By David Lawder
WASHINGTON (Reuters) - Top U.S. chief executives want congressional budget negotiators to "pave the way" for a swift increase in the federal debt limit early next year as part of talks to ease automatic spending cuts, the head of their lobbying group said on Tuesday.
John Engler, president of the Business Roundtable, said a "grand bargain" to slash deficits is unlikely, but agreement on a viable budget for fiscal 2014 is possible by year-end, along with some understanding for a debt limit hike.
After October's bruising fiscal fight shut down federal agencies and raised the threat of a U.S. default, Engler said more drama over the borrowing limit would hurt business confidence and consumer spending in the critical holiday season and further damage U.S. prestige abroad.
"I think both parties have got a keen interest in doing that," Engler said of a debt-limit deal at a briefing with reporters. "It seems to me that those who were in the trenches and ended up being left behind in the last deal really don't want to go down that path again."
The debt limit and government spending authority were caught up in demands by Republican conservatives affiliated with the Tea Party movement to defund or delay "Obamacare" health insurance reforms. The ensuing standoff shuttered federal offices for 16 days in October but yielded only a minimal change to President Barack Obama's signature health care law.
Engler said the U.S. image abroad "took a drubbing" during the episode as it appeared to foreign officials and investors that U.S. lawmakers had lost the ability to function.
The Business Roundtable, which represents CEOs of companies with more than $7.3 trillion in combined revenues, was one of several business groups at the time urging lawmakers to avoid a default that would spike borrowing rates.
New policy demands over the February 7 expiration of a debt limit extension would yield similar results, said Engler, a former Republican governor of Michigan.
"It's an imperfect hostage because you have to, at the end of the day, release the hostage unharmed," he said of the borrowing cap. "So what good is the hostage?"
The 29-member negotiating committee was commissioned under the deal to end the standoff. While it is officially prohibited from including a debt limit deal in any budget agreement it reaches, Engler said that should be part of the discussions.
"They can pave the way for it," he said.
The panel has until December 13 to reach an agreement on a budget for fiscal 2014. There are no immediate consequences if it misses the deadline, but about a month later, on January 15, federal spending authority runs out again, raising the threat of another shutdown.
A key stumbling block for the budget talks is a demand by Democrats for new tax revenues to help ease some $109 billion in automatic budget cuts due to start in January. They want to do this by eliminating some tax breaks for the wealthy and big corporations.
Republicans have refused to consider any further revenue hikes and want to offset cuts to the military and other discretionary spending programs with reductions to federal benefits programs such as Medicare and Social Security.
Engler sided with the Republicans on this point, saying that a deal that includes revenues was not likely outside of a more comprehensive tax reform deal that lowers tax rates.
"I think revenues, period, are problematic," he said.
In the Capitol on Tuesday, independent Senator Angus King, a member of the budget panel, said he has proposed that revenues from eliminating tax credits and deductions should be evenly split between deficit reduction and lowering rates.
"That's something for everybody," said King, who is from Maine.
Senator Debbie Stabenow, a Michigan Democrat who is chairman of the Senate Agriculture Committee, said savings from reductions of U.S. crop subsidies, now under House-Senate negotiations over a new farm bill, should be used to help offset the automatic spending cuts.
(Reporting by David Lawder; Editing by Cynthia Osterman)