WRAPUP 4-Obama confident US debt deal can be struck

Mon Jun 27, 2011 6:41pm EDT

Related Topics

* Obama under pressure to met Aug. 2 debt deadline

* Dispute over tax hikes biggest hurdle to deal (Updates with end of McConnell meeting)

By Alister Bull

WASHINGTON, June 27 (Reuters) - President Barack Obama is confident Democrats and Republicans can cut a "significant deal" to trim the U.S. deficit and increase its borrowing limit to avoid a damaging default, the White House said on Monday.

Despite the White House's optimism, both Republicans and Democrats showed little willingness to compromise after deficit reduction talks led by Vice President Joe Biden collapsed suddenly on Thursday.

With polls showing Americans deeply worried about the sputtering economy, both sides are talking tough in an ideological battle over how best to cut a U.S. deficit that is projected to be $1.4 trillion this year.

Republicans say the solution lies in trillions of dollars in spending cuts, while Obama's fellow Democrats say the deficit cannot be meaningfully reduced without increasing tax revenues, something their opponents reject.

Obama, under pressure to forge a budget deal that would pave the way for the $14.3 trillion U.S. debt ceiling to be raised by an Aug. 2 deadline, met with Republican and Demcoratic Senate leaders to talk about the way forward.

"The president told me that everyone in the room believes a significant deal remains possible," White House spokesman Jay Carney told reporters after Obama's discussion with Democratic Senate leader Harry Reid.

Obama later sat down with Senate Republican leader Mitch McConnell but neither side would say how the talks went.

"The meeting concluded but they will continue to talk," said McConnell spokesman Don Stewart.

The White House said Obama and Biden would both continue to engage congressional leaders. Carney declined to say when the next meeting would be held but said everyone understood they were facing a deadline to get a deal done.

McConnell has suggested that a short-term measure to raise the debt limit may be necessary, but other Republican leaders insist that a long-term deal needs to be struck.

'SACRED COWS'

"Democrats and the administration have shown themselves willing to take on tough choices and it is important that Republicans are willing to do the same, take on some of their sacred cows," Carney said.

Senator Jon Kyl, the No. 2 Republican in the Senate and a former member of the Biden group, told reporters that his party could live with some revenue boosting measures, but tax hikes were a non-starter.

"Revenues per se are not off the table. What we have said is we will not raise taxes, we will not alter the tax code by raising rates, that kind of thing," he said, but declined to be more specific or spell out where fees could be raised.

Time is running out ahead of the Aug. 2 deadline, when the U.S. Treasury says it will run out of money to pay the country's bills.

Failure to act risks the United States defaulting on its financial obligations, which could push the country back into recession. Carney said that that was not going to happen.

"The president has said this is essential. Leaders of Congress have said this is essential. We must not default on our obligations. We remain confident that Congress will not let that happen," he said.

McConnell has stuck firmly to his party's line that revenue-raising measures were off the table.

"I intend to ask the president what he's prepared to do, outside of raising taxes, about the massive deficits and debt that have accumulated on his watch," he told the Senate.

Obama last week met with House of Representatives Speaker John Boehner, the top Republican in Congress. The House is not in session this week and many members, including Boehner, are back in their districts.

Carney said Obama and Biden would continue to talk to members of Congress to get the debt ceiling lifted but declined to give any specific dates for the next meeting.

(Additional reporting by Tabussum Zakaria, Laura MacInnis, Andy Sullivan and Caren Bohen; Editing by Vicki Allen, Ross Colvin and Cynthia Osterman)

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