President Barack Obama will decide on Saturday whether to summon lawmakers for a new round of debt and deficit talks, weighing the chances of progress as both sides stick to their positions on spending and taxes.
Congress must raise the $14.3 trillion limit on U.S. borrowing by August 2 or the government will run out of money to pay its bills, causing turmoil in global financial markets and potentially forcing the United States into another recession.
The top two Republicans in the House of Representatives, John Boehner and Eric Cantor, met on Friday with Treasury Secretary Timothy Geithner and Bill Daley, the White House chief of staff.
But prospects for a deal anytime soon appear unlikely, as the House and Senate were expected to spend much of next week debating measures that have little chance of becoming law.
Republicans want a deficit-cutting deal in order to raise the debt limit, but they disagree with Democrats on how to do it. The White House wants some tax increases on wealthier Americans to be part of a package; Republicans reject that.
The truth is, you can't solve our deficit without cutting spending, Obama said in his weekly radio and Internet address on Saturday.
But you also can't solve it without asking the wealthiest Americans to pay their fair share -- or without taking on loopholes that give special interests and big corporations tax breaks that middle-class Americans don't get.
The House is expected next Tuesday to pass a bill that would raise the debt ceiling by the $2.4 trillion Obama has requested as long as Congress adopted a balanced budget amendment -- an unlikely prospect.
Republican Senator Orrin Hatch has lined up every Senate Republican behind a balanced-budget measure. It is expected to fail in the Democratic-controlled chamber next week.
Only by restoring constitutional restraints on the ability of Congress to spend, can we constrain the growth of the federal government, he said in the weekly Republican address.
The solution to a spending crisis is not tax increases. Yet, Washington has consistently demonstrated that it cannot control its urge to spend.
As the two sides bicker, the consequences of inaction are looming. Ratings agencies Moody's and Standard & Poor's have signaled they may cut the gold-plated U.S. credit rating if the borrowing limit is not raised and deficit-reduction measures are not laid out.
BACK TO THE TABLE?
The White House and congressional leaders have tried to reassure markets that the United States would not default on its debt.
A backup plan put forward by Senate Republican Leader Mitch McConnell may be the solution all sides embrace if a big deal cannot be reached.
McConnell's plan would essentially allow Democrats to raise the debt ceiling without Republican help, and Senate Democratic Leader Harry Reid has cautiously embraced it. The plan could include about $1.5 trillion in spending cuts and set up a panel to find further savings. The Senate could vote on it late next week, but it remains unpopular with House Republicans.
The idea itself is stupid, Republican Representative Jason Chaffetz told Fox News. The people that have been there, the so-called adults in the room, have been there too long. And that's why we're in this problem.
On Thursday evening Obama gave lawmakers a Saturday deadline to come up with a plan to go forward. He could call for further talks on Saturday or Sunday if needed.
The president warned on Friday that inaction could lead to higher borrowing costs for ordinary Americans -- effectively a tax increase on everybody, he said.
Whether you're using your credit or you're trying to get a loan for a car or a student loan, businesses that are trying to make payroll, all of them could end up being impacted as a consequence of a default, Obama said.
(Additional reporting by Laura MacInnis, Steve Holland and Mari Saito; Editing by Paul Simao and Eric Beech)