The $130 Billion Question: Can Biden and McCarthy Agree on Spending Levels?

Disagreements between the White House and House Republicans over federal spending levels remain the biggest sticking point over a deal to raise the debt limit. And with just more than a week to go before the default deadline, they don’t seem to be any closer to a resolution.

“There is a significant gap between where we are and where they are on finances,” Rep. Garret Graves (R-La.), the lead negotiator for House Speaker Kevin McCarthy (R-Calif.), told reporters Tuesday afternoon. “Unless and until the White House recognizes that this is a spending problem, then we’re gonna continue to have a significant gap.”

House Republicans passed a bill last month to raise the debt ceiling. While their proposal won’t become law, it has served as the baseline for negotiations with the White House. The bill places 10-year budget caps on spending based on fiscal year 2022 levels, while allowing for 1% annual growth. McCarthy has also said defense spending cuts and tax increases are off the table. 

Democrats were initially against a spending freeze, which would cap the government at spending levels that were before inflation prices and could result in cutting hundreds of billions of dollars. But President Joe Biden and top Democratic leaders have said they will consider a freeze at fiscal year 2023 levels to reach a deal with Republicans.

If spending reverted to 2022 levels, that would be roughly $130 billion below the 2023 levels.

“That is not an extreme proposal,” House Minority Leader Hakeem Jeffries (D-N.Y.) said Monday of keeping spending at current levels. “That is a reasonable proposal.”

Debt talks at an impasse

Both sides also disagree over how long to raise the debt limit for, with House Republicans eyeing a year and Democrats preferring two years.

Negotiators, however, cautioned that they are still discussing dozens of issues, such as work requirements for some welfare programs and energy permitting reform. They have made substantial progress in some areas, but remain far apart in others.

And while both sides have made it past some sticking points, such as agreeing to cut excess COVID-19 funding, a source familiar with the talks said Republicans haven’t made the same effort to compromise.

The source said White House negotiators are letting Republicans take revenue off the table to try and make movement on a deal, which is a shift from Sunday, when President Joe Biden said during a news conference in Japan that revenue and spending were both on the table.

But the current impasse between negotiators Tuesday evening is “disappointing,” the source familiar with talks said.

Rep. Patrick McHenry (R-N.C.), who joined McCarthy in a meeting with the president at the White House this week, indicated that Biden’s staff is operating under “severe constraints” that aren’t conducive to a deal.

“The reason why the speaker asked me to get in the room is to actually fix the problem,” McHenry told reporters. “They need to understand that, and if they don’t wake up to it, we’re in a very bad position.”

Timing constraints 

House Republicans are set to leave town Thursday to kick off a Memorial Day recess through next week. Graves said he’d advise members to go home, but know “you’re gonna be back.”

McHenry estimated that drafting any deal could take between 24 and 48 hours. House Republicans have a 72-hour rule before they’re willing to hold a vote on any legislation, meaning it could take at least four days to draft legislation and hold a vote. Yet there are only eight days before June 1, when the Treasury Department has warned the U.S. could be unable to pay its bills.

While some House Republicans have questioned the validity of that date, McHenry, who chairs the House Financial Services Committee, praised Treasury Secretary Janet Yellen as “a straight shooter” with “enormous experience.”

“I don’t think there’s any wiggle room for us,” he added of the projected deadline. “And I want a damn deal to be done.”

House Republican negotiators suggested nothing will be resolved unless there’s an agreement on spending. But they also indicated that a deal could be near once they get over that hurdle.

“If we ultimately reach a deal, then I think you’ll see concessions on both sides,” Graves said. “If you gave me a chance to write this thing, I have a pretty good idea on where this deal can be cut. I do. I can see it after spending hours with these folks in the room. The biggest gap we have is in the funding issue, and that’s foundational.”