(Reuters) - The top Republican in the Congress on Monday laid down a tough new yardstick in talks over the nation's debt, telling Wall Street that spending cuts must exceed any boost to the U.S. borrowing limit.
With less than a week until the United States runs up against its $14.3 trillion debt limit, the finance industry is counting on Congress to sign off on a further increase to avoid an unprecedented default that would roil markets across the globe.
But any increase will have to include unprecedented spending cuts, House of Representatives Speaker John Boehner told top industry executives.
"We should be talking about cuts of trillions, not just billions," Boehner said in a speech at the Economic Club of New York.
Cuts of that magnitude would dwarf the savings Republicans won in a separate budget deal last month, which they hailed as the largest domestic spending cut in U.S. history.
Many members of the party's conservative Tea Party wing rejected that deal after the nonpartisan Congressional Budget Office found it would only reduce outlays by about $25 billion over the coming decade, and Boehner is under pressure to keep them in the tent this time.
Boehner said lawmakers should opt for specific cuts, rather than a plan that would trigger automatic cuts and tax increases if Congress did not meet agreed-upon deficit-reduction targets, an approach that has gained support from lawmakers in both parties.
"There should be actual cuts and program reforms, not broad deficit or debt targets that punt the tough questions to the future," he said.
Treasury Secretary Timothy Geithner has warned of economic catastrophe if the federal government's borrowing authority is not increased and has told Congress that he will be able to stave off default until August 2 by drawing on other accounts once the debt limit is reached.
$2 TRILLION HIKE?
An increase of $2 trillion will be needed to cover the country's borrowing needs through the November 2012 elections, Treasury officials have told lawmakers, but Congress could opt for a smaller hike if more time is needed to hash out a deal.
President Barack Obama wants to raise taxes on wealthier Americans and shield cherished entitlement programs like the Social Security and Medicare programs for the elderly, messages that will be central to his reelection campaign.
Republicans, playing on widespread voter anger over a bloated U.S. budget deficit that is expected to reach $1.4 trillion this year, want to keep taxes low and slash spending. A plan passed last month by the Republican-controlled House would cut $6 trillion over the coming decade, in part by paring back government health plans for the poor and elderly.
Obama and his fellow Democrats have backed various plans that would cut roughly $4 trillion over that period, and the two parties are likely to find common ground on some areas, such as cuts to farm subsidies.
But taxes will be a sticking point.
"With the exception of tax hikes -- which will destroy jobs -- everything is on the table," Boehner said.
Both sides support rewriting the tax code to lower rates by eliminating tax breaks, but Democrats say it should lead to an overall revenue increase, while Republicans say it should be revenue-neutral.
Ahead of an initial round of talks last week, Republicans indicated a willingness to set aside their proposed healthcare reforms to strike a deal.
Boehner said they should be part of the discussion.
"With millions of Baby Boomers beginning to retire, the status quo is unsustainable," Boehner said. "If we don't act boldly now, the markets will act for us very soon."
Wall Street has been intensely lobbying Republicans to back a debt-ceiling hike, and its financial clout is doubtless amplifying the message.
Securities firms, commercial banks, and finance and credit firms are among the top donors to political candidates, public records show, and the industry's support is up for grabs as the 2012 election cycle begins.
Democrats captured 55 percent of donations in the 2008 elections, according to data compiled by the Center for Responsive Politics.
But industry support swung back to the Republicans last year as Democrats pushed through the Dodd-Frank reforms that are designed to safeguard the financial system after the worst banking crisis since the Great Depression. Wall Street views the reforms as excessive government intrusion in the markets.
Boehner's top lieutenant, House Republican Leader Eric Cantor, is scheduled to ring the opening bell at the New York Stock Exchange on Tuesday before meeting with executives of NYSE companies to discuss economic growth.
(Additional reporting by Richard Cowan and Thomas Ferraro; Editing by Paul Simao)