Debt talks to speed up, taxes still a hurdle

By Andy Sullivan and Deborah Charles

WASHINGTON (Reuters) – Top lawmakers aiming to reach a deficit-reduction deal agreed on Thursday to step up the pace of their talks with a series of meetings next week but said they still disagreed over the need to raise taxes.

Vice President Joe Biden and six leading Democratic and Republican lawmakers have now met a half-dozen times as they try to work out their differences and reach a deal to reduce a $1.4 trillion deficit.

Thursday’s meeting took place amid growing pressure at home and abroad for an agreement that would let Congress raise the $14.3 trillion debt ceiling before an August 2 deadline, when the Treasury Department has warned it will run out of money to pay the nation’s bills.

The slow-moving talks, hampered by entrenched positions on both sides, showed little improvement on the hot-button issue of raising taxes.

Asked if Republicans had shown a willingness to consider tax increases, Democratic Representative Chris Van Hollen, one of the negotiators, told reporters, “I can’t say that would be true, no.”

But he said the group, which had not met in person for two weeks, had agreed to meet three times next week.

House of Representatives Speaker John Boehner, the top Republican in Congress, and senior Democrats have complained the Biden talks have been moving too slowly for a deal to be reached before August 2.

Conscious of the potential for market chaos if there is not a deal soon, President Barack Obama and Boehner have both said they would like to get a deal within a month.

While bond markets remain placid, investors are increasingly alarmed Congress will fail to act before August 2.

In the past few weeks, three major credit rating agencies have warned they could downgrade the ratings on Treasury bonds if the debt and deficit standoff is not resolved soon. Moody’s agency said it wanted to see substantial action by mid-July.

An adviser to China’s central bank said this week he hoped lawmakers would “stop playing with fire.” China, the largest foreign creditor to the United States, holds about $1 trillion of the United States’ outstanding debt.

WEAK DATA HURTS

Many believe the Biden talks are the best hope for a deficit-reduction deal. Opinion polls show Americans deeply worried about the size of the deficit, which is expected to reach $1.4 trillion this year.

An ABC/Washington Post poll released on Thursday showed most Americans think the government should reduce deficits now, not after the economy improves and they support doing that by both cutting spending and raising taxes.

The Biden team of negotiators is hampered by recent weak economic data that show a slowdown in manufacturing and stubbornly high unemployment. Each side has used the weak data to stiffen its own position, further widening the gulf between Republicans and Democrats on how to spur growth.

The White House is considering a temporary cut in payroll taxes that employers pay on wages, an administration official said on Thursday. It was not clear if the proposal was discussed on Thursday.

Top Republicans have said any increase in the country’s debt ceiling would have to be matched by an equal amount of spending cuts — roughly $2 trillion — to ensure Congress will not have to revisit the issue before the November 2012 elections.