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Efforts to avoid an unprecedented U.S. default enter crunch time on Friday, with President Barack Obama and top lawmakers engaged in a sometimes chaotic drive to strike a sweeping deficit-reduction deal.
With the clock ticking toward an August 2 deadline to raise the U.S. debt ceiling, Obama and the senior Republican in Congress, House Speaker John Boehner, worked toward a plan that could include up to $3 trillion in 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 demand 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.
Negotiations have whipsawed between competing and even conflicting options, and leaders on both sides face resistance within their own ranks to some ideas now gaining traction.
“There will be plenty of haggling over the details of all these plans in the days ahead,” Obama said in an appeal for compromise in a USA Today opinion piece. “But right now, we have the opportunity to do something big and meaningful.”
The focus is on what congressional sources say is shaping up as a wide-ranging package of deficit cuts over 10 years, something many in Washington hope will help save America’s triple-A credit rating. Rating agencies have threatened a U.S. bond downgrade without 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.
Some Democrats have complained about what they see as Obama too willing to make concessions on social spending cuts and unhappy if he agrees to no immediate tax increases.
A gathering of Democratic congressional leaders at the White House late on Thursday was meant to not only inform them of developments but to possibly placate their concerns.
Friday is essentially the start of crunch time. The White House initially set a July 22 target for a deal that would leave enough time to get it through the legislative process. But it has backed off that timeframe in recent days with both sides still far apart on the issues.
If Congress fails to raise the debt ceiling in time, the United States would default on its obligations, possibly plunging the country back into recession and sparking a crisis in financial markets worldwide.
White House spokesman Jay Carney said earlier there had been momentum toward a “balanced” deficit agreement, but he insisted: “We are not close to a deal.”
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.
What remained clear was that both sides at still at odds over the thorniest issue on the table — taxes.
Obama told National Public Radio any deal must include some tax increases alongside defense and other spending cuts. Many Republicans vow to oppose any tax hikes, while most Democrats insist on higher taxes for wealthier Americans.
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, congressional sources said.
(Additional reporting by Thomas Ferraro, Donna Smith, Richard Cowan; writing by Matt Spetalnick)