Biden, McCarthy appear near two-year deal on US debt ceiling as default looms

WASHINGTON, (Reuters) - U.S. President Joe Biden and top congressional Republican Kevin McCarthy are closing in on a deal that would raise the government's $31.4 trillion debt ceiling for two years while capping spending on most items, a U.S. official told Reuters.

The deal, which is not final, would increase funding for discretionary spending on military and veterans while essentially holding non-defense discretionary spending at current year levels, the official said, who requested anonymity because they are not authorized to speak about internal discussions.

The White House is considering scaling back its plan to boost funding at the Internal Revenue Service to hire more auditors and target wealthy Americans, the official said.

A second U.S. official said IRS funding is an open issue, but the main thrust is ensuring the agency executes the president's priorities, even if there is a small haircut or funding is moved around.

The final deal would specify the total amount the government could spend on discretionary programs like housing and education, according to a person familiar with the talks, but not break that down into individual categories. The two sides are just $70 billion apart on a total figure that would be well over $1 trillion, according to another source.

The two sides met virtually on Thursday, the White House said.

Republican negotiators have backed off plans to increase military spending while cutting non-defense spending and instead backed a White House push to treat both budget items more equally, a source familiar with the talks told Reuters.

Biden said they still disagreed over where the cuts should fall.

"I don't believe the whole burden should fall back to middle class and working-class Americans," he told reporters.

House Speaker McCarthy told reporters Thursday evening the two sides have not reached a deal. "We knew this would not be easy," he said.