The US President Barack Obama is scheduled to meet Congressional leaders on the issue of government debt to avoid a looming default.
The situation worsened after House Speaker John Boehner said he was abandoning a proposal to reduce debt by $4 trillion that involved taxing the wealthy at a higher rate.
The Congress and the White House need to reach an agreement to increase the debt limit beyond $14.3 trillion or risk out of money by August 2. Government will default on payments to debt holders and will be unable to pay pensions, government employees and government contractors if no agreement is reached by August 2.
A possible default may push the US back to recession and global economies to chaos, economists and analysts have warned.
The congress has voted to increase borrowing limits when congressionally-set debt limit was reached in the past. However, this year the newly empowered Republicans want to see more aggressive debt reduction measures.
Mr. Obama and Mr. Boehner had presented a comprehensive debt reduction package along with new tax proposals that would reduce US debt by $4 trillion in 10 years. However, Mr. Boehner pulled back on late on Saturday citing tax-increases.
“Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hike”, said Mr. Boehner.
“I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the (Vice-President) Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase”, he added.
A previous initiative in May and June by some Democrats and Republicans led by Vice-President Joe Biden had proposed debt cuts by $2 trillion that ended in a deadlock.
The current impasse continues since both the parties are pushing different agendas. The Democrats want to shield cuts in welfare programs such as social security, Medicare and Medicaid, while Republicans are against any tax hikes.