WASHINGTON - White House and congressional Republican negotiators will meet again on Tuesday to try and resolve a months-long impasse over raising the government’s US$31.4 trillion (S$42 trillion) debt ceiling, with the United States facing the risk of default in as soon as nine days’ time.

President Joe Biden’s Democrats and the Republicans who control the House of Representatives, led by Speaker Kevin McCarthy, remained deeply divided about how to rein in the federal deficit.

Democrats argue wealthy Americans and businesses should pay more taxes while Republicans want spending cuts.

Mr Biden and Mr McCarthy emerged on Monday evening from their third meeting on the debt ceiling in 2023 talking about the need to find bipartisan compromise, even as they cling to policies that expose the divides between the two parties.

White House aides headed back to Capitol Hill after the meeting for further talks on Monday night.

Mr Biden and Democrats want to freeze spending in the 2024 fiscal year at the levels adopted in 2023, arguing that it would represent a spending cut because agency budgets will not match inflation.

The idea was rejected by Republicans, who are insisting on cuts to 2022 levels, Democratic leaders said on Monday.

Republicans are insisting federal spending must be significantly reduced from current levels so that overall spending goes down in the upcoming fiscal year, even as military spending goes up.

Mr Biden wants to cut the deficit by raising taxes on the wealthy and closing tax loopholes for the oil and pharmaceutical industries.

Mr McCarthy declared that boosting revenue is a non-starter.

“I don’t think it’s a revenue problem. It’s a spending problem,” Mr McCarthy said.

Mr McCarthy said both he and Mr Biden directed their negotiators – who already met for several hours earlier on Monday – to “work through the night” as they race towards a deal before June 1, when the Treasury Department warns the federal government could run out of money.

Former US Treasury secretary Steven Mnuchin said he expected an agreement to be reached to avoid a catastrophic default. 

Speaking on the sidelines of the Qatar Economic Forum in Doha, he said Mr Biden and Mr McCarthy were “moving closer” to a deal. 

The US economy will definitely slow in the coming months as a result of higher inflation and rates, but the Federal Reserve is “pretty much done” with interest rate hikes and could perhaps raise once more, he said.

“It will be a close call whether we call it a recession or not,” he said.

Common ground

Unless Congress raises the debt ceiling and allows the federal government to borrow money to pay its bills, the US could default on its obligations for the first time in history, potentially tipping the nation into recession and plunging global financial markets into chaos.

Any deal to raise the limit must pass both chambers of Congress, and therefore hinges on bipartisan support. Mr McCarthy’s Republicans control the House 222-213, while Mr Biden’s Democrats hold the Senate 51-49.

Despite the gridlock, the two sides have found some common ground on several areas, including permit reform that will help energy projects move forward and clawing back unused Covid-19 relief funds.

The two sides are also discussing imposing stricter work requirements on two popular public-benefit programmes aimed at helping Americans out of poverty.

But leaders cautioned that nothing has been agreed upon yet.

“No one’s going to agree to anything until we have a finalised deal,” said Republican Representative Patrick McHenry, who chairs the House Finance Committee. REUTERS, BLOOMBERG