May 10, 2011 / 6:13 PM / 6 years ago

Battle lines harden ahead of US budget talks

*W.House says Republicans trying to hold economy hostage

*Boehner: U.S. facing "window of opportunity" to fix debt

*Tougher Republican stance may complicate Biden talks

By Andy Sullivan and Steve Holland

WASHINGTON, May 10 (Reuters) - Battle lines hardened in Washington on Tuesday as the Obama administration geared up for an intensive round of talks with lawmakers to allow the United States to avoid an unprecedented default on its debt.

Ahead of an afternoon meeting of Vice President Joe Biden and top lawmakers from both parties, the White House said Republicans should not hold the U.S. economy hostage by tying an increase in the country's borrowing authority to trillion-dollar spending cuts.

"To hold one hostage to the other remains extremely unwise," White House spokesman Jay Carney told reporters aboard Air Force One as President Barack Obama flew to Texas.

House of Representatives Speaker John Boehner, the top Republican in Congress, on Monday unveiled a tough new yardstick that would require spending cuts to exceed any boost in the country's $14.3 trillion debt limit, which will be reached on May 16. [ID:nN09267955]

"This is a window of opportunity for us to address the big challenges that face our country," Boehner said on Tuesday on NBC's "Today" show.

Boehner's new stance puts hard numbers behind the Republican position that any debt-limit increase must include sharp spending cuts to ensure that the country's debt does not grow to an unmanageable level.

But it is certain to complicate the Biden talks, which kicked off on a relatively amicable note last week after Republicans said controversial elements like healthcare and taxes would be off the table.

The country is borrowing roughly $125 billion each month, and the Treasury Department has said a debt-limit increase of $2 trillion will be needed to last through the November 2012 elections.

Even though Treasury will hit the current debt limit next week, congressional aides do not expect a deal until around July. Treasury has said it can use various techniques to stave off default until Aug 2. A default on U.S. debt would be unprecedented and cause turmoil in markets across the globe.

So far, markets have shown no signs of concern. U.S. 10-year Treasuries are currently yielding 3.17 percent -- well below their average of 6.75 percent over the last 30 years.

Aside from the Biden-led group, which includes six lawmakers from the House and the Senate, Obama is scheduled to meet with senators on Wednesday and Thursday.

BOEHNER SETS THE BAR HIGH

In a highly polarized political environment, Boehner's marker of "trillions" in cuts will be hard to achieve.

Congress took the government to the brink of a shutdown last month in a separate budget battle that yielded a mere $38 billion in cuts and tested Boehner's authority over the right wing of his party, which is allied with the fiscally conservative Tea Party movement.

Though both sides could agree to cuts in some areas, such as farm subsidies, their areas of disagreement carry a much higher dollar figure.

A budget plan passed by House Republicans last month would save $2.2 trillion over 10 years by repealing Obama's signature healthcare overhaul and scaling back the Medicaid health program for the poor. Democrats have already rejected these proposals.

The Republican plan would save another $720 billion by scaling back other benefit programs, such as food and housing aid for the poor -- another nonstarter for Democrats.

The two sides might be able to agree on cuts to domestic programs, such as law enforcement and education, which have their funding levels set by Congress each year.

Obama has proposed $770 billion in savings by holding down the growth of these programs over the next 12 years, while House Republicans are seeking cuts of $1.8 trillion over 10 years.

But Boehner and other Republicans have ruled out any revenue increases, which Democrats say will be needed to narrow stubborn budget deficits that have hovered around 10 percent of GDP in recent years.

Boehner also appeared to discourage consideration of a plan that would trigger automatic cuts if Congress does not meet agreed-upon deficit-reduction targets, an approach that has drawn some bipartisan support. (Additional reporting by David Morgan and Jeff Mason; Editing by Vicki Allen)

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