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Gov't shutdown poses big risks to both parties

By Tom Raum

Associated Press

Published: Wednesday, April 6 2011 12:05 p.m. MDT

House Speaker John Boehner of Ohio, left, and House Minority Leader Nancy Pelosi of Calif., look on they welcomed Israeli President Shimon Peres on Capitol Hill in Washington, Wednesday, April 6, 2011.

J. Scott Applewhite, Associated Press

WASHINGTON — Democrats and Republicans say the last thing they want to do is to shut down the government. But with budget talks showing little signs of a breakthrough, there are growing worries that a stalemate could hurt the economy's fragile recovery.

Many economists and budget analysts suggest that a government shutdown, if it's lengthy, or even a deal that calls for deep short-term spending cuts could stifle economic growth and lead the country back into recession. Private forecasters already have lowered their growth projections for this year based on surging fuel, food and raw material costs, and tensions in the Middle East and North Africa.

"I think the economic damage from a government shutdown would mount very quickly," said Mark Zandi, chief economist of Moody's Analytics, who has been an economic adviser to both GOP and Democratic lawmakers. "And the longer it dragged on, the bigger the hit to business, consumer and investor confidence, the greater the odds of a renewed recession." He puts the danger zone at two weeks or longer.

The current spending authority for the federal government expires Friday at midnight, and so far President Barack Obama and his Democratic allies on Capitol Hill have been unable to strike a deal with defiant House Republicans.

The two sides made little apparent headway on Wednesday, though negotiations continued. The Obama administration said it was bracing for a possible shutdown and that early casualties would be a halt in the processing of certain tax refunds and small business loans. National parks would be closed, and the annual Cherry Blossom parade in the nation's capital canceled.

Obama, who had signaled a willingness to bring congressional leaders back to the White House on Wednesday for another round of meetings if necessary, traveled to Philadelphia in the afternoon.

Before leaving, he spoke by phone with House Speaker John Boehner, R-Ohio. Boehner's office said the call lasted just three minutes and that the speaker told the president he was hopeful a deal could still be struck.

Obama on Tuesday rejected a GOP bid to keep the government open for one more week at the cost of $12 billion in additional GOP-proposed spending cuts. "There is no reason why we should not get an agreement," Obama said following a White House meeting with congressional leaders.

But Boehner vowed to keep fighting for "the largest spending cuts possible," clearly reflecting an outreach to the GOP tea party wing.

Separately, the chairman of the House Budget Committee, Rep. Paul Ryan, R-Wis., unveiled a far-reaching GOP plan that would slash federal spending by about $5 trillion over the coming decade, reconfigure Medicare and other federal health programs, and cut the top tax rate for both individuals and corporations from 35 percent to 25 percent.

The large tea party contingent elected to Congress in November "did not come here for a political career. They came here for a cause," Ryan said. But even some budget hawks suggest the focus of that cause may be too narrow.

David Walker, former U.S. comptroller general and now head of the deficit-reduction advocacy group Comeback America Initiative, said Ryan's proposal is a good "first step" but it doesn't go far enough on cuts in defense or other national security spending and fails to advocate the other leg of any sound deficit reduction plan: tax increases.

And while Ryan's proposals look to the future, Walker suggested much of the attention of lawmakers is misplaced and focuses mostly on the short term. Lost in the debate, he suggested, is the need to agree to spending levels for this year and next "that will not undercut the recovery.

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