Republican leader of the house John Boehner wants to delay the introduction of the policy by a year, as well as repealing a new tax on medical equipment.
But President Obama dug in against his opponents: “One faction of one party, of one house of Congress...doesn’t get to shut down the entire government,” he said last night.
The key spending package is needed to stop the government running out of money – it is shackled by a $16.7bn (£10.3bn) debt ceiling, and the Congress and Senate must both vote on a deal to change the cap.
If no deal is done, non-essential spending – most activities except military and public health – will grind to a halt, with staff on unpaid leave.
Such a shutdown has not happened since late 1995, when Bill Clinton eventually negotiated a deal with Republican leaders that aimed at balancing the budget.
If the impasse continues, the government could be in such a squeeze that it could end up defaulting on its debts, devastating investors and breaking confidence in what had been considered the world’s most trustworthy debtor.
“A ten day US shutdown would cost about 0.2 per cent of GDP, a longer running debacle until the end of the year could cost 1.3 per cent GDP,” said Steen Jakobsen, chief economist at Saxo Bank. “This is also the part of the year where we expect things to slow down dramatically and perhaps see unemployment rise, so this is a poor time for this policy.”
Markets plunged on the row yesterday, as investors increasingly feared a last-minute deal would not be done.
PROFILE: THE 1995-96 FEDERAL SHUTDOWN
The last time the government ran out of money and suffered a shutdown came in the last months of 1995.
In two stretches from November 1995 to January 1996, non-essential government spending ground to a halt. The cause that time was a row between President Bill Clinton and Republican Speaker of the House Newt Gingrich.
After Republican attempts to permanently push down borrowing by tweaking the constitution were scotched by Senate Democrats, the focus turned to hitting Clinton’s spending plans, with welfare and medical spending both key targets.
Clinton refused to comply, and so Gingrich said he would not back an increase in the debt ceiling, limiting the federal government’s ability to spend.
From 14 November to 19 November 1995, non-essential spending stopped. Both sides agreed to balance the budget in seven years’s time, restarting spending.
But as negotiations ground to a halt, spending stopped again from 16 December to 6 January 1996.
Eventually both sides agreed to a budget-balancing plan made up of a combination of tax rises and spending cuts.
TIMELINE: THE 2013 DEBT CEILING DEBATE
THE SECOND LIBERTY LOAN ACT, 1917
During the first world war, the second liberty loan act was passed to issue debt to finance the war, setting the country’s first limit on aggregate debt
THE 2011 DEBT CEILING CRISIS
Two years ago, there was a similar political struggle over the debt ceiling, which avoided a government shutdown
BUDGET CONTROL ACT OF 2011
The act was part of the agreement which avoided a government shutdown in 2011, setting up the sequester, a round of spending cuts which began this year
In May this year, President Barack Obama insisted that there would be no negotiation or concessions over the debt ceiling again.
Republicans from the House of Representatives offer Obama a “menu” of options, with debt ceiling increases of various lengths in exchange for a range of different policy concessions
26 AUGUST 2013
Treasury secretary Jack Lew announces that without being raised, the government will be forced to default in mid-October
26 SEPTEMBER 2013
The Republican-controlled House of Representatives passed an bill which would extend the debt ceiling, but also delay Obama’s healthcare policy for one year.
30 SEPTEMBER 2013
Without an agreement by midnight, a government shutdown will begin, stalling many parts of federal spending
Barring a political agreement, at some point in mid-October, the US treasury is no longer able to service its debt, or allowed to refinance it, and the government defaults