Debt limit fight: Trump tells GOP ‘do a default’ if needed, but talks with Biden in full swing

WASHINGTON (AP) -

In the search for a budget deal to resolve the government’s debt limit crisis, billions of dollars of unspent COVID money is on the table. So are ideas as far-ranging as easing permits for energy projects and simply ordering broad spending caps - all still in the mix as negotiators from the White House and Congress hunkered down Thursday for the latest round of closed-door talks.

The gears of Washington are beginning to move, not smoothly but determinedly, on resolving the crisis, a turn of events in itself after months of stalemate between President Joe Biden and House Speaker Kevin McCarthy as the deadline looms to avert an economy-fracturing national default.

Biden is to meet again with McCarthy and other congressional leaders Friday as talks intensify. Washington is staring down a June 1 deadline to raise the debt limit to allow continued borrowing to cover already accrued bills or risk the nation's first modern-day debt default.

Then there’s one more development thrown into the works: Donald Trump is urging fellow Republicans to let America default on its debts if they don't get the budget cutting deal they want from Biden.

"I say to the Republicans out there - congressmen, senators - if they don't give you massive cuts, you're going to have to do a default," Trump said at a CNN town hall Wednesday night as part of his campaign to return to the White House.

It’s unclear whether the sudden outburst from Trump will affect negotiations. The former president continues to have sky-high influence with many in his party, and Trump-aligned lawmakers in Congress may heed his advice to engage in brinkmanship that could lead to a debt default that economists say could be catastrophic.

So far, Republicans on Capitol Hill appear to be ignoring the former president’s counsel. They’re working behind the scenes pursuing the priorities in their recently House-passed bill that would raise the debt ceiling in exchange for steep but less than "massive" budget cuts and other future spending restrictions.

Negotiators spent two hours in a Capitol basement room Wednesday as they raced to develop the contours of a deal. They were back at it again Thursday.

Democrats, meanwhile, responded vigorously to Trump's outburst. Senate Majority Leader Chuck Schumer declared Trump was calling on his Republican Party to "destroy the economy."

Said Schumer: "Donald Trump is about as qualified to run the country as a broken brick. But the danger here is he holds enormous sway over Speaker McCarthy and the hard right."

McCarthy downplayed the closed-door talks underway at the Capitol as producing "nothing new."

The Republican speaker owes his gavel to Trump’s support during a grueling in-House election. McCarthy, who is taking the lead in negotiations with Biden, has also held firm in his opening bid in talks, saying his staff has put no new ideas on the table beyond the legislation the House approved last month - which the White House has already said Biden would veto.

“I passed a bill - what more should I have to do?” McCarthy told reporters.

Economists warn a debt default would be devastating, rippling across the economy. The nation’s credit would likely be downgraded, which would surely spike borrowing costs that would end up hitting not only businesses and government, but American households.

Trump said during the town hall he didn’t think the situation would come to such extremes. Fielding questions from the audience, he predicted that “Democrats will absolutely cave" to the Republican demands.

But the former president, who had signed bills to raise the debt limit during his own presidency, said a debt default this time would be worth it.

"It's better than what we're doing right now because we're spending money like drunken sailors," he said.

The U.S. debt, which grew from $20 trillion when Trump took office in 2017 to $28 trillion when Biden took over in 2021, is now $31 trillion.

Meanwhile, Democratic Minority Leader Hakeem Jeffries said the staff level talks have been "very productive."

While the White House insists it wants a clean debt bill, it is engaged in talks around the broader budget.

The White House has rejected the Republican proposal to roll back federal spending to fiscal 2022 levels and impose a 1% cap on annual spending for the next decade. But there could be room for further discussions, much the way Congress and the White House agreed to spending caps in past budget showdowns.

Biden himself suggested that the unspent COVID-19 funds could be "on the table." And a person familiar with the negotiations said rules on permits are part of the discussion over the budget. The person was granted anonymity to talk about private conversations.

A top McCarthy ally, Rep. Garret Graves, R-La., said during a roundtable with reporters Thursday there are four areas of bipartisan interest that he thinks "would be a good foundation for negotiations."

Among them, Graves outlined the COVID rescissions, spending caps, reform of permitting rules, and bolstered work requirements on some government aid recipients as topics with bipartisan interest.

"I think there is pretty good opportunity there," Graves told reporters.

He said the White House is pushing for a shorter spending cap than the 10 years Republicans proposed in their legislation.

Biden senior advisor John Podesta drew attention this week when he revived White House interest in permit reform - a major issue in the fight against climate change - including support for a proposal from Sen. Joe Manchin, D-W.Va., who has been instrumental in bipartisan deals in Congress.

But on another subject, Republicans said Thursday that any proposals from the White House for tax increases to cut deficits are a nonstarter for the House GOP.

“If the White House is looking for revenue increases, they are looking in the wrong direction," said Rep. Dusty Johnson, R-S.D., a leader of the conservative Main Street Caucus.

About Trump’s comments, Johnson said: "Early candidates talk differently than people who are trying to get a deal. And I just think most members of Congress, Republican members, understand that the jobs are a little different.”

Democratic leader Jeffries sad Trump’s comments about a default were "unfortunate," and all part of the Republicans’ "hostage-taking" - using the debt ceiling as leverage to push far-right priorities.

"A default would be catastrophic, a default would be dangerous, a default would be devastating for everyday Americans," he said.

Jeffries said a debt default would crash the stock market, hurt the retirement accounts of seniors "and must be avoided at all costs."

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Associated Press writers Kevin Freking, Stephen Groves and Mary Clare Jalonick contributed to this report.