Washington: With five days remaining before President Barack Obama's deadline for a deal to raise the US debt ceiling, Republicans and Democrats have yet to agree on a big plan to cut the nation's deficit and raise its debt limit in time to avoid an unprecedented US default.
Efforts to reach a comprehensive deficit-reduction deal are at an impasse over tax breaks as lawmakers -- with an eye on 2012 elections -- hold on to entrenched positions.
This week, senators will likely move forward with a potential fallback plan that would authorize more borrowing power and could also include some spending cuts.
Obama had set a Friday deadline for Congressional leaders from both parties to agree on a deal to raise the country's debt ceiling. He said the July 22 deadline would give Congress enough leeway to write and pass legislation before Aug. 2, when the government will run out of money to pay its bills.
Failure to increase the debt ceiling by then could send shockwaves through global financial markets and may plunge the United States into another recession, economists have warned.
Credit rating agencies have signaled they may cut the top-notch AAA US rating if the borrowing limit is not raised and deficit reduction measures are not laid out.
Leaders of both parties agree on the need to raise the debt ceiling. But they disagree on how to get there.
Republicans want a deficit-cutting deal before they will vote to raise the debt limit but they do not like Democratic proposals to raise taxes on wealthier Americans.
White House budget director Jack Lew was optimistic a deal would be reached and the debt limit would be raised in time.
"As we approach it, more and more (members of Congress) seem to be coming to it," Lew told CNN on Sunday. "There will be a fringe that believe that playing with Armageddon is a good idea. But I don't think that's where a majority will be."
Obama held White House talks with congressional leaders for five straight days last week. But no White House talks were listed on Obama's official schedule for Monday.
There were no formal talks over the weekend but Senate Republican leader Mitch McConnell and Senate Democratic leader Harry Reid were negotiating a plan by McConnell that would allow Obama to raise the debt limit while sparing Republicans from having to take the politically toxic vote in favor of it.
Reid is seeking some changes to make the plan attractive to Democrats, including USD 1.5 trillion in spending cuts.
Senior Democratic aides said the Senate will likely begin considering the compromise "Plan B" measure this week. They predicted the Democratic-led Senate would pass the legislation, but winning over the Republican-led House of Representatives would pose a bigger challenge.
'CUT, CAP AND BALANCE'
House Speaker John Boehner, the top Republican in Congress, has scheduled a vote for Tuesday on his "cut, cap and balance" plan, which would condition an increase in the debt limit on passage of a constitutional amendment to require the federal government to balance its books each year.
That bill stands little chance of passing the Senate but it might buy some goodwill with conservatives to eventually allow for passage of a compromise, such as the McConnell plan.
The bickering over the debt ceiling, marked by dueling news conferences all last week on Capitol Hill, is weighing more and more on financial markets.
"The news flow (this) week dealing with the deficit issues and the political posturing that is taking place is going to be intensive and is really going to drive these markets," said Paul Mendelsohn, chief investment strategist at Windham Financial Services.
"People are starting to get nervous about what they are seeing out there," he said.
First Published: Monday, July 18, 2011, 12:15