US on the brink of government shutdown

High-stake White House talks failed to produce a US budget agreement although it was reported later that some progress had been made. John Boehner, Republican speaker of the House of Representatives, and Harry Reid, Senate majority leader, said on Tuesday that the two men met after the White House meeting and had “a productive discussion”.

President Barack Obama has said earlier that Americans expected their politicians the act ‘like grown-ups”, in making some concessions from both sides. However, he has been criticised for being absent from negotiations.

On Friday night in the absence of a new budget law the first shutdown of the US political system would occur since the mid-1990’s. It would also signal that the US political system is incapable of resolving its differences on fiscal policy which in-turn could threaten recovery.

Republicans are insisting on $61bn in spending cuts to the end of the 2011 fiscal year, while Democrats want $33bn. But the argument is not just about size but also about their nature.

Republican’s this week proposed an alternative budget that would fund defence until the end of the fiscal year on September 30 but all other agencies only to April 15 totalling $12bn in spending cuts. The program included cuts to abortion programmes in the District of Columbia which certainly would be unacceptable to Democrats. 

The budget also included Taxes for individuals and corporations to be cut by 25 per cent, though the plan does not lay out which tax breaks or deductions should be eliminated in order to plug the revenue shortfall. Government spending would be brought down to 20 per cent of gross domestic product by 2022, closer to its historical norm of 18 per cent.

Democrats have already been sharply critical of the proposal, arguing that it is a lopsided attempt at deficit reduction, benefiting large corporations and wealthy individuals.

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