Frantic US debt talks near deal— top senator

WASHINGTON—US President Barack Obama and top lawmakers raced against the clock Sunday narrowing in on a deal to avert a disastrous US debt default and a downgrade in its credit rating.

The top Republican in the Senate said Sunday he was “very close” to reaching an agreement with Democrats on a deal to raise the US $14.3 trillion debt ceiling and avoid default.

“I’m very close to being able to recommend to my members that we have an agreement here that I hope they will consider supporting,” Senate Minority Leader Mitch McConnell told CNN television’s “State of the Union.”

McConnell said Republican leaders and the White House were working on a package that would cut spending by $3 trillion and cap spending over the next 10 years. He said there would be no tax increases.

“I think I can confidently say this debt ceiling increase will avoid default, which is important for everybody in America to know we are not going to have a default for the first time,” he added.

Top White House advisor David Plouffe said Sunday’s negotiations would be critical in the endgame after a months-long political showdown which has brought the world’s economic superpower to the brink of default.

“We have to get this solved. Today is obviously a critical day. We have to give confidence that there is a pathway” forward, Plouffe told NBC television. “We don’t have a deal. The hours are ticking.”

“In the coming hours I think it is incumbent on congressional leaders to compromise that one little bit,” he said.

Plouffe said the deal now being hammered out between the White House, and leading Senate Democrats and Republicans would see an immediate increase of the debt ceiling accompanied by about $1 trillion in spending cuts.

A special committee would then be set up tasked with identifying even more spending cuts by the end of the year, which could involve also looking at tax reform, Plouffe said.

If it failed to come up with the extra cuts, then there would be some kind of enforcement mechanism. “You want something to compel this committee to act,” Plouffe said.

Obama, his Democratic allies, and his Republican foes have been hunting for a breakthrough deal that would ensure the world’s richest nation will have cash to pay its bills past a midnight Tuesday (0400 Wednesday) deadline.

Senate Democratic Majority Leader Harry Reid has put off to 1 p.m. (1700 GMT) Sunday a test vote on his own plan to raise the debt ceiling to allow time for a possible compromise.

The US economy hit that limit on May 16 and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally – but can only do so until midnight Tuesday.

Business and finance leaders have warned default would send crippling aftershocks through the fragile US economy, still wrestling with stubbornly high unemployment of 9.2 percent in the wake of the 2008 global meltdown.

Without a deal, the US government would have to cut an estimated 40 cents out of every dollar it spends, forcing grim choices between defaulting or cutting back programs like those that help the poor, disabled and elderly.

Any compromise would still need to clear the divided Democratic-led Senate and Republican-held House of Representatives, where conservatives close to the “Tea Party” movement have called for draconian belt-tightening.

Late Saturday details of the accord were still being negotiated, but an aide familiar with the talks said it called for offsetting any debt ceiling increase by matching spending cuts.

According to the aide who spoke on condition of anonymity, under the proposal, the debt ceiling would be increased up to $2.4 trillion, with $1.2 trillion of spending cuts implemented over 10 years.

A special bipartisan committee would be set up to recommend further cuts of about $1.6 trillion.

The panel must make its recommendations before the Thanksgiving recess in November, the aide said. Failure by Congress to approve them by late December would trigger automatic across-the-board cuts, including in defense and the Medicare health program.

The proposed deal would also require a congressional vote on a balanced budget amendment to the constitution, a cherished project of House conservatives, but would not mandate its final approval, the aide noted.

It was unclear whether the deal would be enough to talk ratings agencies down from downgrading the sterling Triple-A US debt rating, causing a spike in interest rates that would throw a wrench into the gears of the already sputtering US economy.