Debt limit vibe back on the upswing after White House meeting

Speaker Kevin McCarthy said Wednesday that negotiations to lift the statutory debt limit are going better than they had been a day earlier, and GOP leaders are telling their members to keep their recess plans flexible next week.

Top McCarthy aides and two GOP lawmakers who’ve been leading the talks had a lengthy negotiating session at the Eisenhower Executive Office Building next door to the White House on Wednesday. McCarthy, R-Calif., told reporters that the readout he’d gotten was "positive," though he wasn't ready to say a deal was close.

"I think they’ve made some progress working down there, so that's very positive … and we will continue to work through this to try to get a solution," McCarthy said.

Two of the speaker's proxies in the talks, House Financial Services Chairman Patrick T. McHenry, R-N.C., and Rep. Garret Graves, R-La., have held sometimes lengthy, informal press briefings after other negotiating sessions, which had been held at the Capitol. Usually, they have commented about how the talks were still far apart on spending cuts, with White House negotiators not moving much off their position.

After Wednesday's meeting on the White House's turf, McHenry stayed behind to keep working on "one issue," according to McCarthy — who wouldn't divulge what it was — and Graves wouldn't comment. "I’m not giving an update right now, sorry," he said.

When McHenry returned from the White House, he was headed to a markup in his panel and gave terse responses, without commenting on the issue he’d stayed back to work on.

"We've had significant work. We've had significant work overnight. And they know the task; we know the task," McHenry said.

After the markup, McHenry said the GOP and White House negotiators would not formally meet again Wednesday night as they focused on work they agreed to bring back to their respective teams, which he called a "worthwhile endeavor."

"We're not close on anything yet, but we have work to do tonight," he said.

The House is currently scheduled to leave for a one-week Memorial Day recess starting on Thursday.

Speaking on the House floor Wednesday, Majority Leader Steve Scalise, R-La., didn't indicate any change to that plan, but said members will be given 24 hours' notice "for any additional votes over the weekend or next week." He said members would have 72 hours to read the legislative text of any debt limit deal before being asked to vote on it.

The main hangup has been over GOP proposals to cut discretionary appropriations below fiscal 2023 levels by around $131 billion. President Joe Biden's budget for fiscal 2024, however, proposed a $127 billion increase, according to the Congressional Budget Office.

Democrats had over the weekend agreed to roughly meet in the middle, offering a freeze — though exactly what the accounting looked like was unclear.

Some sources said that involved shifting additional health care benefits for toxin-exposed veterans to mandatory funding, removing it from discretionary caps and making the White House's number look smaller than it really was. Last year's new veterans benefits law allows for a certain amount of shifting each year, but the two parties differ over how much.

Rep. Don Bacon, R-Neb., said he thinks negotiators will end up somewhere between fiscal 2022 and 2023 levels. One possibility he's heard floated is taking fiscal 2022 spending and adjusting for inflation since then. Using the Federal Reserve's preferred inflation gauge, that could result in a roughly $20 billion cut, according to calculations by Don Schneider, deputy head of U.S. policy at Piper Sandler.

McCarthy wouldn't comment directly on the spending negotiations but didn't deny the two sides were getting closer.

"There's a number of issues that are out there that we've been working on. I think we've been able to find some ways that we could probably get to fruition on a couple of these," he said.

The duration of spending caps was also in play, as was the amount of debt limit headroom and whether it might be enough to get past the 2024 elections.

Oklahoma Rep. Kevin Hern, chairman of the conservative Republican Study Committee that includes a large group of the House GOP conference, said Wednesday that the majority of the conference will need to see a "responsible" timeframe for a debt limit increase alongside spending cuts.

He said an increase in the debt limit that doesn't go beyond two years could probably get enough agreement which could give room through the 2024 elections, though he added the GOP will expect "commensurate spending cuts."

House Minority Leader Hakeem Jeffries meanwhile told reporters that a spending freeze was a reasonable compromise, even suggesting Democrats could go along with a freeze for more than just next year. However, he tied the duration of caps to the duration of a debt limit increase.

"It seems to me that that if there's a resolution that involves a spending freeze, that that spending freeze should also match the length of time that the debt ceiling is suspended," Jeffries said.

Before getting a readout from White House negotiators, Jeffries expressed frustration with the GOP stance and said he hoped a discharge petition to bring a clean bill to the floor — which all 213 Democrats have now signed — would get the five GOP signatures needed.

"One of the things I will continue to communicate with the White House is that it's not clear to me that the extreme MAGA Republicans in the House are having these conversations in good faith," he said. "It's my hope that five Republicans from New York or California or other moderate districts from throughout the country can prove me wrong."

Still, with Biden's blessing it seemed likely that a substantial number of Democrats would back a deal reached with McCarthy.

Congressional Progressive Caucus Chair Pramila Jayapal said Wednesday that her group won't "draw red lines about what the final bill is." Jayapal, D-Wash., did have one clear warning for her side's negotiators, however: "We’ve been clear about what we will not be able to support — a bill that screws poor people."

Treasury Secretary Janet L. Yellen has been clear that she can't guarantee the government won't breach the $31.4 trillion debt limit much past June 1, which has lit a fire under negotiators to get a deal before next week.

The prospect of missed payments if negotiators don't reach agreement in time, as well as a lack of attention to rising U.S. debt, led Fitch Ratings on Wednesday to threaten a downgrade of America's pristine "AAA" credit rating. Fitch said the U.S. was now on "rating watch negative," signifying the agency will be watching closely.

"Fitch still expects a resolution to the debt limit before the x-date. However, we believe risks have risen that the debt limit will not be raised or suspended before the x-date and consequently that the government could begin to miss payments on some of its obligations," the rating agency said. "The brinkmanship over the debt ceiling, failure of the U.S. authorities to meaningfully tackle medium-term fiscal challenges that will lead to rising budget deficits and a growing debt burden signal downside risks to U.S. creditworthiness."

After the 2011 debt ceiling standoff, rating agency Standard & Poor's downgraded U.S. sovereign credit from a AAA rating to AA+.

Aidan Quigley, David Lerman and Paul M. Krawzak contributed to this report.