff-level talks remained productive on the issue, a person familiar with the negotiations said Tuesday. Negotiators met again following optimistic remarks from both President Joe Biden and House Speaker Kevin McCarthy.

But McCarthy warned against over-optimism Tuesday. He reportedly told a closed-door meeting of Republicans colleagues "we are nowhere near a deal yet" just hours after saying in the Oval Office "I think, at the end of the day, we can find common ground."

At issue is an increase of about $130 billion in government spending from FY2022 to FY2023 that was approved by Congress late last year.

In comments Monday evening, a lead negotiator for House Speaker Kevin McCarthy signaled that Republicans are open to compromise on their proposal to return to the FY2022 levels and then impose a 1% cap on future increases.

“We’re here negotiating,” said Rep. Patrick McHenry (R-NC) after Monday’s Oval Office meeting. “The teams in the room have built some level of relationship and trust that we can actually get a product that is mutually agreeable.”

What the White House has offered is a compromise to freeze federal spending at current FY2023 levels, which Republicans have rejected.

In comment to reporters Tuesday, McCarthy emphasized the sides still had some distance to travel. He reportedly said of Democrats: "They still want to spend more money next year than we spent this year. That’s a red line.”"

Nonetheless, there is hope that the parameters of a deal are in place to satisfy both the GOP desire for cuts along with the Democrats stance that cuts can't be too deep, especially in social programs.

“There's a dollar between those levels so it seems likely they can find some common ground there,” said Shai Akabas, the Bipartisan Policy Center's director of economic policy, Tuesday morning during a briefing.

His group also released a new debt-limit projection today that finds a growing risk of default if a deal is not reached before a dangerous upcoming period from June 2nd to the 13th.

“I’m all for reducing and continuing to reduce the deficit,” Biden said yesterday.

There are other issues beyond spending that are subject to negotiation from the two sides.

One is proposed new work requirements from the GOP that would be tied to federal assistance like the Temporary Assistance for Needy Families program. Another is permitting reform to cut red tape for new energy projects.

A key sticking point is a last-minute push from the White House to close certain tax loopholes - especially in the fossil fuel and cryptocurrency sectors - to raise additional revenue. Republicans have repeatedly rejected anything that could be described as a tax increase.

The negotiators are also trying to find common ground on a push from the GOP to "claw back" COVID relief money that remains unspent. This part of the negotiations could have an impact on the overall conversation around spending levels.

Finally, markets will also be closely watching how much a possible deal actually raises the debt ceiling itself. The Republican proposal would lift the limit by $1.5 trillion or until March 31, 2024 — whichever comes first — with many hoping for a more significant raise to take the issue off the table until after next year's presidential election.

In a new statement, Business Roundtable CEO Joshua Bolten applauded the sense of optimism and urged a swift compromise, warning “every American will be affected if the U.S. defaults.”

(Source: Yahoo Finance), all rights reserved by original source.

Reprinted from Yahoo Finance , the copyright all reserved by the original author.