Negotiators will need to reach agreement on raising the U.S. debt limit no later than July 22 so that legislation can get passed in time to stave off a default on U.S. debt, two Democratic officials familiar with the talks said.

The Senate yesterday canceled its July 4 recess to remain in session next week during debt-limit talks after President Barack Obama a day earlier called on Congress to stop taking vacations while the debt-ceiling talks are unresolved.

An agreement will have to be reached by some point between July 15 and July 22 in order to write a bill and comply with congressional rules requiring advance publication before consideration, said the officials, who spoke on condition of anonymity to discuss the negotiations.

The officials said the timeline was necessary in order to raise the legal debt ceiling by Aug. 2, the date the Treasury Department projects it will no longer be able to meet U.S. obligations.

Democrats and Republicans are at an impasse over how to cut the deficit, which Republicans insist must be done prior to agreeing to raise the nation’s $14.3 trillion debt limit before the Aug. 2 deadline. Republicans are demanding large spending cuts and no tax increases, while Democrats say higher tax revenue must be part of a “balanced” plan.

Obama’s spokesman rejected an invitation from Senate Minority Leader Mitch McConnell of Kentucky to meet with Republicans yesterday at the Capitol. Republicans simply want to “restate their maximalist position,” White House press secretary Jay Carney said at a briefing.

Tired of ‘Posturing’

“Americans are tired of the posturing,” Carney said. “They just want us to work.”

Standard & Poor’s would downgrade U.S. debt to junk status in the event of a default, John Chambers, chairman of the company’s sovereign rating committee, said yesterday in an interview with Bloomberg Television.

Obama accused Republicans during a news conference June 29 of siding with corporate jet owners over children and the elderly.

“Before we ask our seniors to pay more for health care, before we cut our children’s education,” the president said, “it’s only fair to ask an oil company or a corporate jet owner that has done so well to give up that tax break that no other business enjoys.”

In asking Obama to come to the Capitol, McConnell said on the Senate floor that he wants the president to hear from Republicans “why what he’s proposing” on the deficit issue “won’t pass.”

‘Legislative Realities’

“The president says he wants us to get working,” said McConnell. “I can’t think of a better way than to have him come over and hear directly from our conference about the legislative realities in the Congress right now.”

Carney said that the White House holds regular conversations with leaders of both parties and that Obama wouldn’t cancel two fundraisers held last night in Philadelphia.

In talks with congressional leaders during recent weeks, the White House put on the table ideas for $2 trillion in deficit reductions, the two Democratic officials said.

That included $200 billion in cuts to Medicare and Medicaid entitlement spending over 10 years if an agreement could be reached, the two Democratic officials said.

The two sides also discussed cutting an additional $200 billion over the same period from other mandatory spending, such as farm subsidies and federal pensions, said the officials. An additional $1 trillion in cuts over 10 years would come from discretionary spending, including cuts in the military budget.

Republican View

A Republican official familiar with the talks disputed the characterization, saying the real value of the cuts the White House proposed was lower. That official added that the White House made its offer of spending cuts contingent on Republican agreement to tax increases.

The White House proposed $400 billion in tax increases through changes in tax rules, with almost three-quarters of the revenue from a proposal to cap the value of income tax deductions at 28 percent, the Democratic officials said. That would reduce the value of income tax deductions for wealthy filers who are taxed at a higher rate, an idea Obama has previously failed to win passage of in Congress.

The White House also sought tax increases that, in addition to corporate jet owners and oil companies, also target hedge fund managers and businesses that currently lower their taxes by using the last-in-first-out accounting method for inventory costs, the Democratic officials said.

Wealthy Taxpayers

Reid and other Democratic leaders said they won’t back down from their call for tax increases as part of the deal, adding that wealthy taxpayers must sacrifice in an agreement that also will include spending cuts affecting lower-income Americans.

“If we can’t bring revenue to the table, we’re not going to have a serious conversation” on curbing deficits, said Senator Richard Durbin of Illinois, the chamber’s second-ranking Democrat.

Reid also said he invited Obama and Vice President Joe Biden to meet with all Senate Democrats on July 6. He said Gene Sperling, director of the White House National Economic Council, will meet with Democrats the following day.

“The whole caucus has to be involved” in working out a solution to the debt-limit debate, Reid said.

Charles Schumer of New York, the No. 3 Senate Democrat, rejected the idea of anything other than a long-term deal that would raise the debt limit enough to get past the 2012 elections. He said investors might be wary of purchasing U.S. debt under any extension that lasts just a few months.

No Short-Term Deal

“If we were to do a very short-term deal, we don’t know if the markets would accept that,” Schumer said. “Maybe that would send a panic into the markets that we’re all worried about.”

Yet leaders of the Republican-controlled House must contend with a contingent of freshman members aligned with the Tea Party who have expressed skepticism about the urgency of lifting the debt limit.

Senator Tom Coburn, an Oklahoma Republican who last month dropped out of a bipartisan group of senators trying to reach a deficit-reduction deal, said on PBS’s “The Charlie Rose Show” on June 28 that it is increasingly likely House Republicans won’t act on the debt limit by the Aug. 2 deadline.

Senator Kent Conrad of North Dakota, the Democrat who chairs the Budget Committee, said he plans to unveil his budget blueprint next week. The plan, he said, would shave more off the deficit than the leaders of Obama’s bipartisan debt commission envisioned -- their plan projected savings of $3.8 trillion over a decade -- and would include tax increases.

Interest Rates

While the U.S. deficit is dominating the debate in Washington, the interest rates the federal government pays to borrow funds have remained low amid a flight of money to safety because of the Greek debt crisis.

Yields on 10-year Treasury notes declined from 3.73 percent on Feb. 8 to 2.86 percent on June 24, though they have begun to rise since as the risk of a default by Greece has eased in recent days. Yields on 10-year Treasury notes increased 5 basis points, or 0.05 percentage point, to 3.16 percent at the close of trading yesterday in New York, according to Bloomberg Bond Trader prices.