Shutdown threat recedes as U.S. budget talks resume

* Despite public sparring, aides more optimistic

* Republicans aim to keep party unified

By Andy Sullivan

WASHINGTON, March 30 (Reuters) – The threat of a U.S.
government shutdown seemed to recede on Wednesday as budget
talks between Republicans and Democrats resumed in Congress and
aides from both parties said they were more optimistic that a
compromise can be found.

Though lawmakers continued to trade jabs in public, aides
said privately that they had a greater sense of optimism they
could reach a deal before temporary government funding expires
on April 8.

“We’re all focused on getting something enacted into law,”
a Republican aide said.

Both parties acknowledge the need to trim budget deficits
that have hovered around 10 percent of GDP in recent years, but
differ on how to do this.

Republicans hope to keep a campaign promise to scale back
the government, while Democrats say that sharp spending cuts
would hurt the economic recovery.

“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 two sides were initially $50 billion apart in the
debate over spending levels for the current fiscal year that
ends Sept. 30. Democrats say that gap has now been reduced to
only $6 billion as they struggle to finalize more than $1
trillion in annual spending.

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That would amount to a reduction of between $30 billion and
$40 billion from current levels, making it the largest domestic
spending cut ever.

“This is a huge victory for congressional Republicans whose
budget cuts were scoffed at by the White House and Senate
Democrats when they began these negotiations in January,” wrote
MF Global analyst Chris Krueger in a research note.

WHERE TO CUT?

But lawmakers must also agree on where the cuts would take
effect. Republicans in the House of Representatives have
attached dozens of restrictions to their budget bill that would
prevent President Barack Obama from implementing everything
from his signature healthcare reform to raising pay for foreign
service employees. That has drawn a veto threat from the White
House.

Republican leaders also must determine whether any deal
will fly with rank-and-file members. House Speaker John
Boehner, in particular, faces pressure from the conservative
Tea Party movement, which helped his Republicans win control of
the House last fall.

Tea Party groups plan a rally at the Capitol on Thursday,
and many newly elected lawmakers are eager to deliver a win on
the issue that brought them to Washington, despite a new CNN
poll that shows support for the movement has eroded among
voters as a whole.

Some 54 House Republicans voted against a stopgap bill to
keep the government running earlier this month, and many have
said they won’t back a final bill that does not block
healthcare reform or contain other elements that would be sure
to draw a veto from Obama.

Boehner could opt to pass a bill with the support of
moderate Democrats, who on Wednesday unveiled their own
deficit-reduction plan that includes significant spending cuts.
But leaders of that group said they had not talked with
Republicans about a deal for the current fiscal year.

Republican aides emphasized that they are aiming for a deal
that can keep most of their party on board.

Meanwhile, Republicans kept up the pressure.

House Republican Leader Eric Cantor unveiled a bill that
would suspend lawmakers’ pay if a shutdown were to take effect.
The House is scheduled to vote on it Friday, he said.

(Editing by Philip Barbara)

Shutdown threat recedes as U.S. budget talks resume