Obama, lawmakers aim for "big" things in debt talks

WASHINGTON (Reuters) - After weeks of impasse, President Barack Obama and top congressional leaders are aiming for "something big" as they resume budget talks on Thursday to avert an imminent default.

With Republicans showing new flexibility on taxes, Democrats say Obama will push negotiators to double their target to $4 trillion in budget savings over 10 years.

That would be an ambitious goal, but there have been a few hints of progress since talks hit a brick wall two weeks ago.

Obama and House of Representatives Speaker John Boehner, the top Republican in Washington, have discussed broadening the deal to tackle politically sensitive reforms to the tax code and popular benefits like Social Security, Medicare and Medicaid, a Republican aide said.

The meeting, which takes place at the White House, is due to start at 11 a.m. EDT (1500 GMT) and last about an hour.

Negotiators are trying to craft a deal that would allow lawmakers to say they are taking steps to keep the national debt under control even as they sign off on further borrowing.

Failure to raise the $14.3 trillion debt ceiling by August 2 could force the country to default on debt service and other obligations, a move that could push the country back into recession and send shock waves through financial markets across the globe.

A small team of Treasury officials are discussing options to stave off default if Congress fails to raise the debt limit by the August 2 deadline, sources familiar with the matter told Reuters.

Senior officials, including Treasury Secretary Timothy Geithner, have repeatedly said there are no contingency plans if lawmakers do not give the government the authority to borrow more money.

But the sources said the Treasury was looking at a number of options, including whether the administration can delay payments to try and manage cash flows after August 2.

"SOMETHING BIG"

By the end of last week, lawmakers were weighing a scaled-back deal that would cover the country's borrowing needs in the short term but force Congress to confront the issue again in a few months, when the 2012 election season will make politically painful decisions even more difficult.

Obama dismissed that idea on Tuesday, two days after he met secretly with Boehner.

"We've got a unique opportunity to do something big," he said at a news conference, where he invited top congressional leaders to Thursday's White House meeting.

Obama's goal of $4 trillion in savings matches the figure that budget experts say is needed to keep the debt at a sustainable level.

That would probably require further cuts to popular benefit programs that Democrats have resisted, as well as new tax revenue that Republicans have ruled out.

The two sides have discussed adjusting a measure of inflation to restrain the growth of Social Security benefits and tax breaks, an approach that could save roughly $300 billion over 10 years.

In earlier sessions, negotiators identified roughly $2 trillion in spending cuts that could form the basis of a deal. Republicans walked out of those talks after Democrats called for an additional $400 billion in budget savings by ending a range of tax breaks that benefit wealthy people and certain businesses, like the oil and gas industry.

The two Republicans who were involved in those talks indicated that they could accept some "revenue raisers" in a deal.

Senator Jon Kyl, the No. 2 Republican in the Senate, said his side had backed measures that would generate between $150 billion and $200 billion in new revenue generated by selling assets such as broadband spectrum and raising user fees.

His counterpart in the House, Majority Leader Eric Cantor, said Republicans could support ending some of the tax breaks that Democrats have proposed in return for tax cuts elsewhere.

Obama and Boehner have discussed closing some of those tax breaks in return for lowering rates overall, according to a Republican aide.

But Republicans have been adamant that the deal not raise tax rates on wealthy households, as Obama has proposed.

"There are no tax increases on the table," said Boehner spokesman Michael Steel.

Aside from Cantor and Kyl, the meeting will include Boehner, Senate Republican leader Mitch McConnell, Senate Democratic leader Harry Reid and House Democratic leader Nancy Pelosi.

Democrats believe a deal needs to be in place by July 22 in order to ensure that Congress can raise the debt limit by August 2. Thursday's meeting could determine whether that is possible.

(Additional reporting by Richard Cowan, Rachelle Younglai, Tim Reid and Caren Bohan; Editing by Eric Beech and Vicki Allen)

WhatsAppFacebookTwitterLinkedinBeloudBluesky