Questions Linger on Getting Debt Deal by July 4

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The Wall Street Journal
By: Brent Kendall & Corey Boles
June 6, 2011

Political leaders say they want a deal to boost the federal borrowing limit by July 4th, a month before the Treasury said the government will be in danger of a default, but it isn't yet clear how they get past stark differences on federal spending and taxes.

Despite the hurdles, even some ardent opponents of raising the current $14.29 trillion debt ceiling are resigned to the likelihood that lawmakers will reach a deal.

"It will come down to the wire and they'll pass it because they will beat the drums of fear. That's how we get things done in Washington," Rep. Ron Paul (R., Texas), a presidential candidate who opposes raising the debt limit, said on CNN's "State of the Union."

The Treasury Department projects it would begin defaulting on its obligations as soon as Aug. 2 without a debt-limit increase.

Economists warn that a U.S. default could trigger another financial crisis.

In a closed-door meeting last week, President Barack Obama set the July goal, later endorsed by House Speaker John Boehner (R., Ohio), which could head off the possibility of a downgrade of U.S. debt.

Moody's Investors Service warned last week that it might review the government's Aaa debt rating in July if there is no progress toward a deal to increase the borrowing limit and cut deficits.

But Mr. Boehner said last week that federal budget talks led by Vice President Joe Biden and involving lawmakers of both parties aren't making enough progress. The group will next meet on Thursday.

"If the White House wants to meet that timeframe, then we're going to need to see a lot more progress, and that's going to need to come from this White House," said Kevin Smith, a spokesman for Mr. Boehner.

"The general consensus is that the first trillion [dollars] in cuts is doable, and the second trillion is doable but painful," a Democratic Capitol Hill aide familiar with the Biden group talks said on Sunday.

Both sides expect it will likely take direct talks between the president and top congressional leaders, as well as concessions by Republicans on taxes and by Democrats on Medicare to get really big savings. Republicans oppose tax increases, while Democrats have ruled out a far-reaching Republican plan to overhaul Medicare.

"I could never support any arrangement that reduced benefits for Medicare," House Minority Leader Nancy Pelosi (D., Calif.), said Sunday on CBS's "Face the Nation." She said the bipartisan dialogue in the talks has been civil and constructive."They've come to some areas where they can possibly reach agreement," she said. "But nothing is agreed to until everything is agreed to."

House Majority Leader Eric Cantor (R., Va.), speaking at a Friday press conference, said Republicans needed to "see some will" on the part of the Obama administration to meet GOP demands.

"I can tell you that everything is on the table, other than raising taxes on the people we need to help create jobs," Mr. Cantor said.

--Michael M. Phillips and Janet Hook contributed to this report.
Write to Brent Kendall at brent.kendall@dowjones.com and Corey Boles at corey.boles@dowjones.com

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