U.S. seeks to avert default on debt

Democrats and Republicans are stepping up budget talks aimed at averting what the Obama administration warns could be the disastrous first-ever default on U.S. government debt.

WASHINGTON — Democrats and Republicans are stepping up budget talks aimed at averting what the Obama administration warns could be the disastrous first-ever default on U.S. government debt.

A bipartisan group led by Vice-President Joe Biden tasked with reaching an agreement has not made the politically difficult compromises on the larger issues, such as changes in Medicare — the federal government health care program that benefits the elderly — or tax increases.

The negotiators met Tuesday as they accelerated efforts to line up a deficit-cutting deal that would accompany legislation raising the nation’s $14.3 trillion debt limit.

“We are meeting every day for the remainder of this week,” Treasury Secretary Tim Geithner told business executives before heading to the Capitol.

The administration says it needs a $2.4 trillion increase in borrowing authority to meet its debts through the November 2012 elections. Officials say economic chaos could ensue if they can’t borrow more money and are forced to default on their debts.

But opposition Republicans, who control the House of Representatives, want any increase in borrowing authority to be matched by a cut in the budget deficit that’s at least as great.

The issue is potentially sensitive ahead of next year’s congressional and presidential elections. Both parties are under pressure from their bases. Republicans want to cut spending without raising taxes but are also reluctant to curb the military budget. Democrats are trying to defend Medicare benefits and other social programs and are also looking for new sources of revenue, like ending a tax break for ethanol.

A default could have huge implications for next year’s election, though it’s not clear which party would get most of the blame.

“It’s hard for me to see a scenario where you get to $2 trillion … without revenues (or) without draconian cuts that Democrats would not be inclined to vote for,” said the No. 2 House Democrat Steny Hoyer.

The parties want a resolution by Aug. 2. However, the Senate’s top Republican, Mitch McConnell, warned this week that unless Democrats agree to long-term changes in benefit programs like Medicare it may be necessary to enact a smaller debt limit increase that would require lawmakers to renegotiate this fall.

Both President Barack Obama and House Republicans point to more than $1 trillion in savings by claiming that the costs of military operations in Iraq and Afghanistan will quickly shrink to $50 billion a year instead of the almost $160 billion provided for 2011. The $1 trillion figure may be exaggerated, but hundreds of billions of dollars may be possible.

Even so, such savings add up to just a fraction of what it would take to meet the twin goals of having the deficit cuts match the amount of increase in borrowing needed to prevent the country from defaulting.

In April, key credit agency Standard & Poor’s lowered its long-term outlook for the federal government’s fiscal health from “stable” to “negative,” and warned of serious consequences if lawmakers fail to reach a deal to get the deficit under control.

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