WASHINGTON, (Reuters) – Efforts to craft a broad $3 trillion deficit-reduction deal gained traction yesterday as the White House and top lawmakers scrambled to sort through competing options and stave off a devastating U.S. default.
With the clock ticking toward an Aug. 2 deadline to raise the U.S. debt ceiling, President Barack Obama and the senior Republican in Congress, House Speaker John Boehner, worked toward a budget plan that would include deep spending cuts but might leave tax reform for later, congressional aides said.
The main obstacle remained the issue of tax increases that Obama’s Democrats want and Republicans vehemently oppose. There were conflicting accounts of how and when higher revenue might kick in, and the White House vowed there would be no deal without this.
The main focus was on prospects for what congressional sources said was shaping up as $3 trillion in deficit cuts over 10 years, a figure that many in Washington hope would help salvage America’s triple-A credit rating. Rating agencies have called for a comprehensive deficit-cutting deal.
Negotiators have struggled to break their impasse and winnow options for raising the government’s $14.3 trillion debt ceiling. Failure to reach a deal to increase U.S. borrowing authority would render the world’s biggest economy unable to pay all of its bills.
But confusion has grown amid a patchwork of proposals aimed at finding what a senior Democratic aide called the “magic formula” for resolving the crisis, which has dominated Washington’s agenda for weeks.
“Frankly, we’ve looked at a half a dozen fallback plans, none of which are all that appetizing,” Boehner — struggling with Tea Party lawmakers largely opposed to any compromise with Obama — told conservative talk-show host Rush Limbaugh.
White House spokesman Jay Carney said there had been momentum toward a “balanced” deficit agreement, but he insisted: “We are not close to a deal.”
What remained clear was that both sides were still far a part over the thorniest issue on the table — taxes.
Obama, in an interview with National Public Radio, said any deal must include some tax increases alongside defense and other spending cuts. Many Republicans have vowed to oppose any kind of tax hikes, while Democrats have insisted on higher taxes for wealthier Americans.
SIDES STILL FAR APART
“We’re also going to have to have more revenues and we can do that in a way that is not hurting the economy (and) in fact could potentially help the economy by closing up some loopholes that distort the economy,” Obama said in excerpts of the interview released by NPR.
While they could leave comprehensive tax reform for later, Obama and Congress could agree to revenue increases that would end some select tax breaks, such as special breaks enjoyed by ethanol blenders, some Wall Street investors and companies that operate corporate jets. Despite the gulf between the two sides, reports that negotiators were starting to close in a debt deal helped fuel a rally in U.S. and world stocks on Thursday. The Dow Jones industrial average ended 152 points, or 1.2 percent, higher at 12,724.
Adding pressure on the debt talks, Standard & Poor’s reiterated that there is a 50-50 chance the U.S. top-notch credit rating could be cut within three months, perhaps as soon as August, even if default is avoided, should the government not also take significant measures to tackle deficits.