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The details were not finalized, but negotiators were discussing a compromise that would allow Republicans to point to spending reductions and Democrats to say they had prevented large cuts.
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(Video) These are the cuts the GOP wants in a debt ceiling deal
By Jim Tankersley and Catie Edmondson
Reporting from Washington
Top White House officials and Republican lawmakers were closing in Thursday on a deal that would raise the debt limit for two years while imposing strict caps on discretionary spending not related to the military or veterans for the same period. Officials were racing to cement an agreement in time to avert a federal default that is projected in just one week.
The deal taking shape would allow Republicans to say that they were reducing some federal spending — even as spending on the military and veterans’ programs would continue to grow — and allow Democrats to say they had spared most domestic programs from significant cuts.
Negotiators from both sides were talking into the evening and beginning to draft legislative text, though some details remained in flux.
“We’ve been talking to the White House all day, we’ve been going back and forth, and it’s not easy,” Speaker Kevin McCarthy told reporters as he left the Capitol on Thursday evening, declining to divulge what was under discussion. “It takes a while to make it happen, and we are working hard to make it happen.”
The compromise, if it can be agreed upon and enacted, would raise the government’s borrowing limit for two years, past the 2024 election, according to three people familiar with it who insisted on anonymity to discuss a plan that was still being hammered out.
The United States hit the legal limit, currently $31.4 trillion, in January and has been relying on accounting measures to avoid defaulting since then. The Treasury Department has projected it will exhaust its ability to pay bills on time as early as June 1.
In exchange for lifting the debt limit, the deal would meet Republicans’ demand to cut some federal spending, albeit with the help of accounting maneuvers that would give both sides political cover for an agreement likely to be unpopular with large swaths of their base voters.
It would impose caps on discretionary spending for two years, though those caps would apply differently to spending on the military than to nondefense discretionary spending. Spending on the military would grow next year, as would spending on some veterans’ care that falls under nondefense discretionary spending. The rest of nondefense discretionary spending would fall slightly — or roughly stay flat — compared with this year’s levels.
The deal would also roll back $10 billion of the $80 billion Congress approved last year for an I.R.S. crackdown on high earners and corporations that evade taxes, though that provision was still under discussion. Democrats have championed the initiative, and nonpartisan scorekeepers have said the funding would reduce the budget deficit by helping the government collect more of the tax revenue it is owed. But Republicans have denounced it, claiming falsely that the money would be used to fund an army of auditors to go after working people.
“The president and his negotiating team are fighting hard for his agenda, including for I.R.S. funding so it can provide better customer service to taxpayers and crack down on wealthy tax cheats,” a White House spokesman, Michael Kikukawa, said in an email on Thursday in response to a question about the provision.
As the deal stood on Thursday, the I.R.S. money would essentially shift to nondefense discretionary spending, allowing Democrats to avoid further cuts in programs like education and environmental protection, according to people familiar with the pending agreement.
The plan had yet to be finalized, and the bargainers continued to haggle over crucial details that could make or break any deal.
“Nothing is done until you actually have a complete deal,” said Representative Patrick T. McHenry of North Carolina, one of the lead G.O.P. negotiators, who also declined to discuss the specifics of the negotiations. “Nothing’s resolved.”
The cuts contained in the package were all but certain to be too modest to win the votes of hard-line fiscal conservatives in the House. Liberal groups were already complaining on Thursday about the reported deal to reduce the I.R.S. funding increase.
But people familiar with the developing deal said that negotiators had agreed to fund military and veterans’ programs at the levels envisioned by President Biden in his budget for next year. They would reduce nondefense discretionary spending below this year’s levels — but much of that cut would be covered by the shift in the I.R.S. funding and other budgetary maneuvers. White House officials have contended those shifts would functionally make nondefense discretionary spending the same next year as it was this year.
All discretionary spending would then grow at 1 percent in 2025, after which the caps would lift.
Mr. McCarthy had nodded on Thursday to the idea that a compromise to avert a default would most likely draw detractors from both parties.
“I don’t think everybody is going to be happy at the end of the day,” he said. “That’s not how this system works.”
Another provision of the deal seeks to avert a government shutdown later in the year, and would attempt to take away Republicans’ ability to seek deeper cuts to government programs and agencies through the appropriations process later in the year.
The exact details on how such a measure would work remained unclear on Thursday evening. But it was based on a penalty of sorts, which would adjust the spending caps in the event that Congress failed to pass all 12 stand-alone spending bills that fund the government by the end of the calendar year.
Negotiators were still at loggerheads over work requirements for social safety net programs and a permitting overhaul for domestic energy and gas projects.
“We have legislative work to do, policy work to do,” Mr. McHenry said. “The details of all that stuff really are consequential to us being able to get this thing through.”
As negotiators inched closer to a deal, hard-right Republicans on Thursday were becoming increasingly anxious that Mr. McCarthy would sign off on a compromise they viewed as insufficiently conservative. Several right-wing Republicans have already vowed to oppose any compromise that retreats from cuts that were part of their debt-limit bill.
