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Government Shutdown Looms as Lawmakers Deadlock Over Budget

Government Shutdown Looms as Lawmakers Deadlock Over Budget
A shutdown of the federal government would reduce government spending by about $8 billion per week, according to a Goldman Sachs report. Photographer: Andrew Harrer/Bloomberg

Feb. 24 (Bloomberg) -- A U.S. government shutdown looms with lawmakers deadlocked 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 proposal was immediately rejected by Senate Democrats, who are demanding a 30-day extension keeping budgets at current levels.

Lawmakers, who return to Washington next week from a week-long recess, will have just days to find agreement because the spending measure now keeping agencies funded expires March 4. Without action, the government would shut down.

Democrats scoffed at the Republicans’ proposal, saying it would amount to phasing in the $61 billion in budget cuts passed last week by the House.

“This ‘new’ proposal is nothing more than a Trojan horse for the extreme and reckless legislation recently passed by House Republicans,” Senator Patty Murray, a Democrat from Washington state, said today in a statement. “Senate Democrats rejected that proposal because it would pull the rug out from our economic recovery and devastate millions of families.”

House Speaker John Boehner, an Ohio Republican, said yesterday that “Americans understand we need to stop the spending binge in Washington.” In a question directed to Senate Majority Leader Harry Reid, a Nevada Democrat, Boehner asked: “With all due respect: What are you willing to cut?”

Buying Time

The two parties are seeking to buy time to work out their many differences on funding for the duration of the government’s 2011 fiscal year, which ends Sept. 30.

While Senate Democrats oppose cuts as part of the type of short-term plan offered by the House Republicans, they are considering additional reductions as part of a longer-term measure funding agencies for the duration of the fiscal year, a Democratic Senate aide said today.

Lawmakers are considering adopting proposals from the list of program cuts included in President Barack Obama’s budget for 2012 released earlier this month, as well as rescinding funding for the pet projects known as earmarks, said the aide, who requested anonymity in discussing the plan. No decisions have been made about what or how much to cut, according to the aide.

‘Good-Faith’ Talks

“We’re willing to go further” on spending cuts, Senator Dick Durbin of Illinois, the chamber’s No. 2 Democrat, said today. “But that requires the sort of good-faith negotiations House Republicans refuse to engage in.”

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 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,” Senator Charles Schumer, a New York Democrat, said yesterday in a statement after the Goldman Sachs report was released.

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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