President Barack Obama and congressional leaders, struggling to break an impasse over taxes and spending cuts, will regroup Tuesday to seek common ground for a deal to avoid a looming U.S. debt default.
"Failure is not an option," Obama's Treasury secretary, Timothy Geithner, said before the talks got under way.
Obama and top lawmakers from both political parties will hold their third meeting in as many days at the White House at 3:45 p.m. to hammer out a deal to reduce the U.S. deficit and raise the debt ceiling by Aug. 2, when the U.S. Treasury says it will run out of money to pay the country's bills.
A former top economic adviser to Obama, Larry Summers, warned of "financial Armageddon" if the debt limit, which caps how much the United States can borrow, was not raised. But, he said he was confident both sides would reach agreement in time to avert such a scenario.
But the White House and Republican leaders remain far apart on the role of revenues in a deficit-fighting plan.
Obama is pressing for a big, $4 trillion package that would encompass spending cuts, tax increases for top earners, and reform of expensive entitlement programs for the elderly and the poor.
Republicans are pressing for a smaller, $2 trillion deal that is limited to spending cuts.
House of Representatives Speaker John Boehner was briefing his restive Republican caucus on Capitol Hill early Tuesday on the status of the debt talks.
Republicans have balked at raising the $14.3 trillion U.S. debt limit without steep spending cuts, while Democrats also want to increase revenue by eliminating tax breaks for the wealthy and corporations in some sectors such as the oil and gas industry.
Republicans say any tax increases would hurt a vulnerable economy.
The issue of tax increases is one of the biggest stumbling blocks for both sides as time begins to run short for a deal.
"The urgency is growing," a Democratic official familiar with the talks told reporters Monday. "There is absolutely time to still work this out, but time is also running out."
Failure to act on the debt limit could push the United States back into recession, private economists and Treasury officials have warned. U.S. stocks suffered their worst day in nearly a month Monday, partly because of concern about the stalemate in Washington.
In a letter underlining the need for a swift deal, U.S. business groups wrote to Obama and every member of Congress urging them to increase the debit limit as soon as possible and to commit themselves to a long-term deficit reduction plan.
"Failure to raise the debt ceiling would strike an immediate and serious blow to any economic recovery, and failure to make significant progress on long-term debt reduction will continue the uncertainty which is hampering our investment climate," said Business Roundtable President John Engler.
The letter was signed by the U.S. Chamber of Commerce, Business Roundtable, the Financial Services Forum and the National Association of Manufacturers.
© 2014 Thomson/Reuters. All rights reserved.