By Steve Holland, Moira Warburton and Rami Ayyub
WASHINGTON (Reuters) -Democratic President Joe Biden and a Republican negotiator said on Friday they were working on a deal to raise the U.S. government's $31.4 trillion debt ceiling after the Treasury Department warned that a June 5 default loomed without action.
The two sides have been negotiating for weeks on an agreement to raise the federal government's self-imposed borrowing limit, with Republicans also pushing for sharp spending cuts. Without a deal, the United States could face a calamitous default.
"Things are looking good," Biden told reporters. "I'm optimistic."
Republican Representative Patrick McHenry said he concurred with Biden's comments, while cautioning that negotiations had not yet concluded.
"I'm hopeful," said McHenry, one of House of Representatives Speaker Kevin McCarthy's lead negotiators with the White House. "But we have to make sure we have a line on tax, we have a line on agreement - there’s significant challenges ahead."
The two spoke, separately, shortly after U.S. Treasury Secretary Janet Yellen said the government would run short of money to pay its bills on June 5. Yellen had previously said that date could come as soon as June 1, meaning that the new forecast allowed for more time but a harder final deadline.
Negotiators are discussing a deal that would lift the limit for two years, but remain at odds over whether to stiffen work requirements for some anti-poverty programs.
McCarthy left the Capitol on Friday following a conference call in which one of his top lieutenants told fellow Republicans no deal had been reached, CNN reported.
Any agreement would have to win approval in the Republican-controlled House and the Democratic-led Senate before Biden could sign it into law - a process that could take more than a week.
Negotiators have tentatively reached an agreement that would cap spending on many government programs next year, according to a U.S. official.
WORK REQUIREMENTS IN DISPUTE
The safety-net programs remained a sticking point. Lead Republican negotiator Garret Graves said his party would not drop its demand that they require more participants to hold a job.
"Hell no. Not a chance," Graves told reporters.
Biden and his fellow Democrats have resisted a Republican push to require childless adults under age 56 to show they are working or looking for work in order to qualify for the Medicaid health plan and the SNAP food-assistance program.
The Republican proposal would require more participants in those programs to show they are working or looking for work. That would save $120 billion over 10 years but also force more than a million Americans out of those programs, according to the nonpartisan Congressional Budget Office.
Democrats have said the proposal would only create more red tape that would exclude people who would otherwise qualify.
Medicaid and SNAP have scaled back in recent months after expanding dramatically during the COVID-19 pandemic. Biden in particular has resisted the work requirements for Medicaid, which covered 85 million Americans as of January.
The deal under consideration would increase funding for the military and veterans care while essentially holding non-defense discretionary spending at current-year levels, according to the official, who spoke on condition of anonymity.
The deal might also scale back funding for the Internal Revenue Service, which got an extra $80 billion last year, in part to bolster enforcement and bring in more tax revenue. Republicans have sought to revoke that funding.
The White House is working on a way to preserve its effort to target wealthy taxpayers, the official said.
The Treasury Department had previously warned that it could be unable to cover all its obligations as soon as June 1.
Several credit-rating agencies have said they have put the United States on review for a possible downgrade, which would push up borrowing costs and undercut its standing as the backbone of the global financial system.
A similar 2011 standoff led Standard & Poor's to downgrade its rating on U.S. debt.
Even if they reach a deal, leaders from both parties will have to work hard to round up enough votes for approval in Congress. Right-wing Republicans have insisted that any deal must include steep spending cuts, while Democrats have resisted the new work requirements for benefits programs.
Most lawmakers have left Washington for the Memorial Day holiday, but congressional leaders have told them to be ready to return for votes when a deal is struck.
House leaders have said lawmakers will get three days to ponder the deal before a vote. Any single lawmaker in the Senate has the power to tie up action for days. At least one, Republican Mike Lee, has threatened to do so.
(Reporting by Jarrett Renshaw, Richard Cowan, Trevor Hunnicutt, Andy Sullivan, Gram Slattery, David Lawder and Nandita Bose; writing by Andy Sullivan; Editing by Scott Malone, Will Dunham, Alistair Bell, Rosalba O'Brien, David Gregorio and Kim Coghill)