Stumbling blocks remain in budget fight

By Andy Sullivan and Thomas Ferraro

WASHINGTON (Reuters) – House of Representatives Speaker John Boehner on Monday blasted Democratic spending-cut proposals as “smoke and mirrors,” undercutting the notion that progress is being made on a budget deal that would avert a government shutdown.

Boehner and other congressional leaders are due to meet with President Barack Obama on Tuesday to try to make headway on the plan, which would slice roughly $33 billion from this year’s budget and ensure that the government will keep running beyond midnight on Friday, when current funding runs out.

With time running short, aides said they thought a shutdown was unlikely. A spending bill must be worked out by Tuesday night in order to give Congress enough time to act before Friday.

“In the end there will be a deal because a shutdown doesn’t do anyone any good,” a senior Republican aide said. Another short-term spending bill of a few days may be needed, he added.

Congress is struggling to complete a long-overdue budget for the fiscal year that ends on September 30 in a dispute that could set a precedent for larger budget battles to come.

Staffers made progress over the weekend on the rough outlines of the plan, but the two sides remain at loggerheads over where the cuts would fall.

Democrats sought to ease the impact of what could be the biggest domestic spending cut in U.S. history by directing it away from priorities like scientific research and education.

Republicans, who control the House of Representatives, aim to boost defense spending and have outlined deep cuts to most domestic programs. They also aim to choke off funding for a range of Democratic priorities, from environmental protection to Obama’s healthcare reform. Taking those off the table would require deeper cuts elsewhere, they say.

“I’ve made it clear their $33 billion is not enough and many of the cuts that the White House and Senate Democrats are talking about are full of smoke and mirrors,” Boehner said in a statement.

Boehner must ensure that any deal is acceptable to newly elected members of his own party, who have shown little appetite for compromise after winning office on a promise to scale back the size of government. He also faces pressure from grassroots Tea Party activists who want steep cuts.

“We take it for granted that because of the intense political pressure being applied by the Tea Party, the Speaker needs to play an outside game as well as an inside game,” Democratic Senator Charles Schumer said in a statement.

On Monday, the key dispute appeared to be over two types of spending: the discretionary programs whose funding levels are set by Congress each year and the benefit programs, which essentially operate on automatic pilot.

Democrats hope most of the cuts will come from these benefit programs, such as a fund for crime victims, in order to protect other priorities. They’ve identified $8 billion worth of cuts to these programs that have been included in both Republican and Democratic plans.

Republicans want to concentrate the cuts on discretionary programs in order to establish a lower spending baseline for years to come.

“We cannot and will not falter in our commitment to concrete spending cuts that will start the downward trajectory of federal budgets for years to come,” House Appropriations Committee Chairman Hal Rogers said in a prepared statement.

ANOTHER FIGHT LOOMS

Meanwhile, other budget fights loom. House Republicans are expected to unveil a proposal for the coming fiscal year, which begins October 1, that would overhaul health programs and call for steep cuts to spending and tax rates.

That proposal is expected to gain little traction in the Democratic-controlled Senate, but could serve to push the budget fight well into the 2012 campaign season.

Congress also faces a vote in coming weeks over whether to increase the government’s $14.3 trillion borrowing authority. Failure to do so could risk a default and roil bond markets, but Republicans are expected to press for further concessions in return for their support.

A spending cut of $33 billion in the current fiscal year could mean cutbacks at government agencies, but would do little to plug a U.S. deficit projected at $1.4 trillion this year.

The developments show how the fiscal debate has changed in Washington since 2009, when the government mobilized trillions of dollars to fight the deepest recession since the 1930s. The recession, and the efforts to fight it, have pushed budget deficits to around 10 percent of gross domestic product, their highest levels relative to the economy since World War Two.

Some experts say the United States could eventually face a Greek-style debt crisis if the fiscal picture does not improve. Democrats say the fragile U.S. economic recovery could suffer if spending is cut too sharply.

(Additional reporting by Richard Cowan and Caren Bohan; Editing by Will Dunham and Sandra Maler)

Stumbling blocks remain in budget fight