Obama warning over US debt deadlock

Barack Obama, the US president, has told Republicans they must accept tax increases for wealthy Americans in a deal to head off the risk of a debt default that would deal a “significant” blow to the economy.

Obama on Wednesday dismissed criticism that his own leadership was lacking, in a showdown over raising the government’s $14.29tn borrowing authority ahead of an August 2 deadline.

Republicans have been demanding heavy spending cuts to narrow a $1tn budget deficit.

The president said his Democrats had accepted tough and painful spending cuts but lashed out at Republicans who he said were blocking his spending on education and health care to save tax breaks for oil firms and corporate jet owners.

“I don’t think that’s real radical. I think the majority of Americans agree with that,” Obama said, speaking at a White House press conference.

Republicans last week walked out of talks with the administration, claiming Obama was bent on raising taxes.

But Obama warned that should a deal not get done soon, the US faced the real prospect of defaulting on its debts at a time when it is already struggling to fire up a sluggish recovery and create jobs.

“If the United States government for the first time cannot pay its bills, if it defaults, then the consequences for the US economy will be significant and unpredictable and that is not a good thing,” Obama said.

Obama said he did not want to “spook” people, but he warned that no one knew how capital markets and investors in the US economy would react if no deal was reached; he said the economic headwinds facing America would only get worse.

Debt showdown

“These are bills that Congress ran up. The money’s been spent,” Obama said, comparing lawmakers to a family that had bought a car or a house and was refusing to pay its bills.

“We are the greatest nation on Earth and we can’t act that way. This is urgent and needs to get settled.”

The comments came as the debt showdown gets caught up in Obama’s campaign for a second White House term and Republican efforts to thwart him.

Opinion polls have found that the US public broadly backs raising taxes on the wealthiest Americans as part of a comprehensive agreement to reduce the soaring deficit and rein in galloping debt.

Obama, who has now taken charge of negotiations with Republicans, has predicted that a deal will emerge eventually.

But this time, congressional Republicans elected in a backlash against government and on a platform of sweeping spending cuts in last November’s mid-term polls, are demanding big concessions from the White House.

Republican leaders reacted with disdain to Obama’s press conference.

“The president’s remarks today ignore legislative and economic reality,” John Boehner, the speaker for the House of Representatives, said.

“The president is sorely mistaken if he believes a bill to raise the debt ceiling and raise taxes would pass the House. The votes simply aren’t there – and they aren’t going to be there,” he said.