WRAPUP 3-U.S. debt hike emerges as main battleground over Obamacare
* Fight over Obamacare at center of fiscal debates
* Republicans offer plan to fund government beyond Oct. 1
* But party conservatives still intent on killing program
WASHINGTON, Sept 18 (Reuters) - Republicans in the House of Representatives set in motion on Wednesday a plan that ultimately could avert a federal government shutdown on Oct. 1, turning a later battle over the debt ceiling into the main event in the conservative struggle against President Barack Obama's healthcare program.
The action could begin as early as Thursday or Friday, with the Republican-controlled House taking up a measure to continue funding the government coupled with an amendment to delay "Obamacare." Capitol Hill analysts believe a shutdown can be avoided with the help of Democrats and a handful of Republicans in the House and Senate.
But it appeared Wednesday that the more serious confrontation will begin next week, with a Republican bill to increase the government's borrowing authority by raising the debt ceiling also contingent on an Obamacare delay.
A shutdown would be largely an inconvenience. The debt ceiling issue could be a time bomb.
Without Congress' approval, the government will be unable to borrow money to pay its debts some time in mid-October, risking default, according to the Treasury Department. Even the prospect of such a dislocation could rattle world markets and lead to a downgrade of the government's credit rating.
The decision to make Obama's health care law the centerpiece of the fiscal showdown was a triumph for the conservative wing of Republicans in the House - about 80 members, who overcame the concerns of Republican leaders worried that the tactic would be both futile and dangerous politically as Obamacare is non-negotiable with Democrats.
It put Washington once again on fiscal-war footing.
Obama, speaking to business leaders, accused Republicans of engaging in extortion by demanding a delay in "Obamacare" as the price of avoiding default that, were it to happen, would smash the U.S. economy.
"You have never seen in the history of the United States the debt ceiling or the threat of not raising the debt ceiling being used to extort a president or a governing party," Obama told the Business Roundtable, a group of large-company chief executives.
Undaunted, Republicans said Wednesday they would add other demands to their list, including approval of the Keystone oil pipeline.
"A government shutdown, and perhaps even more so a failure to raise the debt limit, could have very serious consequences for the financial markets and for the economy," Fed chairman Ben Bernanke warned at a news conference.
The U.S. Chamber of Commerce weighed in, with a letter to House members "respectfully" urging them to "to raise the debt ceiling in a timely manner and thus eliminate any question of threat to the full faith and credit of the United States government."
The usual uncertainty surrounding such showdowns is compounded this time for both Republicans and Democrats.
Republicans are deeply divided over their tactical approach, with House Speaker John Boehner unable to control his members and increasingly portrayed by Tea Party activists as an enemy for trying to avoid linking the fiscal showdowns to the health care law. Some Tea Party activists have begun calling the health care law "Boehnercare."
At the same time, Obama's relationship with Democrats in Congress is more frayed following recent disagreements over Syria and Obama's choice to head the Federal Reserve. While Obama says the debt ceiling is non-negotiable, should any discussions actually occur between Republicans and the White House, he could find himself with less flexibility.
Resistance from Democrats has in the past hindered attempts by Obama to offer reforms in entitlement spending programs.
But for the moment, the carefully scripted legislative dance announced by Boehner on Wednesday and racing against the Oct. 1 end of the 2013 fiscal year, should go like this:
A bill to fund the government temporarily, and thus avoid a shutdown, may move through the Republican-controlled House this week. Boehner is trying to round up the votes among his fellow Republicans to pass a funding bill that will last through Dec. 15. It would keep in place tough spending caps imposed by the across-the-board cuts known as the "sequester."
Language embedded in the bill and demanded by conservatives would deny money to implement Obama's healthcare law which next month begins signing up uninsured people for subsidized insurance.
The Democratic-held Senate is expected to take the House-passed bill, strip out the troublesome Obamacare provision and then send it back to the House for final passage.
To do this, Senate Majority Leader Harry Reid will have to find at least six Republicans to cooperate with the overall plan. Though they are in lock-step opposition to Obamacare, some Senate Republicans consider it futile and politically suicidal to link efforts to kill it to the government funding or debt-ceiling measures.
If Reid succeeds, and if the right combination of House Republicans and Democrats join forces to pass the retooled Senate bill, Congress will have side-stepped government shutdowns like the ones that roiled Washington in late 1995 and early 1996.
Then, House Republicans will queue up the second battle over raising the $16.7 trillion limit on government borrowing - knowing the Treasury has said it will run out of ways to pay U.S. bills around mid-October. Past battles over the debt ceiling have rattled markets far more than threats of government shutdowns.
Again, Republicans aim to attach to the debt measure a provision to delay or kill Obamacare, along with other contentious ideas, such as approving the Keystone oil pipeline that would run from Canada through the middle of the United States to the Gulf of Mexico. The Obama administration is weighing environmental concerns over that long-delayed project.
Both steps are drawing heavy opposition from Democrats.
At a brief news conference following a closed-door meeting of House Republicans, Boehner warned that this 2013 fight over the debt limit would be "no different" from his party's efforts in 2011 to link a debt limit hike to deficit-reduction efforts.
That 2011 battle brought so much uncertainty over the U.S. government's ability to manage its fiscal affairs that it resulted in the first-ever downgrade of Washington's gold-standard credit rating and a months-long swoon in the stock market.
Obama, meeting with CEOs at the Business Roundtable, expressed his weariness over yet another set of battles on spending and borrowing.
He urged the business leaders to "make sure that you are using your influence in whatever way you can" to put a stop to the legislative upheavals over the debt limit and government funding.
BLAMING EACH OTHER
House Republicans, who bridle at the notion that they are the ones threatening a government shutdown and default, worked hard on Wednesday to argue to voters that they are not to blame.
"The president is shutting down the government because he wants to protect his pet project (Obamacare)," first-term Republican Representative Luke Messer told Reuters.
Meanwhile, Democrats in Congress reminded reporters of the financial market gyrations witnessed during the last big spending and debt fight in mid-2011.
Senator Charles Schumer, the third-ranking Democrat in the Senate, said the "extreme right wing" of the Republican Party was threatening a re-run of 2011. "We're closer to a default than we've ever been before," Schumer argued, saying Republican conservatives are more entrenched now.
Republican lawmakers and some congressional aides downplayed the notion that Obama's recent legislative scrapes have emboldened them to take a hard line in this autumn's fights over spending levels and allowing more government borrowing.
Instead, they cited a mix of other reasons, including the unpopularity of Obamacare in their home districts and the pressure of conservative lobbying groups such as the Club for Growth, who are pushing for the showdowns.
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