US seeking break to debt impasse

2011-07-10 11:02

Washington - US President Barack Obama meets Sunday with his top Republican foes in a high-stakes effort to forge a crucial budget deal before an early-August deadline with little sign of any consensus.

Just hours before the two sides were to meet, Republican leader John Boehner warned he was abandoning efforts to reach a larger, comprehensive debt reduction deal which would save more than $4 trillion over the next decade.

Instead Boehner said his party would scale back the discussions and "focus on producing a smaller measure" of cuts that would offset any limit in the US debt increase, to avert a default.

"Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes. I believe the best approach may be to focus on producing a smaller measure," the speaker added.

The Washington Post reported negotiators were now left with a less ambitious framework aimed at saving about $2.4 trillion over the next decade, which had been discussed between Vice President Joe Biden and a bipartisan group of lawmakers.

The White House hit back that the two sides had been making progress in weeks of talks, and said a balanced approach was needed to avert a crisis.

"Both parties have made real progress thus far, and to back off now will not only fail to solve our fiscal challenge, it will confirm the cynicism people have about politics in Washington," White House Communications Director Dan Pfeiffer said.

Obama sits down Sunday at 6:00pm (2200 GMT) with the leaders of both parties in the Republican-held House of Representatives and the Democratic-led Senate to find a way to slash spending as part of a compromise to raise the US debt ceiling.

The talks are part of a final major push to reach a deal to raise the congressionally determined limit on US borrowing, now set at $14.29 trillion, in the face of a budget deficit expected to hit $1.6 trillion this year.

The US hit the ceiling on May 16, but has since used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating without impact on government obligations.

But by August 2, the government will have to begin withholding payments - to bond holders, civil servants, retirees or government contractors - and the White House has urged a deal by July 22 to have time for Congress to pass it.

"Real differences remain," the president acknowledged Friday, blaming "uncertainty" over the final outcome of the negotiations for keeping the economic climate cautious.

One of the main stumbling blocks on the Republican side has been the White House's insistence that any deal must include tax hikes for the wealthiest.

Pfeiffer insisted Sunday on what he described as a "balanced approach that asks the very wealthiest and special interests to pay their fair share as well."

In turn Republicans have been demanding that the Democrats agree to huge spending cuts to rein in the ballooning deficit.

At stake could be a failure to raise the debt ceiling which could push the United States into defaulting on its debt payments.

A US debt default would, experts say, unleash shockwaves on the global economy, but both sides face high political obstacles to a deal aides say could include cuts of up to $4.5 trillion over 10 years.

Boehner faces pressure from Republicans close to the archconservative "Tea Party" movement to reject any compromise that raises taxes, something he has already publicly ruled out.

Obama faces pressure from Democrats outraged by talk that he might agree to cuts in the fraying US social safety net, notably to the Medicare health program for the elderly and disabled and to Social Security retirement benefits.

The discussions are sure to shape Obama's 2012 reelection bid, which will likely turn on voters' assessment of his handling of the US economy as it claws its way out of the worst recession since the Great Depression of the 1930s.