Senate Majority Leader Harry Reid and Minority Leader MitchMcConnell will push a revised budget plan this week aimed atallowing a debt-limit increase needed to avoid a government defaultas President Barack Obama presses for action in time for an Aug. 2deadline.

Reid of Nevada and McConnell are amending a proposal to giveObama the power to raise the debt limit in response to complaintsthe plan does little to reduce the deficit. They are consideringhaving House Republicans attach spending cuts to the legislation,according to a congressional aide, as well as provisions creating acommittee of lawmakers charged with finding additional savingslater.

“The good news is that Majority Leader Harry Reid and SenatorMitch McConnell are sitting down and working out an approach thatwe are going to try to tackle this week,” Senator Dick Durbin ofIllinois, the chamber's No. 2 Democrat, said on CBS's “Face theNation” yesterday. “We are going to be working toward a way toescape the crisis that would come if we default on America'snational debt.”

Lawmakers are trying to devise a deficit-reduction plan thatwould give colleagues the political cover they want to cast anunpopular vote to raise the legal limit on governmentborrowing.

Treasury Department
The TreasuryDepartment warns the debt ceiling must be lifted by Aug. 2 to avoiddefault, which it says would drive up borrowing costs for thegovernment as well as millions of Americans seeking consumer loanslinked to Treasury rates. Standard & Poor's Ratings Servicesand Moody's Investors Service are threatening to downgrade thegovernment's credit rating if Congress doesn't act.

Jon Kyl, the Senate's second-ranking Republican, said he didn'tknow if House Republicans would go along with what he called the“McConnell-Reid effort.”

“That's what the Senate is proceeding with,” Kyl of Arizona saidon ABC's “This Week” program. “Now, the House of Representativeshas to make its decision about what it will do.”

Lawmakers aim to unveil a plan this week so they will haveenough time to surmount procedural hurdles in the Senate, givetheir colleagues enough time to consider the proposal and find thevotes to pass it. The plan could be put before the Senate as earlyas July 20, according to a Senate Democratic aide.

'Irresponsible'
White House BudgetDirector Jack Lew expressed confidence yesterday lawmakers won'tallow a default.

“All the leaders understand that it would be irresponsible toget to Aug. 2 and not extend the ability of the United States topay its obligations,” Lew said on “State of the Union” on CNN.“More and more” rank-and- file lawmakers understand that, Lew said.“There will be a fringe that believes that playing with Armageddonis a good idea, but I don't think that's where the majority willbe.”

Treasury Department officials reject suggestions they couldprioritize some payments over others and insist there are noalternatives to raising the debt limit, a Treasury official saidyesterday. About $90 billion in debt matures on Aug. 4 and morethan $30 billion in interest comes due Aug. 15, said the official,who declined to be identified because the department's discussionsaren't public. Overall, more than $500 billion matures inAugust.

No 'Abstract Issue'
Raising the debtceiling “is not some abstract issue,” Obama said at a newsconference last week. “These are obligations that the United Stateshas taken on in the past. Congress has run up the credit card, andwe now have an obligation to pay our bills.”

Yields on benchmark 10-year notes reached the lowest level sinceDecember as investors sought a refuge in U.S. government debt. TheTreasury attracted higher than average demand at last week's threenote and bond auctions.

McConnell of Kentucky proposed a complicated plan last week thatwould allow Obama to raise the debt limit himself without requiringspending cuts or Republicans to cast votes to lift the $14.3trillion cap.

It was aimed at breaking a stalemate over mutually incompatibledemands by Republicans and Democrats. Republicans said any planwould have to cut spending by at least as much as it raised thedebt limit and couldn't include tax increases.

$2.4 Trillion
Obama wants a debt limithigh enough to accommodate government borrowing through next year'selections — roughly $2.4 trillion — and said he would agree to thatmuch in savings only if it included tax increases. He's also ruledout a smaller debt limit increase. House Majority Leader EricCantor, a Virginia Republican, said last week lawmakers had agreedto less than $1.4 trillion in cuts.

McConnell's proposal ran into criticism from lawmakers in bothparties who said it would do nothing to reduce red ink. Solawmakers are considering having House Republicans add what wouldamount to a downpayment in cuts to the McConnell plan once itclears the Senate, the aide said.

A panel of a dozen lawmakers, equally divided between theparties, would be responsible for finding additional cuts,according to the aide. The panel's plan would need the approval ofa majority of its members, the aide said, and couldn't be amendedonce it reached the floors of the House and Senate.

No Progress
Michael Steel, a spokesman forHouse Speaker John Boehner, an Ohio Republican, said yesterday that“conversations have continued throughout the weekend, but there isno news or progress to report.”

Senator Tom Coburn, an Oklahoma Republican, said he will unveilhis own plan today to cut the deficit by $9 trillion over the nextdecade. Coburn said while he doesn't expect it to pass, it wouldgive lawmakers options. His proposal would cut defense spending by$1 trillion over 10 years, raise taxes by $1 trillion by clampingdown on individual tax preferences and cut almost $2 trillion innon-defense appropriations, a congressional aide said.

The House plans to vote this week on a proposal tying a debtlimit increase to a constitutional amendment to balance the budget,a proposal unlikely to pass the Senate.

“Republicans are insisting that this debate takes place beforeanything will happen and we live in a divided Congress,” Durbinsaid on “Face the Nation.” “So we have to check the boxes — one ofthem is to engage in this debate,” he said.

Bloomberg News

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