Budget Talks Heat Up: Can Lawmakers Crack a Deal Before Debt Ceiling Deadline?

VIDEO: More Money Trouble Brewing on Capitol Hill
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With the debt ceiling deadline looming over Congress, Democrats and Republicans appear to be inching closer together to a plan that would keep the country from spiraling into default.

Both sides are expressing optimism that they can come together on a budget compromise that would reduce the country's deficit -- expected to reach $1.6 trillion this year -- and help earn the support of conservative lawmakers who say the debt ceiling should not be raised without spending cuts.

Lawmakers say they are looking for common ground in the 2012 budget proposals submitted by President Obama and Rep. Paul Ryan, R-Wis., the chairman of the House Budget Committee.

But the two sides remain divided on key issues such as how to tackle entitlement reforms. And with the budget issue taking center stage in the coming weeks, the heated rhetoric is likely to get more so.

Republicans are firmly against raising taxes, and are standing behind the plan by Rep. Ryan that would significantly alter the face of Medicare.

"I have not taken Medicare off the table," House Majority Leader Eric Cantor, R-Va., said Thursday. "The reality is this president has excoriated our budget plan and the Medicare proposal in the plan, and I certainly would like to see what their proposals are."

Vice President Joe Biden met with Democratic and Republican leaders Thursday at Blair House to discuss these issues. But many observers say it will be the freshman and Tea Party wing of the party that might be hardest to appease.

Several influential Republican lawmakers, such as Michele Bachmann, head of the House Tea Party Caucus, are against raising the debt ceiling until there is a long-term plan in place to reduce the budget deficit.

The Republican leadership will have to win their support if it wants to raise the debt ceiling, action that Treasury Secretary Tim Geithner has warned must be taken quickly.

The United States is expected to hit its $14.3 trillion debt ceiling in mid-May. Geithner said this week that emergency measures by the Treasury could avert a default crisis until Aug. 2, but urged Congress to take swift action.

"Default by the United States on its obligations would have a catastrophic economic impact that would be felt by every American," Geithner wrote in a letter to Congress.

Experts have expressed concern that a heated debate on Capitol Hill could have negative consequences on consumer confidence, despite the Treasury's delay tactics.

It is likely to keep markets jittery and could boost interest rates at a time when the U.S. economy is struggling to recover.

Many House Republicans, especially freshman who came to Washington on the platform of reigning in the deficit, are standing firm on their argument of not raising the debt ceiling until a long-term budget plan is in place.

"I think that what we have to focus on is what the market is going to do if we just do a naked debt ceiling increase. It is going to show the marketplace that Washington is, once again, not serious about reigning in our spending," first-term Rep. Ben Quayle, R-Ariz., said in an interview on Fox this week.

The Republican leadership is calling on the White House to submit a deficit-reduction plan and details on the amount needed to raise the debt ceiling.

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