The Democrat-led US Senate has voted to set aside a House-passed Republican bill to avert a potential ruinous debt default, setting the stage for weekend talks on forging a compromise plan.
Legislators voted 59-41 against Republican House Speaker John Boehner's measure to raise the $14.3 trillion US debt ceiling in two stages to enable Washington to pay its bills past a Tuesday deadline.
Democratic Senate Majority Leader Harry Reid said he hoped Republican Senate Republican Minority Leader Mitch McConnell would help work out a final deal, the outlines of which were far from clear with the clock ticking down.
The US economy hit its $14.3 trillion debt ceiling on May 16 and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally - but can only do so through Tuesday.
Twenty-two House Republicans joined all 188 Democrats voting in opposing Boehner's legislation, while 218 Republicans backed it - eking out the 216 votes needed for passage in the lower chamber.
A key sticking point was the duration of any debt limit increase: Reid and his Senate allies rejected Boehner's plan in large part because it would set the stage for another high-stakes showdown in a few months.
"We cannot be in this battle all the time," said Reid, whose own plan would spare Obama another politically fraught debt battle as he seeks a second term in the November 2012 elections.
Boehner's bill had sought to pair raising the debt ceiling by $900bn with spending cuts of some $917bn over 10 years, while requiring later debt limit increases be tied to congressional passage of a balanced budget amendment to the US Constitution for ratification by the 50 states.
Reid, whose Democrats oppose tying the debt limit to such amendment, has offered a blueprint that would raise the debt ceiling by $2.7 trillion while cutting spending by some $2.2 trillion over 10 years.
Working on compromise formula
Al Jazeera's Rosiland Jordan, reporting from Capitol Hill, said the tussle will continue for some time as the two sides fail to make substantial progress towards a compromise.
"The Senate majority leader has already called this bill dead on arrival. The White House believes that if there is a compromise, it will have to come from the upper chamber of the congress," she said.
Reid has said a short-term solution is unacceptable and his own bill that would cut $2.2 trillion in spending over 10 years is expected to be amended to make it more palatable to moderate Republicans in the House.
The door is now open for talks on a compromise. If a compromise is worked out, a final vote in the Senate could take place as early as Monday or by midday on Tuesday, a Senate Democratic aide told Reuters.
The delays make it impossible for congress to strike a deal and send it Obama's desk until the 11th hour, injecting a dangerous level of uncertainty into already rattled financial markets. A late deal also raises the prospect that the United States will lose its top-notch AAA credit rating.
Administration officials say congress must find a compromise to raise the debt ceiling by Tuesday or the government will run out of cash to pay its bills. That could prompt an unprecedented federal default, which could rattle the economy.
Source: Al Jazeera and agencies