A budget showdown is likely in the next few weeks. Treasury Secretary Timothy Geithner has said the government will reach its debt limit no later than May 16. He can juggle funds to keep the government running until about July 8, after which the government could not pay its bills.
On Sunday, Geithner said Republican leaders have privately assured the Obama administration that Congress will raise the government's borrowing limit in time to avoid an unprecedented default on the nation's debt.
But Rep. Eric Cantor, the No. 2 Republican in the House, took a hard line Monday, calling the S&P announcement "a wake-up call to those in Washington asking Congress to blindly increase the debt limit." He said Republicans would only agree to raise the debt ceiling if the White House agrees to "serious reforms that immediately reduce federal spending and to end the culture of debt in Washington."
A bipartisan deficit-reduction commission appointed by Obama recommended late last year that about $4 trillion be slashed from budget deficits during the coming decade.Under the commission's plan, roughly two-thirds of the savings would come through spending cuts and one-third through increased tax revenue. Although overall tax rates would decline, dozens of popular tax breaks would be scaled back or eliminated, including the child tax credit, mortgage interest deductions and deductions claimed by employers who provide health insurance. Obama praised the panel for its work, but embraced few of its recommendations, and none of the major ones on new taxes. For now, U.S. politicians are at a stalemate. "There is bipartisan agreement on the need to reduce the debt by $4 trillion over roughly the next decade," said Sen. Charles Schumer, D-N.Y. "Now we just need to resolve how to do it." ___ Associated Press writers Pallavi Gogoi and Janna Herron in New York and Derek Kravitz, Andrew Taylor, Jeannine Aversa and Ben Feller in Washington contributed to this report.