Debt talks collapse, Republicans walk out over taxes
(Reuters) - U.S. budget talks collapsed on Thursday after Republican negotiators walked out, throwing doubt on Washington's ability to reach a deal that would allow the government to keep borrowing and avoid a debt default.
Representative Eric Cantor, the No. 2 Republican in the House of Representatives, said participants had identified trillions of dollars in potential spending cuts but were deadlocked over tax increases sought by Democrats. Republican Senator Jon Kyl also pulled out, according to an aide.
"Regardless of the progress that has been made, the tax issue must be resolved before discussions can continue," Cantor said in a statement.
House Speaker John Boehner, the top Republican in Washington, said Democrats must take tax hikes off the table.
"These conversations could continue if they take the tax hikes out of the conversation," Boehner said.
Negotiators had hoped to reach a budget deal by next week that would give lawmakers political cover to raise the $14.3 trillion debt ceiling before the Treasury Department runs out of money to pay the country's bills.
Default could occur if Congress does not act by August 2, pushing the United States back into recession and sending markets plunging around the globe.
So far, that possibility hasn't affected bond markets as investors focus on other news and assume that Washington will ultimately strike a deal. But that probably won't come until the last minute, analysts said.
The talks are "not dead but they are on life support," said Greg Valliere, a political analyst for investors at Potomac Research Group. "This is going to look ugly for the next few weeks."