No clear path to ending U.S. debt limit, spending impasse

By Thomas Ferraro and Rachelle Younglai WASHINGTON (Reuters) - U.S. House of Representatives Republicans on Thursday refused to give in to President Barack Obama's demand for straightforward bills to run the government beyond September 30 and to increase borrowing authority to avoid a historic default. In a direct challenge to Obama, they said they will seek a one-year delay in the full implementation of the national healthcare law known as "Obamacare" in return for raising U.S. borrowing authority by enough to let Treasury borrow through the end of 2014. The move does not bode well for prompt resolution of these fiscal battles that could lead to a government shutdown on October 1 and a default in mid-October. Precious time will be consumed on both issues as they bounce back and forth between the Republican-controlled House and the Democratic Senate, with each party anxious to make the other look uncompromising and thus responsible for any economic damage that might occur. Treasury Secretary Jack Lew has informed Congress that the government will exhaust its borrowing authority by October 17, after which it could default on its loans. Furthermore, House Republicans will not accept a temporary government spending bill the Senate is poised to pass to avert federal agency shutdowns, House Speaker John Boehner warned. In a government shutdown, agencies like the FBI, Education Department, Defense Department and Environmental Protection Agency would have to limit their operations on October 1, the first day of the new fiscal year. While Social Security retirement checks would go out, there could be delays due to a lack of workers. Asked by a reporter whether the House would sign off on an emergency bill the Senate is expected to pass on Friday, which simply extends current funding for another six weeks, Boehner replied: "I do not see that happening." The top House Republican made his remarks after a closed meeting with his rank and file. The political fighting over raising the $16.7 trillion debt limit prompted Doug Elmendorf, the head of the non-partisan Congressional Budget Office, to warn Congress: "Defaulting on any obligation of the U.S. government would be a dangerous gamble." If the dire warning sounded familiar, that is because this marks the fourth major standoff between House Republicans and Obama over fiscal issues since 2011, when they began tangling over spending cuts, tax hikes and rising government borrowing. White House spokesman Jay Carney on Thursday called Republican tactics on the debt limit a "political extortion game." Obama repeatedly has warned that he wants a debt limit increase with no strings attached. Along those lines, the White House on Thursday also said that it would not go along with a Republican proposal authorizing completion of the Keystone oil pipeline running from Canada to the U.S. Gulf of Mexico as part of a debt limit increase bill. REPUBLICAN INFIGHTING Republicans face internal challenges in the high-stakes fight over the basic functions of the U.S. government. Some of the party's most conservative members were balking at their leaders' debt limit plan, which was widely seen as an opening move subject to negotiation, saying it does not do enough to rein in government spending. Representative Tim Huelskamp of Kansas, speaking to reporters, said he and at least 17 other Republicans would oppose the measure, leaving the bill short of enough votes for passage, assuming all Democrats voted 'no.' At the same time, some centrist Republicans think it is counter-productive to wage yet another fight against Obamacare, especially on a bill as important as the debt limit. Instead, aides said, they want to use the debt limit to leverage savings in major federal retirement and healthcare programs. In exchange, deep, across-the-board spending cuts that hit the Pentagon and domestic programs in March would be canceled under that strategy. Representative Pete Sessions of Texas, a senior House Republican, confidently told reporters that even with all the disagreements over a debt limit bill, there would not be a government default. "We are still in September for a mid-October deadline," Sessions said. Referring to Obama's recent deal with Russian President Vladimir Putin over Syria's chemical weapons, Sessions added: "Why would the president negotiate with the Russian president but not with us?" With the current fiscal year ending in just five days and no laws in place to fund the government in the new year, House Republicans also discussed the possibility of widespread government agency shutdowns beginning on Tuesday. "We did discuss contingency plans in case of a shutdown; what we have to do in terms of furloughs and continuing services," Representative John Fleming of Louisiana told reporters. He added that letting government funding run out, even temporarily, "is not a goal at all." But it was still unclear whether the House and Senate could work out their differences in time. ADD-ON MEASURES House Republicans passed an emergency spending bill last week to defund Obamacare. But with Democrats standing firm against that tactic, Republicans have begun looking at other items their conservative members might attach to the bill. Senate Democrats intend to pass a "clean" bill to keep the government running from October 1 to November 15 and send it to the House as the clock ticks down to the expiration of government funding at midnight on Monday. Republican Representative Tom Cole of Oklahoma said there are discussions in the House about attaching a measure, which he did not specify, to the funding bill that has bipartisan support in the Senate. One such measure could be the proposed repeal of a medical device tax that would collect $30 billion over 10 years and help pay for some of the costs of Obamacare. Few Republican add-on measures, if any, are likely to be palatable to Democrats, but are aimed at pleasing conservative Tea Party activists who want to shrink government, even if it means provoking confrontations with the White House that are likely to fail. Senator Charles Schumer of New York, the third-ranking Democrat in the Senate, said his party was "resolute" against any such add-ons to the emergency spending bill. Similarly, the White House declared that it would reject the medical device tax repeal in exchange for keeping the government running. "We are not accepting riders. We want a clean CR," Schumer said referring to the government funding bill that is known as a "continuing resolution" or "CR." (Additional reporting by Richard Cowan, David Lawder and Caren Bohan; Editing by Mohammad Zargham, Jim Loney and Tim Dobbyn)