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TheStreet Open House

Emerging Senate Proposal Becomes Focus of Budget Battle (Update 1)

By Andrew Taylor

WASHINGTON -- The focus of efforts to end the government shutdown and prevent a U.S. default shifted to the Senate on Saturday, where leaders were in talks aimed at resolving the twin stalemates.

Word of the negotiations between Senate Majority Leader Harry Reid (D-Nev.) and the top Republican, Sen. Mitch McConnell of Kentucky, emerged as the Senate, as expected, rejected a Democratic effort to raise the government's borrowing limit through next year.

"This bill would have taken the threat of default off the table and given our nation's businesses and the economy the certainty we need," the White House said in a statement.

Republicans objected because they want the extension to be accompanied by spending cuts.

The spotlight turned to the Senate as the partial shutdown reached its 12th day. It also came with the calendar edging closer to Oct. 17, when administration officials have said the government will deplete its ability to borrow money, risking a first-time federal default that could jolt the world economy.

Speaker John Boehner (R-Ohio) told fellow Republicans earlier Saturday that his talks with President Barack Obama had stalled.

"The Senate needs to hold tough," Rep. Greg Walden (R-Ore.) said Boehner told House GOP lawmakers. "The president now isn't negotiating with us."

GOP senators said the talks between Reid and McConnell had started Friday. That was confirmed by Senate Democratic aides.

"The only thing that's happening right now is Senator Reid and Senator McConnell are talking," said the second-ranking Republican senator, John Cornyn of Texas. "And I view that as progress."

Saturday's Senate vote derailing the Democrats' debt-limit measure was a near party-line 53-45 in favor of the bill. That fell seven short of the 60 required to overcome Republican objections to considering the measure.

The White House said it was "unfortunate that the common-sense, clean debt limit increase proposed by Senate Democrats was refused a yes or no vote."

House conservatives said Obama was to blame for the talks with their chamber running aground.

"Perhaps he sees this as the best opportunity for him to win the House in 2014," said Rep. John Fleming (R-La.). "It's very clear to us he does not now, and never had, any intentions of negotiating."

Obama said in his weekly radio and Internet address Saturday: "It doesn't have to be this way. It's not supposed to be this way. Manufacturing crises to extract massive concessions isn't how our democracy works, and we have to stop it. Politics is a battle of ideas, but you advance those ideas through elections and legislation -- not extortion."

A bipartisan group of senators, closely watched by Senate leaders, is polishing a plan aimed at reaching compromise with Obama.

An emerging proposal by Sen. Susan Collins (R-Maine) and others would pair a six-month plan to keep the government open with an increase in the government's borrowing limit through January.

Obama has turned away a House plan to link the reopening of the government -- and a companion measure to temporarily increase the government's borrowing cap -- to concessions on the budget.

In the face of disastrous opinion polls, GOP leaders have signaled they will make sure the debt limit is increased with minimal damage to the financial markets. But they're still seeking concessions as a condition for reopening the government.

Obama met Senate Republicans on Friday and heard a pitch from Collins on raising the debt limit until the end of January, reopening the government and cutting the health care law at its periphery.

The plan also would strengthen income verification for people receiving subsidies through the health care law and set up a broader set of budget talks.

The Collins proposal would delay for two years a medical-device tax that helps finance the health care law, and it would subject millions of individuals eligible for subsidies to purchase health insurance under the program to stronger income verification.

Collins said Obama said the proposal "was constructive, but I don't want to give the impression that he endorsed it."

Associated Press writers Alan Fram and David Espo contributed to this report.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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