White House, Republican team say no progress in debt ceiling talks

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A general view of Capitol Hill in Washington

By Richard Cowan, Moira Warburton and Jeff Mason

WASHINGTON/HIROSHIMA, Japan (Reuters) -A second meeting on Friday between White House and Republican congressional negotiators on raising the federal government’s $31.4 trillion debt ceiling broke up with no progress cited by either side and no additional meeting set.

That came at the end of a day of acrimonious talks that were broken off for several hours, with less than two weeks to go before June 1, when the Treasury Department warned that the federal government could be unable to pay all its debts. That would trigger a calamitous default.

While the White House acknowledged that “serious differences” remained with Republicans, who control the House of Representatives, President Joe Biden said he still believed a default could be avoided.

“I still believe we’ll be able to avoid a default and we’ll get something decent done,” Biden told reporters in Hiroshima, Japan, where he is attending a meeting of leaders of the Group of Seven rich nations.

Republicans have said they would not approve an increase in the federal government’s borrowing limit without agreement on sharp spending cuts.

“There continues to be real … differences between the parties on these issues,” White House spokesperson Karine Jean-Pierre told reporters earlier, also in Hiroshima.

The lead Republican in the talks said no progress had been made on Friday.

“We had a very, very candid discussion talking about where we are, talking about where things need to be,” Republican Representative Garret Graves told reporters following a second brief meeting in the Capitol with White House officials.

“This wasn’t a negotiation tonight,” Graves said, adding the timing of the next meeting was not set.

He echoed remarks by House of Representatives Speaker Kevin McCarthy that progress needed to be made on changing the “trajectory” of U.S. government deficit spending and rapidly rising debt.

“We have to spend less than the year before,” McCarthy said.

The talks have hung over Biden’s meeting with world powers in Japan.

A second Republican negotiator, Representative Patrick McHenry, said he was not confident the two sides could meet McCarthy’s goal of reaching a deal this weekend, which could then be presented to Congress for passage in coming days.

Senior White House adviser Steve Ricchetti left the meeting room telling reporters that he was “not assessing” the talks.

A meeting earlier on Friday ended abruptly with McCarthy telling reporters there had not been any “movement” from the White House toward Republican demands.

U.S. stocks closed the week on a soft note after news of the stalled negotiations.

Republicans are pushing for sharp spending cuts in exchange for the increase in the government’s self-imposed borrowing limit, a move needed regularly to cover costs of spending and tax cuts previously approved by lawmakers.

Republicans control the House of Representatives by a 222-213 margin, while Biden’s Democrats have a 51-49 Senate majority, making it difficult to thread the needle with a deal that will find enough votes to pass both chambers.

Democrats have been pushing to hold spending steady at this year’s levels, while Republicans want to return to 2022 levels. A plan passed by the House last month would cut a wide swath of government spending by 8% next year.

That plan does not specify what spending would be cut, but some Republicans have said they would shield military and veterans programs. Democrats say that would force average cuts of at least 22% on domestic programs like education and law enforcement, a figure top Republicans have not disputed.

Some Republicans have criticized Biden for taking the trip to Japan at a key point in the talks.

Biden and McCarthy spent most of the year in an impasse with the White House insisting on a “clean” increase in the debt ceiling without conditions. Republicans said they would only vote for a deal that cut spending.

They agreed to two-way talks, with the White House represented by Shalanda Young, director of the Office of Management and Budget, and Ricchetti. McCarthy was represented by Graves and McHenry.

Republicans have taken a hard line. On Thursday, the House Freedom Caucus urged the Senate to vote on a previously passed House bill that would raise the limit through March in exchange for 10 years of sharp spending cuts.

House and Senate Democrats have raised concern over the inclusion in the talks of new work requirements for some federal benefit programs for low-income Americans.

The last time the nation got this close to default was in 2011, also with a Democratic president and Senate alongside a Republican-led House.

Congress eventually averted default, but the economy endured heavy shocks, including the first-ever downgrade of the United States’ top-tier credit rating and a major stock sell-off.

(Reporting by Richard Cowan, Steve Holland, Andrea Shalal, Moira Warburton, Katharine Jackson, Doina Chiacu, Jeff Mason and Trevor Hunnicutt; Editing by Scott Malone, Leslie Adler and William Mallard)

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