WASHINGTON: The White House expressed confidence Sunday that a damaging debt default would be averted, but warring US lawmakers appeared no closer to a deal to rein in America's budget deficit.
President Barack Obama has urged rival Democrats and Republicans to strike a "grand bargain" to reduce the yawning deficit by some $4 trillion over 10 years, in tandem with allowing the crucial increase to the borrowing limit.
But with Congress divided between the Republican-controlled House of Representatives and the Democrat-held Senate, he is struggling to straddle a sharp ideological divide over taxation and the size of government.
The president says he will only cut Medicare and Social Security, programs that help the elderly and are beloved by his Democratic Party, if Republican opponents agree to sacrifices too, like tax rises for the wealthy.
The House of Representatives is due to vote next week on a "cut, cap and balance" plan favoured by Republican lawmakers close to the ultra-conservative tea party movement, but it is seen as having no chance of passing the Senate.
Economists and business leaders have warned that failure to raise the US debt ceiling by August 2 could send shock waves through a world economy still reeling from the 2008 financial collapse.
The White House seemed sure Sunday that the debt default would not happen but offered few clues on the endgame in a long budget impasse that has seen Obama host days of crisis talks.
"I have confidence that ultimately the responsible leadership in Washington will not fail to take an action where failure would mean interest rates that would amount to a tax on all Americans," budget director Jacob Lew told CNN's "State of the Union" program.
Behind the scenes, a back-up plan has been taking shape. Rival Senate leaders, Mitch McConnell of the Republicans and Harry Reid of the Democrats, are reportedly looking to form a powerful debt reduction committee.
The increase in the debt ceiling would be achieved by a complex legislative procedure in which three tranches, totalling $2.5 trillion, would be approved over the next year without any Republican backing.
A bipartisan congressional committee would then be charged with coming up with a debt reduction plan by the end of the year.
"The panel will require only a simple majority to report a plan to Congress, it would be protected from Senate filibuster and it would not be subject to amendment, similar to the system used for closing military bases," The Washington Post reported.
The White House budget director insisted Obama was still seeking a debt reduction deal right away, but he also confirmed the basics of the McConnell-Reid back-up plan and didn't dismiss it.
"My understanding is what they are working on right now would simply provide a mechanism for extending the debt and provide for a committee, a joint committee of the Congress, to take action on the deficit," Lew said.
The budget showdown is enmeshed in America's perpetual election cycle as Republicans seek to block Obama's agenda, painting him as a big-spending liberal who would lead the US to economic ruin if reelected in 2012.
But Republicans have to walk a fine line on the debt issue as they are also aware that any cynical politicking seen as hurting the fragile US economic recovery would be electoral suicide.
"The country will not default, whether or not there are savings achieved in the process remains open to question," the number two Republican in the Senate, Jon Kyl, told ABC's "This Week" program.
"Unless the president gets off of his absolute obsession with raising taxes, Republicans are not going to agree to do anything that will harm our economy. And job-killing taxes will harm our economy."
The US government reached its debt limit of $14.29 trillion in May, and since then the Treasury Department has used special measures to allow the government to keep paying its bills.
Unless the limit is raised by August 2, the Treasury says, growing commitments will force a default.
Ratings agencies Moody's and Standard & Poor's have warned they may downgrade Washington's sterling Triple-A debt rating, and leading US creditor China, Wall Street titan JPMorgan Chase and the Federal Reserve have also sounded the alarm.
After five straight days of crisis talks ended Thursday without a clear solution, Obama implored lawmakers to embrace "shared sacrifice" to help break the stalemate.
On Friday, he said he had given top lawmakers 24 to 36 hours to talk to their rank and file and return to him with a viable plan. That time window essentially ended midday Saturday.
Copyright AFP (Agence France-Presse), 2011
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