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The latest on negotiations over raising the U.S. debt ceiling

JUANA SUMMERS, HOST:

President Biden and House Republicans are finally saying they're making progress in their talks to lift the debt ceiling. Here's Biden.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT JOE BIDEN: Speaker McCarthy and I have had several productive conversations, and our staffs continue to meet as we speak, as a matter of fact. And they're making progress.

SUMMERS: But the clock is ticking, and it's not yet clear they'll make a deal in time to avert a default. And House lawmakers are on the verge of leaving town for the Memorial Day holiday weekend. It's all raising alarms for credit rating agencies. One has said that it could end up downgrading the country's rating because of all the political rancor. Joining us now are NPR's congressional correspondent Claudia Grisales and NPR's Scott Horsley, who follows the economy. Hi, you two.

CLAUDIA GRISALES, BYLINE: Hey there.

SCOTT HORSLEY, BYLINE: Good to be with you.

SUMMERS: So, Claudia, let's start with you. It sounds like we are maybe starting to see some signs of momentum toward a deal, but how close are the two sides, really?

GRISALES: They are still a good ways from putting pen to paper. We've seen a shift among the negotiators. They're not talking to us, the reporters, as much as they were a few days ago, when they complained. There was no urgency on behalf of the White House. Now they say that urgency is there, and they're spending a lot more time behind closed doors. For example, they met for about four hours at the White House yesterday. This marks one of their longest meetings yet. President Biden said Republicans have turned down White House offers to install new programs to generate $3 trillion in new revenues. Democrats have said that included closing tax loopholes, such as installing new minimum tax requirements for billionaires and corporations, as part of the talks. And I did ask House Speaker Kevin McCarthy about this. He said the focus should not be on revenue, that Democrats have a spending problem and a deal should focus on spending cuts.

KEVIN MCCARTHY: We have to spend less than we spent last year. It is not my fault that the Democrats cannot give up on their spending. It's not a revenue problem. It's a spending problem.

SUMMERS: Scott, is McCarthy right about that - that the problem is government spending, not a revenue problem?

HORSLEY: Well, it's both. Spending outstrips revenue every year, and that's why we're running deficits and the debt keeps piling up. Part of the problem is that after the GOP tax cut in 2017, revenue as a share of GDP fell while spending did not. And then in 2020, when the pandemic hit, spending soared even higher. Now, spending has since come down as a share of GDP, but we're still spending more than we collect in taxes.

As you hear, Speaker McCarthy insists Republicans won't look at raising revenue to close that gap. They're determined to do it all on the spending side. But they've also said Social Security, Medicare and defense spending are off limits, and that's more than half the federal budget. Social Security and Medicare also where much of the growth in spending is coming from as Americans get older. But that's not a part of these negotiations. The piece they are focused on - discretionary non-defense spending - is only about 16% of the federal budget. So even if you make deep cuts in that narrow slice of the pie, it's pretty hard to put much of a dent in the debt.

SUMMERS: I mean, Scott, we keep talking about this, it seems like, every day this week. But it is true. We really are approaching the date when the U.S. could run out of money. How nervous are our markets getting here?

HORSLEY: A little bit nervous. The Fitch bond rating agency sounded a warning yesterday, saying it's putting U.S. bonds on credit watch for a possible downgrade. Now, Fitch still thinks it's unlikely the U.S. will default on its debts or miss any other payments that are coming due. But the risk has gone up. This is mostly a commentary on the country's political situation, not the economic outlook. Fitch cited increased partisanship, brinkmanship over the debt limit and the failure of political leaders to meaningfully tackle the country's midrange fiscal challenges. Now you can see how the bond markets are handicapping this. Investors are wary about holding U.S. government bonds that come due in just the next few weeks, when this could all come to a head. But people are still happy to hold longer-term debt from the U.S. government.

SUMMERS: I mean, Claudia, this deadline is looming. Congress, as we noted, is about to head out on recess. Does that mean that progress is done until they get back to the Capitol?

GRISALES: Negotiators would say not at all. Speaker McCarthy has said that his folks who are representing him in these talks will be working 24/7. So they, along with White House negotiators, will be the ones to watch. McCarthy's trying to make some difficult deadlines. He wants the House to have 72 hours to review the deal before they vote on a related bill. And the Senate, which comes back Tuesday, needs time to vote as well. So even though we don't have the contours of a deal yet, even when we do, the devil is in the details. We often don't know the chances of getting passage on such bills until the text is released and there's actual votes. So even if Biden and McCarthy get a bipartisan deal, it is not clear that enough of their members will buy it to pass it out of their chamber. So it will be quite the high wire act to pull this off in time to avoid a financial default.

SUMMERS: NPR's Claudia Grisales and Scott Horsley. Thanks to both of you.

GRISALES: You're welcome.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Claudia Grisales
Claudia Grisales is a congressional reporter assigned to NPR's Washington Desk.
Scott Horsley
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.