Washington takes a week of baby steps toward a debt ceiling deal

On Tuesday, my colleague Jordan Weissmann and I said we were feeling somewhat optimistic that Democrats and Republicans were seemingly making progress toward a deal to avoid a debt ceiling calamity. After today, my sense of things is actually even a bit more upbeat, despite there being just three weeks to go before a potential default.

To be clear, there are still major policy differences that need to be bridged and probable near-death experiences down the road before something reaches Biden’s desk. But Republicans and Democrats are identifying areas where the space to cut a deal exists.

Louisiana Rep. Garret Graves, a top lieutenant for McCarthy, said Thursday House Republicans believed there was room for an agreement that rested on four components: permitting reform, work requirements, rescinding unspent COVID-19 funding, and discretionary spending limits. Notably missing: Republican demands to repeal Biden’s climate law.

“I think the last 48 hours have given us some reason for hope,” Rep. Dusty Johnson, R-S.D. said.

McCarthy also showed some new flexibility on Republican demands for $131 billion spending cuts, suggesting that rescinding unused pandemic aid could count toward that total. “We have $50-60 billion right there,” he said.

Democrats insist they won’t haggle over the full faith and credit of the United States. But they have said they’re open to budget talks, and for now, that appears to be serving as enough rhetorical cover to begin negotiations. Staff are meeting to discuss spending levels, and Biden is getting into deal mode. While in New York state on Wednesday, he talked up the importance of “cutting spending” without the specter of a calamitous default hanging over budget talks.

Meanwhile, administration officials are still pouring cold water on the possibility of using a workaround to raise the debt limit without Congress. On Thursday, Treasury Secretary Janet Yellen played down the much discussed possibility that the administration might simply declare the borrowing limit unconstitutional under the 14th amendment, calling it “legally questionable.”

Major differences still remain. A person close to the negotiations said the White House opposes Republican demands to terminate its student loan cancellation program, impose work requirements on food stamps and Medicaid beneficiaries, and repeal swaths of the Inflation Reduction Act. All are key planks in the House GOP debt limit bill. Still, the source said the nixed meeting was a “positive development” with staff-level talks continuing.

It does appear the Biden administration is entertaining some limits to discretionary spending, though not as drastic as the House GOP debt limit bill. The Republican proposal would revert government spending to last year’s levels and restrain it to 1% growth over the next ten years. “The White House right now is certainly pushing for a shorter window,” Graves said.

A former Senate Democratic said Biden might seek something more like a two-year cap, similar to some of the appropriations deals Congress approved in the past decade. Under that scenario, the fiscal cliff would be punted until after the 2024 election.

“I would think that is a much more reasonable template for what a deal could look like,” the former aide told Semafor.

Punchbowl News reports that sources involved in the talks believe a compromise might not be struck given the gulf between negotiating positions. On Friday morning, the outlet, which is close to McCarthy’s office, was ringing alarm bells

“Several participants in the negotiations put it this way to us last night: If they were at this stage in the talks in February, everyone would be bullish that a deal is possible,” the outlet writes. “However, as it’s only 20 days to a potentially catastrophic default for the U.S. government, they’re truly behind the eight ball.”

Both Graves and Johnson also said Thursday that a short-term debt limit extension, which in theory could create more time for talks, wasn’t guaranteed.

“I’ve been in meetings with members who have made it very clear that a short term deal would not come without a cost,” Johnson said. He declined to elaborate further to Semafor.