No sign of deal on US debt as deadline draws closer

REPUBLICAN LAWMAKERS are expected to pass symbolic legislation today that would cut the deficit and cap federal spending but which lacks Democratic support in the Senate.

The move will take the US a day closer to a possible default on its debt without a legislative plan to increase the nation’s borrowing authority.

The White House and Congress have set a soft deadline of this Friday to reach a basic agreement that would increase the debt ceiling and cut deficits ahead of a firm August 2nd deadline, after which the treasury has warned that the country would be in default.

Even if congressional leaders and the White House are able to reach a deal, the maths are tricky on getting the agreement passed, which would require 218 votes in the House and 60 in the Senate if some lawmakers try to block it.

It is still unknown how many Republicans may vote against any increase in the debt ceiling in the House, but there could be dozens who oppose it. That, in turn, would require more Democrats to vote for the legislation, but they are unlikely to support a deal that does not include an increase in taxes on the wealthy.

Most Washington insiders agree that the “grand bargain” that continues to be pushed by US president Barack Obama, which would reduce deficits by $4 trillion (€2.8 trillion) through a combination of cuts to popular healthcare and other programmes and tax increases on the rich, is no longer realistic.

A complicated plan hatched by Mitch McConnell, the top Senate Republican, has emerged as one of the most likely solutions to increase the debt ceiling but it is unlikely to quell concerns by rating agencies. Conservatives in both houses of Congress have vowed to vote against it.

Although details are still sketchy, the plan is likely to include between $1 trillion and $1.5 trillion in cuts in discretionary spending with no changes to programmes such as Medicare or social security, and it would give Mr Obama the latitude to seek three increases in the debt limit.

Another plan gaining traction would increase the debt ceiling and cut $2.4 trillion in deficits over 10 years, including cuts in discretionary spending and Medicare. If agreed, the plan would resolve the need for an increase in the debt ceiling until after the 2012 presidential election. – (Copyright The Financial Times Limited 2011)