WRAPUP 4-Democrats Weigh Short-term Debt Limit Increase

Thursday, 30 Jun 2011 02:25 PM

* Short-term deal could divide Republicans

* Would require another painful vote before 2012 election

* Democrats attack tax breaks for yachts, race horses

(New throughout with possible short-term deal)

By Andy Sullivan and Richard Cowan

WASHINGTON (Reuters) - President Barack Obama and Senate Democrats are weighing a scaled-back U.S. budget deal that would avert a looming default but force Congress to tackle the politically toxic issue again before the 2012 elections, a Senate Democratic aide told Reuters on Thursday.

The deal would cover the country's borrowing needs for seven months, the aide said. That would theoretically include budget savings of roughly $1 trillion to attract the Republican support needed to pass it through Congress.

Congress must raise the $14.3 trillion debt ceiling by Aug. 2 to avoid a default that could push the United States back into recession and send financial markets plummeting.

But there has been no progress toward an agreement since talks collapsed last week over tax increases Democrats want to include as part of a deficit-reduction package that would make it easier for lawmakers to sign off on further borrowing.

Democrats are currently weighing their options.

"We're working on a number of different proposals ... We discussed four of them with the president yesterday," Senate Democratic Leader Harry Reid told reporters.

A seven-month extension is one of those options, the aide said. With the country borrowing roughly $150 billion per month, that would require a debt-limit hike of roughly $1 trillion. Negotiators had tentatively agreed on at least that amount of spending cuts before talks collapsed.

Other ideas include trying to reach a bigger deal that would extend U.S. borrowing authority through 2012, which would probably require more than $2 trillion in budget savings over 10 years.

Another option, the aide said, would include longer-term spending cuts totaling $4 trillion, which would reach the level that many economists say is needed to keep the national debt at a sustainable level.


Advancing a seven-month deal could expose divisions among Republicans.

Senate Republican Leader Mitch McConnell backed the idea of a short-term deal several weeks ago in order to get past the immediate crisis. The No. 2 Republican in the House , Majority Leader Eric Cantor, said shortly afterward that he had no appetite for that approach.

Democrats have stepped up their attack in recent days, challenging Republicans to defend tax breaks for corporate jets, race horses and yachts that benefit the wealthy. Democrats want to close $400 billion in tax breaks as part of the deal.

Democrats said they were awaiting a response from the top Republican in Washington, House Speaker John Boehner, over the general elements that would be possible in a deal.

Boehner aides said there was no firm offer on the table.

Budget deficits in recent years have hovered near their highest levels relative to the size of the economy since World War Two. Experts warn that the United States could face a Greek-style crisis if it does not slow the growth of its debt.

The deficit for the current fiscal year, which ends Sept. 30, is projected to hit $1.4 trillion. (Editing by Cynthia Osterman)

© 2015 Thomson/Reuters. All rights reserved.

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