Senate Majority Leader Harry Reid worked with Republican counterparts to avert a US debt crisis [Reuters]

President Barack Obama has announced a deal with congressional leaders to raise the legal level of US debt
and avoid a potentially catastrophic default.

Here are details of the plan, which was worked out late on Sunday but still requires approval of the US congress where a number of politicians have voiced concerns:

THE DEBT CEILING - The deal would authorise an increase in the debt limit by at least $2.1tn. A senior administration official said that the level  was enough to last until 2013, meaning it will not require action in 2012 - a presidential election year.

FIRST ROUND OF SPENDING CUTS - Immediately authorises spending cuts of more than $900bn to take place over the next decade. A White House official said the figure would be between $900bn and $1tn, while House Speaker John Boehner's office gave the figure of $917bn.

The White House said the cuts would be in the form of caps on discretionary spending - funding that is authorised at will by congress - and not from entitlements such as Social Security and the Medicare health programme for the elderly.

SECOND ROUND OF SPENDING CUTS - The package sets up a special committee in congress - to be evenly divided between members of Obama's Democratic Party and Boehner's Republican Party - that would find $1.5tn in further cuts from all areas.

The committee is required to come up with proposals by November 23. If congress does not enact the cuts, then automatic cuts of the same amount will come into force divided between military and non-military spending but not touching Medicare and Social Security, according to the White House.

DEFENCE SPENDING - The package would cut $350bn in defence spending over the next 10 years as part of the first batch of cuts. A White House official said that Obama in principle wanted half of savings to come from defence spending but that he was not formally proposing so for the second round of cuts.

The US military budget last year was around $700bn, by far the largest in the world, but the figure is certain to come down as the US winds down commitments in Iraq and Afghanistan.

TAXES - Boehner highlighted that the package would not include any tax hikes. Republican legislators have been firm on the issue, while some Democrats argue that the United States also needs to increase revenue in such a large deal.

The White House said that Obama could still fight to restore tax rates on wealthy Americans - bringing in nearly $1 trillion in revenue. Obama's Republican predecessor, George Bush, lowered the taxes on the wealthy but the cuts are set to expire at the end of 2012.

CONSTITUTIONAL AMENDMENT - The package calls for congress to vote by the end of the year on an amendment to the US constitution that requires a balanced budget, a longstanding proposal of conservative Republicans who say the country must keep its finances in order.

If congress approves the amendment, Obama would be authorised to seek another $1.5tn increase in the debt ceiling.

Source: AFP