A bipartisan group of US Senators tried Monday to cobble together a deficit reduction plan that would allow President Barack Obama to avert a potentially catastrophic debt default in return for $1.5 trillion in spending cuts.
With two weeks to go until what Obama has termed economic "Armageddon," the rival Senate leaders, Mitch McConnell of the Republicans and Harry Reid of the Democrats, are working on a complex path out of the crisis.
A $2.5 trillion increase in the debt ceiling would come in three tranches over the next year with no Republican backing and Obama facing condemnation each time for raising it in symbolic resolutions of disapproval.
The spending cuts, implemented over a decade, would be accompanied by the setting up of a powerful bipartisan congressional committee charged with producing a comprehensive 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," The Washington Post reported.
Obama had 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 has failed to straddle a sharp ideological divide over taxation and the size of government.
The president said he would only cut Medicare and Social Security -- programs that help the elderly and are beloved by his Democratic Party -- if Republican foes agreed to sacrifices too, namely tax hikes for the wealthy.
After five straight days of testy White House talks with congressional leaders ended Thursday without a clear solution, Obama implored lawmakers to embrace "shared sacrifice" to help break the stalemate.
With time running out and no deal in sight, it looks like the president could have to agree to a carefully choreographed series of moves on Capitol Hill to steer the country out of crisis and save face all round.
Republicans are expected to table a plan early in the week that would cut the deficit, cap federal spending and amend the constitution to require a balanced budget, while also containing a provision to raise the debt ceiling.
The so-called "cut, cap and balance" plan, favored by Republican lawmakers close to the ultra-conservative Tea Party movement, might pass the House but is unlikely to win enough support from Democrats to pass the Senate.
"The Republicans are insisting this debate take place before anything happens," number two Senate Democrat Dick Durbin told CBS's "Face the Nation" program, adding: "We have to check the boxes."
After its expected failure, McConnell and Reid hope to pass a debt limit measure through the Senate that would then be amended in the House with a proposal to reduce spending by $1.5 trillion over a decade.
White House budget director Jake Lew insisted Obama still wanted a big debt reduction deal right away but confirmed the basics of the 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.
"At a minimum, Congress has a way to action and avoid default on the US debt. It's critical," he told CNN.
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 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 drive the country to economic ruin if reelected in 2012.
But Republicans have to walk a fine line as any obviously cynical politicking seen as detrimental to the fragile US economy or imperiling jobs would also be electoral suicide.
"The country will not default, whether or not there are savings achieved in the process remains open to question," number two Republican in the Senate Jon Kyl told ABC.
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.
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