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Obama seeks to break debt impasse with Congress 'No delaying' deadline to lift US debt ceiling
(about 2 hours later)
US President Barack Obama is to meet Congressional leaders for talks on the government's debt aimed at staving off a looming default. US Treasury Secretary Timothy Geithner says a 2 August deadline on increasing the US debt limit cannot be extended.
House Speaker John Boehner said he was abandoning plans for a comprehensive $4tn (£2.4tn) debt reduction deal that involved tax increases for the wealthy. He said that if Congress did not agree to raise the ceiling beyond the current $14.3tn (£8.9tn), there would be catastrophic damage to the economy.
Instead, he said Republicans would focus on a smaller $2tn package. President Barack Obama is to discuss a debt deal with Congressional leaders.
The White House and Congress have until 2 August to raise the debt limit beyond $14.3tn or face running out of money. House Speaker John Boehner said he favoured setting a less ambitious target than an earlier proposal of a comprehensive $4tn debt reduction.
If this happens, the government would be unable to pay civil servants, government contractors, pensioners and holders of government debt. The US faces running out of money and defaulting if Congress does not allow the government to take on more debt.
Economists and the White House have warned that such a default could push the US back into recession and trigger global economic chaos. If no agreement is reached, the government would be unable to pay civil servants, government contractors, pensioners or holders of government debt.
When the Congressionally-set debt limit has been reached in the past, Congress has voted to raise it. This year however, newly empowered Republicans want to see more aggressive debt reduction measures. Economists and the White House have warned that such a default could push the US back into recession and have a global economic impact.
Mr Boehner and Mr Obama had last week worked on a comprehensive package of spending cuts and new tax revenue that would reduce the debt by $4tn over 10 years. 'No alternative'
But in a statement released late on Saturday, Mr Boehner said he was pulling back from that because it involved tax increases. When the Congressionally-set debt limit has been reached in the past, Congress has voted to raise it.
This year, however, newly empowered Republicans are determined to prevent any tax increases and want to see aggressive measures to reduce the deficit in exchange for agreeing to raise the debt ceiling.
In a round of interviews before Mr Obama's meeting with Congressional leaders on Sunday, Mr Geithner said the US would not default.
He said Republicans had "no alternative" to making a budget deal with the White House and urged them not to walk away from efforts to reach a large, comprehensive deal on debt reduction.
The Obama administration wanted "the biggest deal possible" on debt reduction, Mr Geithner told NBC's Meet the Press.
Last week, Mr Boehner - the senior Republican in the House of Representatives - and Mr Obama had worked on a massive package of spending cuts and new tax measures that would have reduced the debt by $4tn over 10 years.
The proposals included reining in spending on entitlement programmes such as Social Security and Medicare, considered vital by many Democrats.
But it also involved tax hikes and closing tax loopholes for the wealthiest Americans, something opposed by many Republicans.
In a statement released late on Saturday, Mr Boehner said he was pulling back from the $4tn package because it involved tax increases.
"Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes," he said."Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes," he said.
"I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the [Vice-President Joe] Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase.""I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the [Vice-President Joe] Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase."
A group of Republican and Democratic members of Congress led by Mr Biden had identified about $2tn in cuts in talks over May and June but those ended in an impasse.A group of Republican and Democratic members of Congress led by Mr Biden had identified about $2tn in cuts in talks over May and June but those ended in an impasse.
Leaders from both parties are under pressure from rank and file members.
Democrats want to shield welfare programmes such as Medicare, Medicaid and Social Security from spending cuts while Republicans reject tax increases.