McCarthy Optimistic: White House and GOP Show Promise in Debt Ceiling Negotiations
- Posted on May 25, 2023
- By Top Stories
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White House and Republican negotiators engaged in late-night discussions about raising the US government's debt ceiling, according to Republican leader Kevin McCarthy. The talks have reached a critical stage as the Treasury Department has cautioned that the government could face a shortage of funds to cover its expenses by June 1, potentially leading to a devastating default.
Despite their differences on spending, taxes, and anti-poverty programs, both sides are optimistic about finding common ground after productive negotiations. McCarthy acknowledged that there are still unresolved issues and has instructed his team to work around the clock to reach a solution. Meanwhile, the Treasury Department's forecast is not definitive, and some analysts suggest that the government could survive another week without defaulting, leading some hardliners to downplay the significance of the June 1 deadline.
The looming deadline has caused concern on Wall Street, resulting in a decline in US stocks and higher borrowing costs for the nation. Fitch, a ratings agency, placed the US's "AAA" credit rating on negative watch due to escalating political disputes regarding the debt limit. Congress will require several days to pass any agreement through both the Republican-controlled House and the Democratic-controlled Senate. Lawmakers regularly need to raise the self-imposed debt limit to cover previously approved spending and tax cuts.
McCarthy has emphasized that any deal must include cuts to discretionary spending in the following year and limit spending growth to curb the growing US debt, which currently matches the annual economic output. President Biden has proposed freezing spending at current levels next year and implementing tax increases to address the debt issue. Failure to reach an agreement could prompt credit rating agency Moody's to reconsider its top-notch rating for the US government, as a similar debt-ceiling standoff in 2011 led to a downgrade by S&P Global.
Both Democrats and Republicans have been hesitant to compromise, with hardline Republicans demanding significant spending cuts and some Democrats accusing Republicans of holding the economy hostage for their own political gain.
Biden's position on negotiating the debt limit has evolved, initially stating he wouldn't engage in negotiations but later initiating talks with McCarthy. The last time the federal government faced a similar risk of default was in 2011 when the power balance in Washington was similar, with a Democratic president, a Democratic Senate majority, and a Republican-controlled House.
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