Splits emerge as U.S. House Republicans demand Biden negotiate on debt limit

The American flag flies over the U.S. Treasury building, after the U.S. government hit its $31.4 trillion borrowing limit amid a standoff between the Republican-controlled House of Representatives, President Joe Biden and Democratic legislators that could lead to a fiscal crisis in a few months, in Washington, U.S., January 20, 2023.  REUTERS/Jim Bourg/File Photo

WASHINGTON, Jan 25 (Reuters) - Republicans who control the U.S. House of Representatives are divided over how hard a line to take on the debt ceiling, but were united on Wednesday in demanding that Democratic President Joe Biden agree to negotiate on spending as part of any deal.

Hard-line Republican conservatives, who have the power to block any deal in the narrowly divided House, want to force deep spending cuts on Biden and the Democratic-led Senate in exchange for an agreement to avoid default on the $31.4 trillion debt.

Some moderates want to tread more carefully and avoid any potential damage to the U.S. economy, but even they contend their party will not support a debt agreement without negotiations on spending.

"I know we can't ask for the moon," said Representative Don Bacon, a moderate Republican whose Nebraska district Biden won by 6 percentage points in 2020.

"But the president also can't refuse to negotiate. I mean, if he refuses to negotiate, you're not going to get any Republican support for anything," Bacon told Reuters.

The federal government on Jan. 19 came close to its $31.4 trillion borrowing limit set by Congress, and the Treasury Department has warned that it may only be able to pay all the government's bills through early June, at which point the world's biggest economy could be at risk of failing to meet its obligations, including on its debt securities.

Brinkmanship could panic investors, potentially sending markets slumping and shaking the global economy. A downgrade of the United States' debt could result -- as occurred in protracted 2011 debt-ceiling battle that also led to years of forced domestic and military spending cuts.

Congress raised the debt limit three times during Republican Donald Trump's presidency. But Republicans are now seizing the issue as leverage in their first major act since winning a narrow 222-212 House majority.

House Speaker Kevin McCarthy and Biden are expected to meet and discuss the debt ceiling among other issues. But no meeting has yet been scheduled.

SENATE STANDS BACK

White House spokesperson Karine Jean-Pierre reiterated on Wednesday that Biden is open to hearing ideas on how to cut the debt, despite his opposition to debt ceiling negotiations.

"If folks have ideas on how to deal with the national debt and lower the debt, he's happy to hear that," Jean-Pierre told reporters at the White House.

"When it comes to default, we see this as a separate matter."

Senate Republican leader Mitch McConnell, who played an integral role in past debt talks, predicted that any solution would have to come from McCarthy and Biden, saying the Republican-controlled House was unlikely to accept solutions from the Democratic-led Senate.

"The point everybody is making is that the White House needs to negotiate with the speaker. They can't just circumvent the House of Representatives," said Republican Representative Mike Lawler, whose New York district Biden won by 10 points.

"There needs to be a serious understanding that we need to rein in spending," Lawler added.

Pressure for agreement is already mounting, with Treasury Secretary Janet Yellen calling for prompt action from Congress.

McCarthy is expected to open any negotiations by demanding that discretionary funding be reset to 2022 levels to achieve a balanced federal budget over the next decade.

But Republican hard-liners, who used McCarthy's stormy election as speaker to exact concessions that weakened his position, have begun calling for deeper cuts in non-defense spending while awaiting talks.

"We can spend at defense spending levels for the '23 omnibus. We can return to pre-COVID spending levels for the rest of the bureaucratic state, and you can get to better than '22 levels," Representative Chip Roy, a leading conservative, told reporters.

But moderates say Republicans should adopt a different tack to find an agreement that can pass the Senate and be signed into law by Biden.

"You're not going to pass this stuff through the Senate, so let's be real," Bacon said.

He proposed keeping spending in line with inflation instead. "It's reasonable. It's not draconian. It bends the curve in the right direction," Bacon said.

Another moderate, Representative Brian Fitzpatrick, advocates a bipartisan proposal that would change the nation's borrowing limit from a fixed dollar amount to a percentage of national economic output.

Representative Chris Stewart, a Utah conservative, described hard-liner and moderate proposals alike as opening salvos that would ultimately lead to an agreement with Biden.

"When we get into details about someone further to the right or some of the moderates, there may be some disagreement. But that's why we negotiate and try to determine, you know, where the middle ground is," Stewart told Reuters.

Reporting by David Morgan; additional reporting by Nandita Bose and Jason Lange; Editing by Scott Malone and Jonathan Oatis

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