Deal with it: Negotiators may be zeroing in on a debt ceiling agreement

The details aren’t final, and the parties are still clashing on a few major issues, but the contours of a potential debt ceiling deal are finally coming into view.

So far, it looks little like the bill House conservatives dreamed of passing earlier this month, which would have drastically cut back parts of the federal budget while forcing a repeal of President Biden’s signature climate law.

What’s on tap instead? The New York Times first reported on Thursday night that negotiators were close to an agreement on lifting the debt limit for two years — i.e. until after the election. In exchange, it would use some creative accounting to effectively freeze non-defense discretionary spending programs for that period, affecting a bucket that includes health, science, transportation, and more. However, the Pentagon and veterans’ budgets would be allowed to grow.

The deal may also cut as much as $10 billion of funding from the IRS funding, clawing back some of the $80 billion Democrats provided in the Inflation Reduction Act to improve the agency’s service and raise revenue by chasing down tax cheats.

A bargain on energy is also in the works, according to Bloomberg. It would trade reforms making it easier to build new transmission lines needed for renewable power in exchange for speeding up permitting for pipelines and other oil and gas projects.

Lawmakers emphasized that nothing is final yet. “We do not have an agreement yet. We knew this would not be easy,” Speaker Kevin McCarthy said shortly before leaving the Capitol on Thursday evening. “It’s hard, but we’re working. And we’re gonna continue to work till we get this done.”

Rep. Garret Graves, his top lieutenant, said work requirements on safety net programs were still a sore point in the discussions. “The White House continues to prioritize paying people to not work over paying Social Security benefits and Medicare benefits,” Graves told reporters. “I mean this is just a crazy calculation on their part. So that’s the major hang up at this point.”

A few days ago, Massachusetts Rep. Richard Neal, the ranking Democrat on the House Ways and Means Committee, predicted to us that negotiators would “reach a narrower agreement with some face-saving measures and no triumphalism.” That feels more or less like what’s shaping up.

The spending changes are reportedly designed so that Biden will be able to describe them as a freeze, while McCarthy will be able to claim they are a cut. Rolling back a portion of the IRS funding that Republicans have spent months attacking will give the party a partial policy win, while sparing Democrats the need to make major reductions to cherished programs.

And fundamentally, the deal’s early outlines don’t look all that different from something you’d see come out of a normal budget negotiation in Washington.

This could still all fall apart. But if it holds, the agreement seems guaranteed to lose a large number of conservative Republicans, who’d set their hearts on using the debt ceiling as leverage to force massive cuts.

“You think that after what we passed, I should, in good faith, go back to the American people and say, yeah, let’s increase the debt ceiling another two and a half trillion dollars?” Rep. Chip Roy, R-Texas told reporters.” Virginia Rep. Bob Good warned that McCarthy’s rumored concessions could “collapse” the GOP majority.

Democrats also spent much of Thursday raising concerns over a potential deal: Appearing on CNN, Sen. Bernie Sanders once again urged Biden to ignore the debt ceiling by invoking the 14th Amendment. If the final version includes significant new work requirements for federal aid recipients, it could drive away as many progressives as conservatives.

Could McCarthy and Biden run into a math problem? Possibly. But so far, everything seems to be driving towards a moderatish compromise.

“I think the coalition opposed to this will be like ‘the squad’ and the Freedom Caucus, and it’ll rocket through the Senate after it passes the House,” Florida Rep. Matt Gaetz, one of McCarthy’s best known Republican antagonists, said during a Twitter Spaces event Thursday. “And I think there’s no serious threat to McCarthy’s speakership.”

Even if a deal is on track, some Washington wonks are warning that timing could still be an issue. McCarthy has vowed to give members 72-hours to review legislative text before scheduling a floor vote. Sen. Mike Lee of Utah is threatening to slow down legislation that reaches the upper chamber if it doesn’t meet his standards.

“Timing is tight and getting tighter every minute,” Zach Moller, director of the economic program at the Third Way think tank, told Semafor. “Therefore the chance for an accidental default or some extra-extra-extraordinary measures is rapidly increasing.”