WASHINGTON — President Obama implored congressional leaders Thursday to reach a deal on raising the nation's $14.3 trillion borrowing limit by this weekend to reassure jittery world financial markets, and he suggested he could settle for a smaller deficit-reduction package than he originally sought.
Rather than continue to push for $4 trillion in savings over the next decade, Obama outlined a plan that would achieve roughly $2 trillion, almost entirely from spending reductions. That marks a major concession — one the president is likely to address at a news conference scheduled for 11 a.m. ET this morning.
At the same time, Senate Republican leader Mitch McConnell and Democratic leader Harry Reid forged ahead with an even smaller deal of their own, one that represents a second fallback plan. It would allow Obama to raise the debt limit and create a process by which Congress would vote in the future on spending reductions.
Two Democratic and two Republican officials with direct knowledge of the continuing negotiations offered these details on the condition they not be identified speaking about private meetings:
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In Obama's $2 trillion plan, tax increases would come from a 35% limit on itemized deductions and the elimination of special-interest tax breaks for oil and gas companies, corporate jet owners and producers of ethanol. If tax rates on upper-income people returned to 36% and 39.6% in 2013, as Obama wants, the limit on deductions would save about $120 billion.
Obama also is seeking to extend a payroll tax cut enacted last December for another year and possibly extend it to small businesses. For that reason, Republicans could claim that the package is revenue-neutral rather than representing a tax increase — but at the meeting, Republicans still refused to go along.
The remainder of the package would be spending cuts and savings on interest, but not the major reductions in Medicare or Social Security that Obama had been willing to accept as part of a $4 trillion deal.
"He wants to keep hope alive for the big deal, but he also knows the clock is running," one of the Democratic official said.
McConnell said the session was a good one. "We're going to continue to discuss a way forward over the next couple of days and see what happens," he said.
Fueling Obama's demand for swift action: Standard & Poor's ratings service placed the United States on watch for a possible downgrade of its credit rating. It warned of "at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days."
Speaking to Republicans and Democrats meeting at the White House for a fifth consecutive day, Obama and Treasury Secretary Timothy Geithner said any deal should include new borrowing authority to avoid default as well as a plan to reduce future budget deficits.
That prompted House Speaker John Boehner to throw the challenge back at the president, arguing that Obama still had not presented a plan to resolve the nation's debt problem.
Thursday's meeting was more cordial than some of the previous ones. Republicans listened patiently to pitches about health care savings, taxes and debt caps from top administration officials. House Majority Leader Eric Cantor, the outspoken leader of congressional conservatives, was silent.
At the end of the meeting, Obama tasked congressional leaders to reach a conclusion by the weekend, urging that it be as bold on deficit reduction as politically possible.
"It's decision time," the president said, according to a Democratic official. "We need concrete plans to move this forward."
The fledgling bipartisan plan being devised by McConnell and Reid — which would raise the debt limit and appoint yet another group of lawmakers to come up with spending cuts — might represent the final fallback plan if all else fails.
Geithner warned that there is no way to extend the Aug. 2 deadline for the government to raise the debt ceiling and avoid a first-ever default on its loans.
"We have looked at all available options, and we have no way to give Congress more time to solve this problem," Geithner said. "We're running out of time."
Before the meeting, key Republicans continued to reject any discussion of tax increases. "Republicans will not be reduced to being tax collectors for the Obama economy," McConnell said.
Without bigger tax increases — such as raising tax rates on individuals with income over $200,000 and couples over $250,000 beginning in 2013 — the president and congressional Democrats won't consider politically difficult cuts in popular benefit programs.
Those could have included raising the age for Medicare from 65 to 67 over the next two decades, as well as changing the way inflation is measured, which would reduce Social Security cost-of-living increases.
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