* Democrats say Republicans walked away from deal
* Deal needs to be in place this week to avoid shutdown
By Andy Sullivan
WASHINGTON, March 29 (Reuters) - With time running short on a deal to keep the U.S. government operating, Democrats accused Republicans on Tuesday of catering to a conservative base rather than working toward a compromise that would cut spending and avoid a shutdown.
The two sides are battling over spending levels for the current fiscal year, which is nearly halfway over. Republicans hope to keep a campaign promise to scale back the government, while Democrats say that sharp spending cuts would hurt the economic recovery.
As lawmakers returned after a one-week recess, Democrats said that Republicans had backed away from a possible deal to cut roughly $30 billion because they are afraid of angering grass-roots Tea Party activists.
“We were right on the verge of a potential breakthrough and they moved the goalposts,” Democratic Senator Charles Schumer said on the Senate floor. “At this point the only hurdle left to a bipartisan deal, the only obstacle in the way, is the Tea Party.”
Tea Party activists, who plan a Thursday rally at the Capitol, are indeed pushing Republicans to reject a compromise.
A spokesman for House Speaker John Boehner said Schumer’s account was inaccurate.
“He is making up fairy tales trying to derail serious discussions on funding the government and cutting spending, because he believes his party would benefit from a government shutdown,” Boehner spokesman Michael Steel said.
The government is operating on an extension of last year’s budget because lawmakers have not been able to agree on spending levels for the fiscal year which began Oct. 1.
Congress has approved six separate stopgap measures to keep the government running while talks continue, but many lawmakers say they won’t support another extension.
The current stopgap measure will expire on April 8, but aides say a deal needs to be in place within the next few days in order to ensure it has enough time to pass Congress.
Both parties acknowledge the need to bring down budget deficits that have hovered around 10 percent of GDP in recent years due to the recession, tax cuts and wars in Iraq and Afghanistan.
The Republican-controlled House of Representatives has passed a bill that would cut $61 billion and prevent Obama from spending money on his signature healthcare overhaul, greenhouse-gas regulations, and other priorities. That measure failed in the Democratic-controlled Senate.
Senate Democrats have floated a proposal that would cut $20 billion on top of $10 billion in cuts that have already been enacted, meeting the Republicans roughly halfway. But they two sides are targeting different programs for their cuts, and Democrats refuse to consider the Republican-backed policy restrictions.
Obama has also threatened to veto any bill that blocks his priorities.
Those factors are clouding the ability to agree on a final spending-cut figure.
“Nothing is decided until everything is decided. The Democrats actually involved in the negotiations know that,” Steel said.
The cuts in question would have little impact on the budget deficit, which is projected to hit $1.4 trillion this year, because they would spare the benefit programs like Medicare and Social Security that account for more than half of the $3.7 trillion budget.
House Republicans next week are expected to unveil a budget for the next fiscal year that proposes to trim Medicare and other health insurance programs and outline further spending cuts.
Editing by Philip Barbara