WASHINGTON — Top White House officials and Republican lawmakers were closing in Thursday on a deal that would raise the debt limit for two years while imposing strict caps on discretionary spending not related to the military or veterans for the same period. Officials were racing to cement an agreement in time to avert a federal default that is projected in just one week.
The deal taking shape would allow Republicans to say that they were reducing some federal spending — even as spending on the military and veterans’ programs would continue to grow — and allow Democrats to say they had spared most domestic programs from significant cuts.
Negotiators from both sides were talking into the evening and beginning to draft legislative text, though some details remained in flux.
“We’ve been talking to the White House all day, we’ve been going back and forth, and it’s not easy,” House Speaker Kevin McCarthy told reporters as he left the Capitol on Thursday evening, declining to divulge what was under discussion. “It takes a while to make it happen, and we are working hard to make it happen.”
The compromise, if it can be agreed upon and enacted, would raise the government’s borrowing limit for two years, past the 2024 election, according to three people familiar with it who insisted on anonymity to discuss a plan that was still being hammered out.
The United States hit the legal limit, currently $31.4 trillion, in January and has been relying on accounting measures to avoid defaulting since then. The Treasury Department has projected it will exhaust its ability to pay bills on time as early as June 1.
In exchange for lifting the debt limit, the deal would meet Republicans’ demand to cut some federal spending, albeit with the help of accounting maneuvers that would give both sides political cover for an agreement likely to be unpopular with large swaths of their base voters.
It would impose caps on discretionary spending for two years, though those caps would apply differently to spending on the military than to nondefense discretionary spending. Spending on the military would grow next year, as would spending on some veterans’ care that falls under nondefense discretionary spending. The rest of nondefense discretionary spending would fall slightly — or roughly stay flat — compared with this year’s levels.
The deal would also roll back $10 billion of the $80 billion Congress approved last year for an IRS crackdown on high earners and corporations that evade taxes, though that provision was still under discussion. Democrats have championed the initiative, and nonpartisan scorekeepers have said the funding would reduce the budget deficit by helping the government collect more of the tax revenue it is owed. But Republicans have denounced it, claiming falsely that the money would be used to fund an army of auditors to go after working people.
“The president and his negotiating team are fighting hard for his agenda, including for IRS funding so it can provide better customer service to taxpayers and crack down on wealthy tax cheats,” a White House spokesperson, Michael Kikukawa, said in an email Thursday in response to a question about the provision.
As the deal stood Thursday, the IRS money would essentially shift to nondefense discretionary spending, allowing Democrats to avoid further cuts in programs like education and environmental protection, according to people familiar with the pending agreement.
The plan had yet to be finalized, and the bargainers continued to haggle over crucial details that could make or break any deal.
“Nothing is done until you actually have a complete deal,” said Rep. Patrick T. McHenry, R-N.C., one of the lead GOP negotiators, who also declined to discuss the specifics of the negotiations. “Nothing’s resolved.”
The cuts contained in the package were all but certain to be too modest to win the votes of hard-line fiscal conservatives in the House. Liberal groups were already complaining Thursday about the reported deal to reduce the IRS funding increase.
But people familiar with the developing deal said that negotiators had agreed to fund military and veterans’ programs at the levels envisioned by President Joe Biden in his budget for next year. They would reduce nondefense discretionary spending below this year’s levels — but much of that cut would be covered by the shift in the IRS funding and other budgetary maneuvers. White House officials have contended those shifts would functionally make nondefense discretionary spending the same next year as it was this year.
All discretionary spending would then grow at 1% in 2025, after which the caps would lift.
McCarthy had nodded Thursday to the idea that a compromise to avert a default would likely draw detractors from both parties.
“I don’t think everybody is going to be happy at the end of the day,” he said. “That’s not how this system works.”
Another provision of the deal seeks to avert a government shutdown later in the year, and would attempt to take away Republicans’ ability to seek deeper cuts to government programs and agencies through the appropriations process later in the year.
The exact details on how such a measure would work remained unclear Thursday evening. But it was based on a penalty of sorts, which would adjust the spending caps in the event that Congress failed to pass all 12 stand-alone spending bills that fund the government by the end of the calendar year.
Negotiators were still at loggerheads over work requirements for social safety net programs and permitting reform for domestic energy and gas projects.
“We have legislative work to do, policy work to do,” McHenry said. “The details of all that stuff really are consequential to us being able to get this thing through.”
As negotiators inched closer to a deal, hard-right Republicans on Thursday were becoming increasingly anxious that McCarthy would sign off on a compromise they viewed as insufficiently conservative. Several right-wing Republicans have already vowed to oppose any compromise that retreats from cuts that were part of their debt-limit bill.
“Republicans should not cut a bad deal,” Rep. Chip Roy of Texas, an influential conservative, wrote on Twitter on Thursday morning, shortly after telling a local radio station that he was “going to have to go have some blunt conversations with my colleagues and the leadership team” because he did not like “the direction they are headed.”
Rep. Ralph Norman of South Carolina said he was reserving judgment on how he would vote on a compromise until he saw the bill, but added: “What I’ve seen now is not good.”
Former President Donald Trump, who has said Republicans should force a default if they do not get what they want in the negotiations, also was weighing in. McCarthy told reporters he had spoken with Trump briefly about the negotiations — “It came up just for a second,” the speaker said. “He was talking about, ‘Make sure you get a good agreement.’”
After playing a tee shot on his golf course outside Washington, Trump approached a reporter for The New York Times, iPhone in hand, and showed a call with McCarthy.
“It’s going to be an interesting thing — it’s not going to be that easy,” said Trump, who described his call with the speaker as “a little, quick talk.”
“They’ve spent three years wasting money on nonsense,” he added, saying, “Republicans don’t want to see that, so I understand where they’re at.”