“Republicans should not cut a bad deal,” Representative Chip Roy of Texas, an influential conservative, wrote on Twitter on Thursday morning, shortly after telling a local radio station that he was “going to have to go have some blunt conversations with my colleagues and the leadership team” because he did not like “the direction they are headed.”
Representative Ralph Norman, Republican of South Carolina, said he was reserving judgment on how he would vote on a compromise until he saw the bill, but added: “What I’ve seen now is not good.”
Former President Donald J. Trump, who has said Republicans should force a default if they do not get what they want in the negotiations, also was weighing in. Mr. McCarthy told reporters he had spoken with Mr. Trump briefly about the negotiations — “it came up just for a second,” the speaker said. “He was talking about, ‘Make sure you get a good agreement.’”
After playing a tee shot on his golf course outside Washington, Mr. Trump approached a reporter for The New York Times, iPhone in hand, and showed a call with Mr. McCarthy.
“It’s going to be an interesting thing — it’s not going to be that easy,” said Mr. Trump, who described his call with the speaker as “a little, quick talk.”
“They’ve spent three years wasting money on nonsense,” he added, saying, “Republicans don’t want to see that, so I understand where they’re at.”
Luke Broadwater and Stephanie Lai contributed reporting from Washington. Alan Blinder contributed reporting from Sterling, Va.
Jim Tankersley is a White House correspondent with a focus on economic policy. He has written for more than a decade in Washington about the decline of opportunity for American workers, and is the author of "The Riches of This Land: The Untold, True Story of America's Middle Class." @jimtankersley
Catie Edmondson is a reporter in the Washington bureau, covering Congress. @CatieEdmondson
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FAQs
Does raising the debt limit allow the government to spend more money? ›
The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past. Failing to increase the debt limit would have catastrophic economic consequences.
What is the debt limit deal? ›The debt limit agreement would immediately rescind $1.38 billion from the I.R.S. and ultimately repurpose another $20 billion from the $80 billion it received through the Inflation Reduction Act. Administration officials said on Sunday that they had agreed to reprogram $10 billion of extra I.R.S.
What does the debt ceiling deal include? ›The bill caps non-defense spending — which funds areas like public education and transportation — in fiscal 2024, then increases it by 1% in 2025. The deal suspends the debt limit of $31.4 trillion through Jan. 1, 2025.
Was a debt ceiling deal reached? ›Debt ceiling deal reached in principle by Biden and McCarthy to avoid default : NPR. Debt ceiling deal reached in principle by Biden and McCarthy to avoid default The leaders' breakthrough comes after weeks of negotiations and a series of on-and-off talks.
Who owns most of US debt? ›Domestic Holders of Federal Debt
The Federal Reserve, which purchases and sells Treasury securities as a means to influence federal interest rates and the nation's money supply, is the largest holder of such debt.
The Fed tries to influence the supply of money in the economy to promote noninflationary growth. Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse.
What is considered a large amount of debt? ›Key Takeaways. Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
What is the maximum amount of debt your budget can bear? ›Using the 28/36 Rule
A common rule-of-thumb to calculate a reasonable debt load is the 28/36 rule. According to this rule, households should spend no more than 28% of their gross income on home-related expenses, including mortgage payments, homeowners insurance, and property taxes.
The U.S. has run a deficit for the last 20 years, substantially increasing the national debt. In fact, according to the Department of the Treasury, the current debt is $31.4 trillion.
How much of the US debt is owned by China? ›However, this has declined over time, and as of 2022 they controlled approximately 25% of foreign-owned debt. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).
How much is US in debt to China? ›
China holds about $1 trillion of U.S. debt, about 3% of all U.S. debt outstanding.
What happens if the US pays off all its debt? ›If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world. "It was a huge issue ... for not just the U.S. economy, but the global economy," says Diane Lim Rogers, an economist in the Clinton administration. The U.S. borrows money by selling bonds.
What happens if US national debt gets too high? ›A nation saddled with debt will have less to invest in its own future. Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar.
Can America get out of debt? ›Eliminating the U.S. government's debt is a Herculean task that could take decades. In addition to obvious steps, such as simply hiking taxes and slashing spending, the government could take a number of other approaches, some of them unorthodox and even controversial.
What to do when you're in debt and have no money? ›- Enroll in a hardship program. ...
- Make a budget and prioritize your expenses. ...
- Cut your spending. ...
- Manage credit cards wisely while unemployed. ...
- Apply for government assistance. ...
- Think before withdrawing money from your 401(k) ...
- Take out a home equity loan to pay off debt.
The 28/36 rule refers to a common-sense approach used to calculate the amount of debt an individual or household should assume. A household should spend a maximum of 28% of its gross monthly income on total housing expenses according to this rule, and no more than 36% on total debt service.
What is an OK amount of credit card debt? ›If your total balance is more than 30% of the total credit limit, you may be in too much debt. Some experts consider it best to keep credit utilization between 1% and 10%, while anything between 11% and 30% is typically considered good.
