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Warring US lawmakers no closer to deficit deal
  • | AFP | July 18, 2011 10:43 AM

The White House expressed confidence that a catastrophic debt default would be averted, but warring US lawmakers appeared no closer to a deal to rein in America\'s budget deficit.

White House confident of averting debt default

President Barack Obama has urged rival Democrats and Republicans to strike a "grand bargain" to reduce the yawning deficit by some $4 trillion over 10 years, in tandem with allowing the crucial increase to the borrowing limit.

But with Congress divided between the Republican-controlled House of Representatives and the Democrat-held Senate, he is struggling to straddle a sharp ideological divide over taxation and the size of government.

The president says he will only cut Medicare and Social Security -- programs that help the elderly and are beloved by his Democratic Party -- if Republican foes agree to sacrifices too, namely tax rises for the wealthy.

After five straight days of crisis White House talks with congressional leaders ended Thursday without a clear solution, Obama implored lawmakers to embrace "shared sacrifice" to help break the stalemate.

Republicans are expected to table a "cut, cap and balance" plan this week favored by the conservative tea party movement that aims to cut the deficit, cap federal spending and amend the constitution to require a balanced budget.

The measure, which would accompany a provision to raise the debt ceiling, might pass the House but it is considered highly unlikely to win enough support from Democrats to pass the Senate as it has a provision calling for a supermajority in both chambers to raise taxes.

"The Republicans are insisting this debate take place before anything happens," number two Senate Democrat Dick Durbin told CBS\'s "Face the Nation" program Sunday, adding: "We have to check the boxes."

Economists and business leaders have warned that failure to raise the US debt ceiling by August 2 could send shock waves through a world economy still reeling from the 2008 financial collapse.

The Republican party leadership has promised not to let the United States default, and the White House seemed sure Sunday that a debt default was not on the cards even if it offered no clear path out of the weeks-long impasse.

"I have confidence that ultimately the responsible leadership in Washington will not fail to take an action where failure would mean interest rates that would amount to a tax on all Americans," budget director Jacob Lew told CNN\'s "State of the Union" program.

Behind the scenes, a back-up plan has been taking shape. Rival Senate leaders, Mitch McConnell of the Republicans and Harry Reid of the Democrats, are reportedly looking to form a powerful debt reduction committee.

The increase in the debt ceiling would be achieved by a complex legislative procedure in which three tranches, totaling $2.5 trillion, would be approved over the next year without any Republican backing.

A bipartisan congressional committee would then be charged with coming up with a debt reduction plan by the end of the year.

"The panel will require only a simple majority to report a plan to Congress, it would be protected from Senate filibuster and it would not be subject to amendment, similar to the system used for closing military bases," The Washington Post reported.

The budget showdown is enmeshed in America\'s perpetual election cycle as Republicans seek to block Obama\'s agenda, painting him as a big-spending liberal who would drive the country to economic ruin if reelected in 2012.

But Republicans have to walk a fine line as any obviously cynical politicking seen as detrimental to the fragile US economy or imperiling jobs would also be electoral suicide.

"The country will not default, whether or not there are savings achieved in the process remains open to question," number two Republican in the Senate Jon Kyl told ABC\'s "This Week" programme. "Unless the president gets off of his absolute obsession with raising taxes, Republicans are not going to agree to do anything that will harm our economy. And job-killing taxes will harm our economy."

The US government reached its debt limit of $14.29 trillion in May, and since then the Treasury Department has used special measures to allow the government to keep paying its bills.

Unless the limit is raised by August 2, the Treasury says, growing commitments will force a default.

Ratings agencies Moody\'s and Standard & Poor\'s have warned they may downgrade Washington\'s sterling Triple-A debt rating, and leading US creditor China, Wall Street titan JPMorgan Chase and the Federal Reserve have all sounded the alarm.

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