March 31, 2011 / 12:28 AM / 7 years ago

UPDATE 2-US budget deal emerges, shutdown threat recedes

* Deal would be biggest domestic spending cut in history

* Big cuts seen as victory for Republicans

* Still must resolve where cuts will fall (Adds Biden comments, details)

By Andy Sullivan

WASHINGTON, March 30 (Reuters) - A budget deal that could impose the largest domestic spending cut in U.S. history took shape in Congress on Wednesday as the threat of a government shutdown receded.

Though Republicans and Democrats 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 in spending during the current fiscal year, which ends Sept. 30.

“We’re all working off the same number now,” said Vice President Joe Biden after meeting with Senate Democratic leaders.

A cut of that magnitude would be a victory for Republicans, who won control of the House of Representatives in last November’s congressional elections on a promise to slash spending and scale back the reach of government amid worries about the nation’s fiscal situation.

It also would avoid a messy government shutdown when a stopgap funding measure expires on April 8.

But the two sides still must resolve where those cuts will fall.

President Barack Obama has said that education, scientific research and other programs that lead to long-term economic growth should be spared, and his fellow Democrats have proposed cutting benefits like crop subsidies that normally are not touched by the yearly budget cycle.

Republicans are pushing dozens of funding restrictions that would prevent Obama from enacting priorities like greenhouse gas regulation and the 2010 healthcare reform law.

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For full budget coverage click on [ID:nN11152338]

PDF of budget coverage link.reuters.com/xym97r

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The final figure may depend on which of those restrictions are included in the final product.

“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 could mean severe pain for many domestic agencies. But 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 also be raised to close the gap.

TRICKY BALANCING ACT

While Republicans have passed a spending bill through the House that would slice $61 billion from the current budget, Democrats have said cuts of that magnitude would hurt the fragile economy.

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 shown little appetite for compromise.

Tea Party groups plan a Thursday rally at the Capitol.

Boehner had to rely on Democratic votes to pass a temporary funding measure to keep the government running earlier this month after 54 Republicans refused to back it.

Enough House Democrats are expected to back a final compromise to make up for any Republican defections this time, though Boehner aims to keep Republican defections to a minimum, according to aides.

The negotiations are complicated by the funding restrictions that are included in the House-passed bill.

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.

But the most controversial restrictions, which have drawn a White House veto threat, remain unresolved.

“There are certain things we just are not going to do,” Biden said.

Additional reporting by Thomas Ferraro; editing by Will Dunham

Our Standards:The Thomson Reuters Trust Principles.
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