How much is too much debt to income? ›Lenders, including anyone who might give you a mortgage or an auto loan, use DTI as a measure of creditworthiness. DTI is one factor that can help lenders decide whether you can repay the money you have borrowed or take on more debt. A good debt-to-income ratio is below 43%, and many lenders prefer 36% or below.
Is $20,000 a lot of debt? ›“That's because the best balance transfer and personal loan terms are reserved for people with strong credit scores. $20,000 is a lot of credit card debt and it sounds like you're having trouble making progress,” says Rossman.
Can too much spending lead to debt? ›What are the effects of overspending? Overspending can lead to financial stress, taking on high-interest credit card or personal loan debt, and other problems such as not being able to pay all monthly bills or save for other, longer-term financial goals.
Why is the US in so much debt? ›
Since the government almost always spends more than it takes in via taxes and other revenue, the national debt continues to rise. To finance federal budget deficits, the U.S. government issues government bonds, known as Treasuries.
Which country has highest debt? ›- Sri Lanka. ...
- Portugal. Debt to GDP Ratio: 114% ...
- Cuba. Debt to GDP Ratio: 117% ...
- Bahrain. Debt to GDP Ratio: 120% ...
- Zambia. Debt to GDP Ratio: 123% ...
- Suriname. Debt to GDP Ratio: 124% ...
- Bhutan. Debt to GDP Ratio: 125% ...
- United States. Debt to GDP Ratio: 129%
The Congressional Budget Office (CBO) projects that interest payments will total $663 billion in fiscal year 2023 and rise rapidly throughout the next decade — climbing from $745 billion in 2024 to $1.4 trillion in 2033. In total, net interest payments will total nearly $10.6 trillion over the next decade.
What happens when the government hits the debt limit? ›Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the United States' financial market and tip its economy—and the world's—into immediate recession.
What will happen if government debt increases? ›A nation saddled with debt will have less to invest in its own future. Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar.
What happens if US debt increases? ›Consequences of National Debt
Rising debt imposes higher interest costs, especially when interest rates rise. The CBO expects the U.S. government's net interest costs to triple over the next decade, reaching $1.2 trillion annually by 2032.
According to Moody's, even a short debt limit breach could lead to a decline in real GDP, nearly 2 million lost jobs, and an increase in the unemployment rate to nearly 5 percent from its current level of 3.5 percent.
How many times has the federal debt limit been raised? ›In a brief from January, Gale and Burman laid out seven facts about the debt limit, including that the limit has been raised 78 times since 1960, only one other advanced country (Denmark) has a debt limit rule like ours, and not raising the debt limit would require $1.5 trillion in spending cuts this year.
What happens if America defaults? ›And if a government default were to last much longer — well into the summer — the consequences would be far more dire, Zandi and his colleagues found in their analysis: U.S. economic growth would sink, 7.8 million American jobs would vanish, borrowing rates would jump, the unemployment rate would soar from the current ...
Why does the US have so much debt? ›Since the government almost always spends more than it takes in via taxes and other revenue, the national debt continues to rise. To finance federal budget deficits, the U.S. government issues government bonds, known as Treasuries.
How much credit card debt does the average American have? ›
The average U.S. household has $6,473 in credit card debt
According to data from Experian, the average American's credit card balance in the third quarter of 2021 was $5,221. The Ascent examined research on American credit card debt and found that Americans had $841 billion in credit card debt in 2022.
Even with that $16.9 trillion shared by about 340 million people, consumer debt statistics show that Americans are feeling the pain.
How much credit card debt does the average American household have? ›| Type of debt | Total owed by an average U.S. household with this debt | Total owed in the U.S. |
|---|---|---|
| Credit cards (revolving) | $7,876 | $488.66 billion |
| Mortgages | $228,640 | $12.04 trillion |
| Auto loans | $29,107 | $1.56 trillion |
| Student loans | $59,461 | $1.6 trillion |
The best example can be taken from Hong Kong (it is a one of the debt free countries), whose economy has the least debt to GDP ratio. It is an almost debt free country. It has a well-regulated financial system and large foreign reserves.
How much debt is the US in 2023? ›At the end of FY 2023 federal debt is “guesstimated” to amount to $32.69 trillion. Thus far, on 2023-05-25, the federal debt is $31.47 trillion. See Coronavirus Update page. Click for federal debt from 1960 to present.
Is the American debt increasing or decreasing? ›That debt load has spiked by $2.9 trillion since the end of 2019. During the first quarter, the increases in debt were seen across practically all categories, with larger (and new record) balances for mortgages, home equity lines of credit, auto loans, student loans, retail cards and other consumer loans.
Who does the US owe money to? ›Japan and China have been the largest foreign holders of US debt for the last two decades. Japan and China held almost 50% of all foreign-owned US debt between 2004 and 2006. However, this has declined over time, and as of 2022 they controlled approximately 25% of foreign-owned debt.
What happens if Congress doesn't raise the debt ceiling? ›If the debt ceiling binds, and the U.S. Treasury does not have the ability to pay its obligations, the negative economic effects would quickly mount and risk triggering a deep recession. The economic effects of such an unprecedented event would surely be negative.