|Democratic Senate leader Harry Reid speaks to the media about the Republican walk out [EPA]
US Republicans have walked out of budget talks, blaming Democrats for demanding tax increases as part of a deal rather than accepting more than $1 trillion in cuts to health care for the elderly and other government programmes.
Thursday’s move will set up a showdown between President Barack Obama and House Speaker John Boehner over how to extend US borrowing and avoid a looming debt default.
Vice President Joe Biden and a handful of legislators had been working on a budget-cutting deal that would allow Congress to sign off on continued borrowing, but Republicans quit unexpectedly after saying the group had reached an impasse over tax increases sought by Democrats.
"Let me be clear: Tax hikes are off the table," said the Republican leader of the House, Speaker John Boehner.
An agreement would give legislators political cover to raise the $14.3 trillion debt ceiling before August 2, when the Treasury Department has said it will run out of money to pay the country's bills.
Default could occur if Congress does not act by then, which could push the United States back into recession and send markets plunging around the globe.
Need for compromise
"It is time for the president to speak clearly and resolve the tax issue," said House Majority Leader Eric Cantor, who had represented House Republicans in the talks. Republican Senator Jon Kyl also pulled out.
Obama will now probably have to hammer out a deal with Boehner and Senate Democratic Leader Harry Reid, the same trio that took the government to the brink of a shutdown in an earlier budget battle this spring.
"I think it's in the hands of the speaker and the president, and sadly, probably me," Reid said at a news conference. No initial meeting has been set, he said.
Biden said his group has always intended to hand the baton to Obama and Boehner.
"The next phase is in the hands of those leaders, who need to determine the scope of an agreement that can tackle the problem and attract bipartisan support," he said in a statement.
Boehner said talks could resume if Democrats took tax hikes off the table, but they showed no sign of backing off.
So far, the possibility of default has not affected bond markets as investors focus on other news and assume Washington will ultimately strike a deal -- probably at the last minute.
"This is going to look ugly for the next few weeks," said Greg Valliere, a political analyst for investors at Potomac Research Group.