Biden, Congress tee up crucial week on debt limit

Lawmakers confronted a stark divide over taxes and healthcare on Tuesday as they struggled to reach a budget deal this week that would allow the country to continue borrowing at rock bottom rates.

Faced with the looming self-imposed deadline, Vice President Joe Biden met with a group of six Republican and Democratic lawmakers to debate how to find the trillions of dollars in budget savings that would allow Congress to sign off on further borrowing and avoid a default.

"We're slogging through some very tough issues," Democratic Representative Chris Van Hollen said after the meeting -- the first of up to four sessions this week. "Our goal is to see if by the end of the week we can reach agreement in principle, or recognize that we can't bridge our differences."

Biden left without speaking to reporters but said last week the group had tentatively agreed on a number of cuts. He had predicted tough work as negotiators try to breach the deep divide over taxes and health benefits -- two areas that could provide the biggest budget savings.

Republicans oppose tax increases, while Democrats refuse to consider cutting health benefits for retirees under the costly Medicare program.

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Still, there may be room for compromise. Democrats were heartened last week when Senate Republicans backed efforts to end a tax break for ethanol, which suggested there may be some wiggle room on taxes.

Democrats are now eyeing tax breaks that benefit wealthy individuals. Those could range from curtailing interest deductions on their home loans to reduced tax rates on dividends and long-term capital gains.

GEITHNER CONFIDENT

The Biden group is trying to agree on how to reduce the country's budget deficits by $4 trillion over the next 10 years to give lawmakers the political cover to raise the $14.3 trillion debt ceiling by a large enough increment to cover borrowing needs through the 2012 elections.

The Treasury Department has warned the United States could default on its loans if Congress doesn't act by August 2, a scenario that could push the country back into recession and upend financial markets.

Credit rating agencies have threatened to downgrade the U.S. rating if Congress and the White House do not reach agreement on how to slash the budget deficit.

A Standard & Poor's official reiterated the warning in a speech in London, saying the risks the United States might lose its coveted AAA rating have increased as a result of the impasse over the budget.

Treasury Secretary Timothy Geithner, who has participated in the talks, predicted the group would have a deal in time so the United States can keep borrowing money to pay its bills.

"We're going to avoid a default crisis, no doubt about that," Geithner told business executives on Tuesday. But he warned that the deal must not cut spending so sharply that it harms economic growth.