Shutdown threat recedes as budget deal emerges
WASHINGTON (Reuters) - The threat of a U.S. government shutdown receded on Wednesday as Republicans and Democrats in Congress began crafting a budget that could impose the largest domestic spending cut in history.
Though lawmakers continued to trade jabs in public, staffers from both parties began filling in the blanks on a possible agreement that would cut roughly $33 billion from the current fiscal year, aides said.
That would be a victory for Republicans, who took control of the House of Representatives last fall on a promise to slash spending and scale back the reach of government amid worries about the nation's worsening fiscal situation.
It also would avoid a messy government shutdown when a stopgap funding measure expires on April 8.
Many details remain up in the air, aides cautioned, as the final figure depends on which of dozens of Republican-backed funding restrictions will be included in the final product.
"There's no agreement, and nothing will be agreed to until everything is agreed to," said Michael Steel, a spokesman for House Speaker John Boehner.
Because the fiscal year is already half over, a cut of $33 billion would mean severe pain for many domestic agencies, it would do little to plug a budget deficit that is projected to hit $1.4 trillion this year.
Both parties acknowledge the need to trim budget deficits that have hovered around 10 percent of GDP in recent years, but differ on how quickly spending should be reduced, and whether taxes should be raised and benefits like Social Security should also be trimmed.
ANSWER 'IN THE MIDDLE'
While Republicans have passed a spending bill through the House that would slice $61 billion from the current budget, Democrats warn that cuts of that magnitude would hurt the fragile economy.
"We know the answer lies in the middle. Neither party can pass a budget without the other party," Senate Democratic Leader Harry Reid said.
The measure has to pass both the Republican-controlled House and the Democratic-controlled Senate. Boehner, in particular, faces a tricky balancing act as he faces pressure from conservatives aligned with the Tea Party movement who have little appetite for compromise.
Tea Party groups plan a Thursday rally at the Capitol.
The negotiations are complicated by the dozens of Republican-backed funding restrictions that would prevent President Barack Obama from enacting top priorities like greenhouse gas regulation and healthcare reform.
Budget-writing staffers on the House and Senate appropriations committees are sorting through the less controversial restrictions, with the assumption that some of them will be included in a final bill, aides said.
The two sides have yet to sort out the more sweeping provisions, which have drawn a veto threat from Obama.
Reid and other Democratic leaders were expected to meet with Vice President Joe Biden and other White House officials in the Capitol later in the evening.
House Republicans are expected next week to unveil a budget proposal for the coming fiscal year, starting on October 1, that would combine more spending cuts with cuts to benefit programs like Medicare that account for more than half of the $3.7 trillion budget.
(Editing by Cynthia Osterman)
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