GOP Senator: Treasury May Extend Aug. 2 Deadline to Raise Federal Debt Limit

The No. 2 Republican in the Senate said Tuesday that he has heard the Treasury Department may be announcing soon that it can extend the Aug. 2 deadline to increase the nation's ability to borrow money to give bipartisan negotiators more time to cut a deal on the debt.

Sen. Jon Kyl, R-Ariz., didn't say where he heard the plan, but if true the decision would give critical breathing space for lawmakers and the White House who have not been able to overcome a budget impasse.

"We know for sure they are going to update the deadline (Friday)," a House Republican leadership aide told Fox News. "We have heard from those who watch this type of thing that it's likely they will move it back, but we have not heard from Treasury that it is definitely going back. So I guess we've heard that, but not from Treasury, which is the only group that actually knows when we'll run out of cash."

The nation actually hit its $14.3 trillion debt ceiling in May, but Treasury Secretary Timothy Geithner said the federal government could perform some accounting maneuvers to avoid going into default until Aug. 2.

"We will provide an update on the debt ceiling outlook at the beginning of July, as we have done at the beginning of each month this year, but it is unlikely that the date will move by more than a day or two -- if at all," Treasury spokeswoman Colleen Murray said in a statement to FoxNews.com.

Vice President Biden had been leading deficit-reduction talks for several weeks until Kyl and House Majority Leader Eric Cantor pulled out last week, saying the talks had gone as far as possible without President Obama and House Speaker John Boehner.

Obama met with Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell in separate White House meetings on Monday and will meet with Senate Democratic leaders on Wednesday to talk about the current impasse, a Democratic source told Fox News.

If the federal government's ability to borrow isn't increased by a certain point, it could default, causing a financial catastrophe that would lead to drastic spending cuts and higher interest rates. Republicans are insisting that spending cuts accompany any increase in the debt limit while Democrats want tax hikes on upper income earners -- a demand that Republicans refuse to accept.

Reid noted on the Senate floor earlier Tuesday that failing to raise the debt limit could cause millions of Americans to lose their jobs, halt Social Security checks and paychecks to U.S. troops.

"So, what could be so important that my Republican colleagues are willing to put our economy at such dire risk?" he said. "Tax breaks for wealthy oil companies and corporate jets.

"Republicans have gone to the mat for Big Oil -- fighting again and again to preserve wasteful taxpayer-funded giveaways to companies that made $32 billion in profits in the first quarter of this year alone. And Republicans walked away from the negotiating table to save tax breaks for corporate jets."

McConnell said the president has shown that he believes raising the debt ceiling is necessary by asking Republicans to raise it.

"We hope that we'll take advantage of this opportunity presented by his request of us to raise the debt ceiling to do something important about the debt," he said.

But McConnell said he is "perplexed" that the Obama administration believes tax increases are a good idea, adding that he thought it was a bad idea when the president signed an extension of the current tax rates in December.

McConnell's senior adviser Don Stewart noted Tuesday New York Sen. Charles Schumer's accusation that McConnell is standing in the way of the Democrat plan to raise taxes by hundreds of billions of dollars.

"He is correct," Stewart said in a statement. "Sen. McConnell agrees with what the president said just a few months ago: raising taxes in a down economy would be harmful to the economy and to job creation."

Fox News' Trish Turner and Fox Business' Rich Edson contributed to this report.