Published on May 27, 2023

Last-Minute Reprieve: US Treasury Provides Additional Time for Debt-Limit Negotiations!

• The clash surrounding the expansion of work requirements remains unresolved.

• A GOP negotiator emphasizes the urgent need for a debt-limit deal.

White House and Republican negotiators have made some progress in narrowing their differences but are still clashing on key issues as the Treasury Department indicates that there is additional time available before a potential default on US debt.

Treasury Secretary Janet Yellen announced that the department expects to be able to make debt payments until June 5 if Congress fails to act on the debt ceiling. This sets a more specific date for a potential default, although it is four days later than her previous warning of trouble as early as June 1.

This extended timeframe, known as the X-date, provides more room for House Speaker Kevin McCarthy and President Joe Biden's negotiating teams to reach a deal. Although the teams haven't met in person since Wednesday, they have been engaged in late-night discussions on Thursday and regular communication throughout Friday.

President Biden expressed optimism about the prospects for a deal as he left the White House on Friday night for Camp David, stating that he hopes they will know more by the end of the day.

Representative Patrick McHenry, one of the Republican negotiators, emphasized that the June 5 deadline underscores the urgency of reaching a deal. He stated, "We now have a solid date."

The negotiating teams continued to work into the early hours of Saturday morning to finalize the agreement's text.

One of the contentious issues in the negotiations is the inclusion of new work requirements for social programs such as food stamps and Medicaid health coverage, which Republicans support but the White House rejects.

In response to the demands for work requirements, Representative Garret Graves, another GOP negotiator, firmly stated, "Hell no! Hell no! Not a chance. This is not happening."

The White House responded to these demands, with White House spokesperson Andrew Bates stating on Friday night that President Biden and House Democrats stand against such a "cruel and senseless tradeoff."

McCarthy has indicated in recent days that a deal is slowly coming together. While the two sides have narrowed their differences, the agreed-upon details are tentative, and a final agreement has not yet been reached.

According to sources familiar with the matter, the emerging deal, which is still being finalized, would raise the debt limit and cap federal spending for two years. Additionally, defense spending would be allowed to increase by 3% next year in line with Biden's budget request.

The stock market responded positively to reports of an emerging deal, with the benchmark S&P 500 stock index rising 1.3% on Friday. This was accompanied by a decrease in yields on Treasury bills maturing in early June, indicating increased investor confidence in timely debt repayment if a deal is reached.

Deputy Treasury Secretary Wally Adeyemo cautioned that payments to Social Security beneficiaries, veterans, and others would be delayed in the event of a default. However, he expressed some confidence that an agreement will be reached, emphasizing the catastrophic consequences of a default for all Americans.

The proposed deal would also include measures to upgrade the nation's electric grid to accommodate renewable energy, aligning with climate goals. Additionally, it would expedite permits for pipelines and other fossil fuel projects favored by Republicans.

The agreement would involve cutting $10 billion from an $80 billion budget increase for the Internal Revenue Service proposed by Biden in his Inflation Reduction Act. Republicans have expressed concerns about an influx of agents and audits, while Democrats argue that the increase would pay for itself by reducing tax evasion.

The current shape of the deal would be more limited than the initial offer from Republicans, who called for raising the debt ceiling through March of next year in exchange for 10 years of spending caps. House conservatives have already voiced their objections to a smaller deal, with the House Freedom Caucus sending a letter to McCarthy demanding that he remain firm in negotiations.