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Shutdown may be averted, but bitterness remains

President Barack Obama speaks during a meeting with a bipartisan group of governors in the State Dining Room at the White House in Washington February 28, 2011. REUTERS/Kevin Lamarque

A deal to avert a government shutdown took shape in Congress on Monday, but the short-term spending measure would do nothing to resolve the bitter debate over federal spending.

Budget-cutting Republicans pressured President Barack Obama’s Democrats to accept a proposal to trim $4 billion over the next two weeks by eliminating programs that Obama has also targeted.

“This week, Democrats will have an opportunity to show that they’ve gotten the message,” Senate Republican leader Mitch McConnell said. “They can show they agree the time has come to change the status quo.”

Senate Democrats indicated they may go along with the Republican plan.

“I think we’ll work it out,” a Democratic senator who asked to remain anonymous told Reuters. “But the key isn’t what we are going to do to reduce the deficit for two, three or four weeks, but what are we going to do reduce it over the next two, three, four of five years.”

With government funding due to expire on Friday, Congress must act this week to avert a shutdown of everything from bankruptcy courts to passport offices.

The Republican-controlled House of Representatives is scheduled to vote on the measure on Tuesday. The Senate is likely to pass the measure afterward, a Democratic aide said, and the White House said a shutdown is increasingly unlikely.

“We think we’re moving in the right direction,” White House spokesman Jay Carney said on Monday.

Republicans have made spending cuts their top priority after winning big in last November’s elections on a promise to scale back the government and trim a massive budget deficit.

The proposal would buy more time for lawmakers to agree on funding levels for the rest of the fiscal year, which ends on September 30.

But it gives little clarity for financial markets, military contractors, local governments and millions of ordinary citizens who are wondering how they will be affected by a budget fight that is likely to dominate Washington this year.

MF Global analyst Chris Krueger said budget-cutting Republicans, spurred on by Tea Party fiscal conservatives, now have the upper hand in that fight. “The question is not whether to cut, but how much,” he wrote in a research note on Monday.

Though Republicans lost the battle for public opinion after a budget standoff led to a shutdown in 1995-1996, a survey released on Monday by The Hill newspaper, which covers Congress, showed that more voters say they would now blame Democrats, by a margin of 29 percent to 23 percent.

“We don’t want to see a government shutdown, because the American people don’t,” House Republican Leader Eric Cantor said in a news conference.

Democrats warn that the $61 billion in cuts House Republicans approved earlier this month — roughly 25 percent of the government’s non-military operations for the remainder of this fiscal year — would deliver a body blow to the fragile economic recovery at a time when unemployment is at 9 percent.

Goldman Sachs estimated last week that the Republican plan, which passed the House on February 19, would trim economic growth by up to two percentage points this year.

Economist Mark Zandi, who has advised congressional leaders of both parties, estimated that the Republican proposal would lead to 700,000 fewer jobs by the end of 2012.

Obama told state governors on Monday that everyone should be ready to sacrifice to help tackle a federal budget deficit that is projected to hit a record $1.65 trillion this year, equal to 10.9 percent of the economy.

Some analysts questioned whether Tea Party-aligned conservatives will support the compromise after successfully pushing Republican leaders to go beyond the cuts they initially promised.

At least one Tea Party leader, Republican Representative Michele Bachman, will support the measure, a spokesman said.

Lawmakers will then have to agree on spending levels for the rest of the fiscal year even as they begin work on a budget for fiscal 2012, which starts on October 1. A vote to increase the government’s borrowing authority also will likely prove contentious.

Copyright © 2011 Reuters

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