WASHINGTON, (Reuters) – President Barack Obama and Senate Democrats are weighing a scaled-back U.S. budget deal that would avert a looming default but force Congress to tackle the politically toxic issue again before the 2012 elections, a Senate Democratic aide told Reuters yesterday.
The deal would cover the country’s borrowing needs for seven months, the aide said. That would theoretically include budget savings of roughly $1 trillion to attract the Republican support needed to pass it through Congress.
Congress must raise the $14.3 trillion debt ceiling by Aug. 2 to avoid a default that could push the United States back into recession and send financial markets plummeting.
There has been no progress since talks collapsed last week over tax hikes. Democrats say spending cuts should not be the only component of a deficit-reduction package that would make it easier for lawmakers to sign off on further borrowing.
The White House believes a deal needs to be in place by July 22 to give Congress enough time to pass it, according to Democratic officials familiar with the talks.
Bank regulator Sheila Bair said markets could be spooked well before Aug. 2 if they see no signs of progress.
“Why even go there? Why even flirt with it?” Bair, the outgoing chairman of the Federal Deposit Insurance Corp., told the Senate Banking Committee.
Senate Democratic Leader Harry Reid canceled a planned break during the week of the July 4 Independence Day holiday to keep the Senate in session at Obama’s request.
“We’re working on a number of different proposals,” he told reporters. “We discussed four of them with the president yesterday.”