John Boehner tries to rally Republicans to his debt plan

Congress remained deadlocked over the debt crisis on Wednesday, with House Republicans unable to muster the votes needed to pass emergency legislation before next week's deadline.

Faced with a revolt by hardline members of his own party, House leader John Boehner was having to hastily rewrite a bill he proposed earlier in the week to cut $3 trillion (£1.83tn) in federal government spending.

Boehner hopes to put his new bill to the vote on Thursday after being forced to cancel a planned vote because of lack of numbers.

Although the Treasury may be able to conjure up a short-term solution to prevent default on Tuesday, the row and the failure of America to tackle its burgeoning debt problem could now lose the US its triple-A credit rating, a move that could have damaging consequences for the US economy and beyond.

The country's national debt reached its congressionally set $14.3tn ceiling on 16 May and Washington has since been forced to use spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally, but it can only do so until 2 August.

Without agreement, the US will probably become unable to pay all its bills some time the following week. Federal spending would have to be reduced by as much as 44% for the remainder of the month, forcing the treasury to decide whether to suspend social security benefits, defence spending or stop paying government employees.

Finance and business leaders have warned that failure to raise the US debt ceiling by then would send shockwaves through the fragile world economy, while President Barack Obama has predicted that a default would trigger economic "Armageddon".

Boehner needs to secure 217 votes to get his bill through, a job made more difficult by a report from the Congressional Budget Office (CBO) saying that the Republican leader's bill would only reduce the deficit initially by $850bn, not the $1.2tn that Boehner had claimed. Hardline conservatives are demanding still bigger spending cuts.

However, even if the bill were to be passed, the Democratic leader in the Senate, Harry Reid, promised that the Senate would kill it and Obama has said that he would veto it.

A solution is most likely to come from negotiations between Reid and the Republican leader in the Senate, Mitch McConnell. Reid is proposing raising the debt ceiling from $14.3tn until after the 2012 elections, in return for immediate spending cuts of $1.7tn.

But the CBO has also challenged Reid's budget cuts. The office concluded that his plan would deliver $500bn less in deficit reduction than the $2.7tn Democratic lawmakers had said it would save over 10 years.

Stock markets have remained relatively sanguine even as the deadline looms ever closer. The major US stock markets fell on Wednesday, but the rhetoric in Washington has not yet triggered a major sell-off. Economists and market watchers argue that investors believe the two sides will eventually hammer out a compromise.

Republican leaders told the group that they need to stay united and rally around the bill. Boehner also said his bill will be rewritten to either cut more from the deficit or to raise the debt ceiling by less than the $900 billion he had proposed earlier this week.

That way, his plan would hew to his promise to match the debt-ceiling hike with spending cuts. Members said leaders did not tell them which approach will be taken with the revisions.

“We’re making progress,” Boehner told reporters after Wednesday morning’s meeting. Asked whether he thought the CBO report had dealt a blow to his plan and whether a vote was still scheduled for Thursday, Boehner declined to say.

House Majority Leader Eric Cantor (R-Va.) said after the meeting that House Republicans “just had a very good conference.”

“Members are rallying around the speaker’s plan, and we’re going forward,” Cantor said. He declined to say whether he thought the plan would pass with the support of Republicans alone, saying only, “We will pass the speaker’s plan.”

There were signs Wednesday that Boehner was having some success at converting wary undecided votes into possible supporters.

After the meeting, several Republicans who had been wavering said they now back Boehner’s revised proposal — in part because they fear undercutting the speaker just days before the Aug. 2 deadline to raise the debt limit.

If the House plan were to founder because of lack of Republican support, it would leave only a proposal by Democratic Senate Majority Leader Harry M. Reid (Nev.) still standing.

Reid’s plan to raise the ceiling by $2.4 trillion would remove the pressure of a possible default from debates about reducing spending in coming months — a far less preferable option, several Republicans said.