Biden and McCarthy's Debt Limit Deal Takes Shape

President Joe Biden and Republican House Speaker Kevin McCarthy are closing in on a deal to raise the U.S. debt ceiling limit, a still unresolved issue that would lead to the country's default if an agreement isn't reached by June 1, Secretary of the Treasury Janet Yellen has warned.

Speaking at a White House event on Thursday, Biden said that his administration and the GOP had held "several productive conversations" and the two sides were "making progress."

The potential agreement discussed by top White House officials and Republican lawmakers on Thursday—as outlined by Reuters and The New York Times—looks like a compromise that could deliver wins to both sides.

Under the proposed deal, the debt ceiling would be raised for a total of two years—going beyond the 2024 presidential election—while strict caps would be imposed on discretionary spending that is not related to the military or veterans for the same period.

Defense spending would be permitted to rise 3 percent in 2024, in line with Biden's budget request. White House officials have said nondefense discretionary spending would remain the same in 2024 as it was this year. All discretionary spending would grow at 1 percent in 2025, and all caps would be lifted the following year, according to The New York Times.

People familiar with the deal told Bloomberg that the deal would include a measure to upgrade the country's electric grid for renewable energy, a key climate goal of the Biden administration, while also speeding permits for fossil fuel projects favored by the GOP.

"What we're talking about right now is an area where Democrats and Republicans can come together," Representative Sharice Davids, a Kansas Democrat, said on Thursday, according to Bloomberg. "We need to be building stuff, we need transmission, we need to be able to get some of this renewable energy across the country and onto the grid."

The White House also told Reuters that it was considering scaling back plans to increase funding of the Internal Revenue Service (IRS), including hiring more auditors to target wealthy Americans, which Republicans have opposed because they said middle-class taxpayers would be harassed. This provision is still under discussion, according to The New York Times.

Under the terms of the draft deal, Republicans would be able to say they have reduced some federal spending while Democrats could claim they had managed to prevent large cuts.

McCarthy said that the agreement is unlikely to please everyone. "I don't think everybody is going to be happy at the end of the day," he told reporters outside the Capitol on Thursday evening. "That's not how this system works."

The draft legislative text has not been cemented yet and the deal could potentially collapse, leaving the country exposed to an expected default in just one week.

"We've been talking to the White House all day, we've been going back and forth, and it's not easy," McCarthy said. "It takes a while to make it happen, and we are working hard to make it happen."

The country hit the legal debt ceiling, currently set at $31.4 trillion, in January. While raising the debt ceiling was once almost a routine act made by Congress, the GOP-led House of Representatives has insisted on spending cuts as an indispensable condition in exchange to raising the debt limit.

Yellen has said that the country will run out of cash to pay its debt by June 1—a default that she said would have catastrophic consequences for the U.S. economy.

Newsweek has contacted the White House for comment.