Republican leaders in Congress said Tuesday they may stretch out negotiations on raising the U.S. debt limit until July, when Washington will be close to defaulting on its obligations.
Senate Republican Leader Mitch McConnell and Eric Cantor, the No. 2 Republican in the House of Representatives, fired the opening shots in what is expected to be a bitter fight with the White House over increasing the U.S. borrowing limit to enable the country to keep paying its debts.
Prolonging negotiations past mid-May when Washington will hit its debt limit could give Republicans more leverage to secure big spending cuts, but it could worry investors as the country runs up against a possible default. The Republicans said they would act before that happened.
In a speech Wednesday, President Barack Obama will lay out his vision for reducing U.S. deficits to a manageable level through tax increases, spending cuts and changes to expensive healthcare programs for the poor and elderly.
Republicans plan to pass a rival plan in the House this week that would lower top tax rates, further slash domestic spending and eventually cut benefits in government-run health programs.
"Tax increases are unacceptable and a nonstarter," House Speaker John Boehner said in a statement. "We don't have deficits because Americans are taxed too little, we have deficits because Washington spends too much."
Both sides say their plans would eventually get the country's long-term debt under control and tame budget deficits that have hovered about 10 percent of GDP in recent years.
A separate effort taking shape in the Senate could provide a way out of partisan deadlock. A bipartisan "gang of six" senators hope to reach a deal based on a deficit-reduction plan outlined by a presidential commission last year, but they say they do not know when they will finish up their work.
"We are still having a meeting today and talking about trying to work out the remaining parts of the agenda," said Democratic Senator Dick Durbin, one of the group.
Experts warn the country could eventually face a Greek-style debt crisis, and the International Monetary Fund urged the United States Tuesday to outline credible measures to reduce deficits.
The government will run up against its current debt limit of $14.3 trillion by May 16, according to the Treasury Department. Without an increase, the country would default on its debt, roiling bond markets and pushing up interest rates for businesses and individuals.
The Treasury has said it can postpone the day of reckoning until July 8 by using a variety of measures.
VOTE WILL COME AFTER DEBT LIMIT REACHED
McConnell and Cantor said separately that Congress would hold a vote sometime between those two dates.
"We anticipate that this debt ceiling issue will come before us between Memorial Day (May 30) and the Fourth of July," McConnell said.
Cantor said: "Treasury if I'm not mistaken has put forth a notice which says there is a window within which we have to act in order to avoid the eventual default of this country on its debt. And I believe that that outside deadline is early July."
Republicans see the debt limit vote as an opportunity to win further spending cuts, and say they will not support an increase without them. All 47 Republicans in the Senate have signed on to a measure that would amend the Constitution to require a balanced budget.
Some analysts were skeptical of the Republican strategy.
"I think that's the wrong thing to do," said Lou Brien, a market strategist with DRW Trading Group in Chicago. "It risks the perception of default, and I think right now the market is thinking that there will be more adults than that, but we will see how that plays out."
Mary Miller, Treasury's assistant secretary for financial markets, said it would be "highly disruptive" if Congress did not raise the debt limit before the current ceiling was reached in mid-May.
Although the White House has pushed for a "clean" vote on the debt limit with no attached demands, it is unlikely to get its wish. Republicans control the House, and even a majority in the Democratic-controlled Senate may not back that approach.
"There's a lot of Democrats, including myself, who are not going to vote for, to raise the national debt ceiling unless there is something concrete, specific, real, tough done to guarantee that the debt itself will be reduced in the coming years," independent Senator Joseph Lieberman said.
Obama will meet Democratic and Republican lawmakers Wednesday before his speech at 1:30 p.m. at George Washington University in Washington.
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