Boehner tells Republicans to gird for shutdown

By Andy Sullivan

WASHINGTON (Reuters) - House of Representatives Speaker John Boehner on Monday told fellow Republicans to prepare for a government shutdown, undercutting optimism that progress is being made on a deal that would keep the government running.

Boehner instructed his fellow Republicans in an evening meeting to draw up plans on how the House would operate if the government were to shut down, although he said he would continue to negotiate, an aide said.

Despite the bluster, 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 but lawmakers have several procedural tricks to push that deadline back.

"In the end there will be a deal because a shutdown doesn't do anyone any good," a senior Republican aide said.

Late in the evening, Republicans released a plan that would push the deadline back by a week and carve out an additional $12 billion in cuts. It also would take an important bargaining chip off the table by funding the Pentagon for the rest of the fiscal year.

Democrats may be reluctant to agree to those terms.

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.

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.

The White House meeting will take place at 10:15 a.m. EDT.

Republicans 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.

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.

KEY DISPUTE, LOOMING FIGHT

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 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.

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. It would cut nearly $6 trillion over the coming decade, an aide said.

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.

(Additional reporting by Richard Cowan, Thomas Ferraro, Caren Bohan and Jeff Mason; Editing by Sandra Maler, Todd Eastham and Bill Trott)