Big debt deal gains traction amid chaotic efforts

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.

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