Plan to cut US’s $1.4T deficit begins to form

The outlines of a deal that would allow the United States to avert a debt default emerged Thursday as top Republican and Democratic lawmakers held their first meeting aimed at cutting the bloated U.S. deficit.

Republicans edged towards a White House plan that would cut some spending now and set long-term deficit reduction targets, but said more difficult decisions on taxes and health care spending would have to wait until after the 2012 election.

A top Republican lawmaker, Paul Ryan, said there would be no immediate “grand slam” agreement on tackling the budget deficit, expected to reach $1.4 trillion this year and a major worry for Americans and investors.

If both parties can reach agreement on the framework for cutting the long-term U.S. deficit, that could clear the path for a vote on raising the $14.3 trillion debt ceiling.

Treasury says the borrowing cap will be breached on May 16, although it can take steps to keep funding the government until Aug. 2. An increase of roughly $2 trillion is needed to ensure enough borrowing power through the November 2012 elections, Treasury officials have said.

Deep division remains

Republicans and Democrats remain deeply divided on the balance between spending cuts and tax increases to tackle the deficit, a likely fault-line in future talks.

Eric Cantor, the Republican leader in the U.S. House of Representatives and also a member of Biden’s panel, said after the meeting tax hikes were off the table.

President Obama wants to raise taxes on wealthier Americans and shield cherished social spending like Social Security and Medicare, messages that will be central to his campaign to win re-election in 2012.