WASHINGTON President Barack Obama's budget chief said on Tuesday he saw some signs that U.S. lawmakers could strike a deficit reduction deal by a November 23 deadline despite no visible indications of progress in talks.
White House Budget Director Jack Lew told the Reuters Washington Summit that Republicans had begun to show some flexibility on taxes, an issue that has pitted them against Democrats, and seemed serious about avoiding another divisive budget showdown.
"It certainly seems ... that there's a desire to get things done," he said.
Lew said it was clear politicians on both sides of the aisle recognized the need to cut deficits that have been running at well above $1 trillion a year.
"I think action will be taken. Whether it's now or a year from now I don't believe we're going to see this problem not addressed. Would it help restore (market) confidence to do it sooner? Yes."
A special 12-member bipartisan congressional "super committee" has been tasked with coming up with a plan to cut deficits by at least $1.2 trillion over 10 years. If it fails, government agencies will be hit by an equivalent amount in automatic spending cuts.
With the deadline fast approaching there has been growing pessimism on Capitol Hill that Republicans and Democrats can bridge differences in time.
Obama wants a "balanced approach" to cut the deficit by raising taxes on wealthier Americans, while curbing the costs of popular federal healthcare and retirement programs.
Republicans have proposed some ways of raising revenues but have steadfastly opposed increasing tax rates at a time when the economic recovery is struggling to gain pace.
Lawmakers, however, have quietly dialed down the partisan hostility that brought the government to the brink of a shutdown in March and cost the country its top-notch AAA credit rating from Standard & Poor's in August.
CONGRESS HAS TIME TO REACH DEAL
Lew said one sign for hope that the super committee could reach a bipartisan deal was the relatively orderly way in which the U.S. Congress was working its way through the 12 spending bills needed to keep the government running.
But he warned that provisions inserted by the Republican-controlled House of Representatives to deny funding to Obama's signature healthcare and financial reforms risk another stalemate.
"There's going to be a challenge to manage through the end of the process, (avoiding) having the kinds of inappropriate and divisive debates that sometimes get you to the point of impasse," Lew said.
Another reason for optimism: "Last week you saw movement on the part of some Republicans on the tax issue," he said. Forty House Republicans signed a letter that said revenues needed to be in any super committee deal.
"I don't know where that goes. The first indication doesn't necessarily indicate where it goes when you come down to specifics," he said.
With markets already on edge about Europe's debt crisis and the sluggish U.S. economy, failure to reach a deal would be one more source of anxiety for investors.
But, in contrast with doubts over Europe, Lew said investors still trust U.S. economic fundamentals and should continue to have confidence that Washington will eventually find a way to curb the deficit.
He stressed that the automatic spending cuts required in the event the super committee failed would not kick in until 2013. That still gave Congress time to take meaningful steps toward cutting the deficit.
"I don't believe the Congress will wash its hands and walk away," he said.
(Additional reporting by Andy Sullivan, Caren Bohan, Tim Reid and William Schomberg; Editing by Ross Colvin and Jackie Frank)