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White House budget talks with Senate Republicans break off

By David Lawder

WASHINGTON (Reuters) - Budget talks between the White House and a small group of U.S. Republican senators have reached an impasse, eliminating Washington's only active channel for resolving deep fiscal differences as key deadlines loom, senators and aides said on Friday.

A meeting on Thursday between the eight senators and White House chief of staff Denis McDonough failed to produce any movement toward a deal to reduce "unsustainable debt and deficits," said Senator Dan Coats, a Republican from Indiana.

"Although these discussions have been serious and candid, this week's meeting at the White House unfortunately proved that both sides remain far apart and the administration is unwilling to take the bold actions necessary to truly address our fiscal challenges and prevent this current pattern of governing from crisis to crisis," Coats said in a statement.

He added that the solution must include restructuring expensive federal benefits programs, reforming the tax code and cutting other unnecessary spending.

Republican Senate aides said that the group of senators led by Johnny Isakson of Georgia does not see any reason to continue the meetings because there is not enough common ground. One aide said the major sticking point was a refusal by the Obama administration to consider a larger deal that included cuts to entitlement programs such as Medicare.

"Instead, the White House wanted to try for a small deal contingent on revenue, which is a non-starter for Republicans," the aide said.

President Barack Obama and his Democrats have insisted that additional tax revenue, raised largely by closing tax deductions and credits for the wealthy, be part of any deficit-reduction deal.

Commenting on Thursday evening about the talks, a White House official underscored that condition.

"On matters related to the budget, the president has always been clear that closing tax loopholes that benefit the wealthy had to be part of any big deal. That's been clear for several years," the official said.

The Republican senators had been meeting regularly with McDonough, White House Budget Director Sylvia Mathews Burwell and other officials since June. The two sides had difficulty agreeing on the size of the U.S. debt problem, much less how to shrink deficits.

The end of the talks leaves Congress and the White House no clear way to reach agreements needed to extend funding for government agencies as the new fiscal year starts on October 1 and to increase the $16.7 trillion federal debt limit. The Treasury Department said last week that it will need the borrowing cap lifted by mid-October to ensure that U.S. obligations are paid.

Republican leadership in the House of Representatives have yet to say how they will approach the looming fiscal deadlines, but a growing number of House Republicans say they will not support a stop-gap government funding measure unless it withholds money from the implementation of key elements of "Obamacare," the president's signature health care reforms.

(Additional reporting by Caren Bohan; Editing by Stacey Joyce and Lisa Shumaker)

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