House Republican budget negotiators have abandoned plans to pursue a massive $4 trillion, 10-year deficit reduction package in the face of stiff Republican opposition to any plan that would increase taxes as part of the deal.
House Speaker John Boehner informed President Barack Obama on Saturday that a smaller agreement of about $2 trillion was more realistic.
"Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes," Boehner said in a statement. "I believe the best approach may be to focus on producing a smaller measure."
Boehner and Obama spoke by phone on Saturday.
Republicans have been adamant that they would not support higher taxes. Instead, Boehner said negotiators should focus on deficit reductions identified by a bipartisan group led by Vice President Joe Biden. That would involve a deal of $2 trillion to $2.5 trillion.
Obama was supposed to meet with top lawmakers from both parties on Sunday evening in what he had said would be a session to perhaps begin the hard bargaining necessary for a deal.
After Boehner's statement, the White House said that Obama will not back off in his efforts to solve U.S. debt problems and will make the case to congressional leaders in talks Sunday for taking on "this critical challenge."
"We need a balanced approach that asks the very wealthiest and special interests to pay their fair share," White House Communications Director Dan Pfeiffer said in statement.
A deficit reduction deal is crucial to win Republican support for an increase in the nation's debt ceiling. The government's borrowing capacity is currently capped at $14.3 trillion and administration officials say it will go into default without action by Aug. 2.
Failure to act soon, some warn, could push the United States back into recession and send shock waves through the global economy.
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Both parties are under pressure from voters to resolve the debt crisis ahead of next year's congressional and presidential elections. Obama is seen as a candidate that is tough to beat, though voters' fears over the economy have been dragging down his numbers.
In his weekly radio and Web address on Saturday, Obama said political sacrifices will be needed by both Democrats and Republicans to break a budget impasse and avoid a looming debt default.
Under pressure to reduce America's 9.2 percent jobless rate, Obama vowed to seek common ground with his Republican opponents and try to overcome serious disagreements on taxes and spending cuts that he says will improve the atmosphere for job creation.
"Both sides are going to have to step outside their comfort zones and make some political sacrifices," Obama said. "And we agree that we simply cannot afford to default on our national obligations for the first time in our history."
'Spending money we don't have'
Democrats and Republicans remain at odds over what elements should be part of the deal. Democrats are pushing for roughly $1 trillion in new tax revenue, while Republicans want to restructure popular benefit programs.
The uptick in the jobless rate in June to 9.2 percent complicated the debate over the debt deal and was a harsh reminder of the fragility of the U.S. economy.
Republicans who would like to deny Obama a second term when he runs for reelection in November 2012 are keeping up the pressure on the president over jobs.
"If we've learned anything, it's that we cannot spend, tax, or borrow our way to prosperity," Rep. Cathy McMorris Rodgers of Washington state said in the Republican weekly address.
"To create jobs and set our country on a sound fiscal course, we must stop spending money we don't have," she added.
Obama, Boehner and other congressional leaders were due to meet at the White House on Sunday at 6 p.m. EDT, with staffers working through the weekend to lay out options.
There could be some hard bargaining in the session but it is not likely to produce a final deal, White House spokesman Jay Carney said.
Boehner also tamped down expectations that Democrats and Republicans could reach agreement over the weekend. He said on Friday that the two sides must overcome serious disagreements on taxes and spending cuts.
"It's not like there's some imminent deal about to happen," Boehner told a news conference. "This is a Rubik's Cube that we haven't quite worked out yet."