WASHINGTON (AP) -- Republicans and Democrats upped the ante Monday by putting forth competing plans to resolve the high stakes fight over slicing away at the government deficit and increasing the U.S. borrowing limit, but no compromise was in sight with time running out to prevent a potentially catastrophic default in barely a week.
President Barack Obama planned to address the nation at 9 p.m. Monday (0100 GMT Tuesday) to discuss the approaching Aug. 2 debt limit deadline and the apparent political stalemate. One official said he would call for compromise.
The official, speaking on condition of anonymity, said Obama would quote Ronald Reagan -- a hero to many conservatives -- who said during his presidency that failure to raise the debt ceiling would do “incalculable damage.”
The White House sided with the plan put forth by Senate Majority Leader Harry Reid on Monday, calling it “a responsible compromise” even though it included no increase in tax revenues, a condition initially demanded by Obama.
Underscoring the dramatic standoff, several networks agreed to carry rebuttal remarks afterward by House Speaker John Boehner.
Despite warnings to the contrary, U.S. financial markets have appeared to take the political maneuvering in stride -- so far. Wall Street posted losses Monday but with no indication of panic among investors.
On a day of political jousting, Senate Republican leader Mitch McConnell urged Obama to shift his position rather than “veto the country into default.”
On the other side, Reid jabbed at Republicans, backed by the small government, low tax tea party movement, who make up a significant portion of the House Republican rank and file. The Nevada Democrat warned against allowing “these extremists” to dictate the country's course.
The Republican approach, called “less than perfect” by House Speaker John Boehner, takes no account of Obama's threat to veto a short-term plan that fails to raise the debt limit sufficiently to keep it from returning to the congressional agenda until after the 2012 elections.
Finding a compromise is extremely important so the U.S. can raise its current $14.3 trillion cap on borrowing by Aug. 2 to prevent a potential financial catastrophe at home and abroad.
Without an increase in the debt limit, major global credit ratings agencies have threatened to downgrade the U.S. government's triple-A credit rating. An unprecedented U.S. default could cause spark turmoil in the U.S. financial system and force a delay in Social Security checks to retirees, payments to government contractors and other government spending.
The International Monetary Fund, meanwhile, reissued its call for U.S. politicians to act quickly to solve the debt issue to “prevent significant global repercussions.”
It was the second time the IMF has taken the unusual step of issuing public advice on a domestic U.S. tax and spending question. The organization said again that the U.S. should not only cut spending but also raise taxes, with all actions carefully timed to prevent a renewed downturn in the American economy.
Lowering the U.S. credit standing likely would increase the cost of U.S. government borrowing. Americans seeking home mortgage or car loans would see interest rates climb, as would people with outstanding credit card balances.
Obama says that effectively amounts to a tax increase on Americans. Many economists think default could push the U.S. economy back into recession or worse, while producing chaos in the global economy.
Boehner's plan in the Republican-dominated House would raise the borrowing limit by $1 trillion through year's end and permit a larger increase next year. It would require Congress to pass cuts to benefit programs like Medicare health insurance for the elderly and farm subsidies.
The Republican plan would impose $1.2 trillion in cuts to domestic agencies over the coming decade and establish a special panel of lawmakers to recommend cuts to benefits programs to be voted on by Congress by the end of December.
Boehner said the plan was “less than perfect” but would require that spending cuts exceeded the increase in the debt limit and included no tax increases.
As Boehner outlined the Republican plan, Senate Democrats, headed by Reid, announced their version of a deal that would cut $2.7 trillion in federal spending and raise the debt limit by $2.4 trillion in one step -- enough borrowing authority to meet Obama's bottom-line demand on preventing a renewed fight on the debt limit until after the 2012 presidential and congressional elections.
The cuts include $1.2 trillion from across a range of hundreds of government programs and $1 trillion in savings assumed to derive from the end of the wars in Afghanistan and Iraq. The legislation also assumes creation of a special joint congressional committee to recommend additional savings with a guaranteed vote by Congress by the end of 2011.