U.S. Government Shutdown Looms as Lawmakers Deadlock Over Budget Proposal

A U.S. government shutdown looms after lawmakers deadlocked yesterday over a Republican proposal to cut $4 billion as part of a budget measure needed to keep federal agencies running.

House Republicans are working on a plan, slated for a vote next week, that would attach cuts to a bill funding the government through mid-March. That was immediately rejected by Senate Democrats, who are demanding a 30-day extension that would keep budgets at their current levels.

Lawmakers, who return to Washington next week from their Presidents Day recess, will have just days to find agreement, because the spending measure now keeping agencies in business expires March 4. Without agreement, the government will shut down.

“Americans understand we need to stop the spending binge in Washington to create a better environment for job creation,” said House Speaker John Boehner, an Ohio Republican. “So I ask Senator Reid, with all due respect: what are you willing to cut?”

Jon Summers, a spokesman for Senate Majority Leader Harry Reid, called the proposal a “non-starter” because it would amount to phasing in the $61 billion in budget cuts passed last week by the House.

“This isn’t a compromise,” said Summers. “This bill would simply be a two-week version of the reckless measure the House passed last weekend. It would impose the same spending levels in the short term as their initial proposal does in the long term, and it isn’t going to fool anyone.”

Buying Time

Both proposals are designed to buy lawmakers time to work out their many differences on funding for the duration of the government’s 2011 fiscal year, which ends Sept. 30.

The legislation passed by the House last week would cut hundreds of programs. It includes scores of provisions blocking funding for the administration’s health care overhaul, as well as regulations on greenhouse gas emissions, for-profit colleges and the Federal Communications Commission’s “net neutrality” Internet rules.

Democrats have balked at the House’s proposed cuts, saying they would hurt the economy. Earlier this week, Reid, a Nevada Democrat, said the Senate also will not agree to the House’s legislative riders, saying the bill is to “deal with funding for our government, not all these other goodies they think are cute.”

Goldman Sachs Report

Democrats also seized on a Goldman Sachs Group Inc. report issued earlier this week that said the House-approved cuts would hurt the economy in the short term. The $61 billion in spending cuts would shave between 1.5 and 2 percentage points off economic growth during the second and third quarters of this year, according to the research note.

Reducing spending by a smaller amount, such as $25 billion to $50 billion, would cut almost 1 percentage point off the annualized rate of GDP growth in the second quarter, though it would have a “negligible” effect on growth by the end of the year, the analysis said. It said a shutdown of the federal government would reduce government spending by about $8 billion per week.

“This analysis puts a dagger through the heart of their ‘cut-and-grow’ fantasy,” said Senator Charles Schumer, a New York Democrat.

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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