Conservatives in the House sabotaged Speaker John A. Boehner's plan Tuesday to dent Obamacare while reopening the government and raising the debt ceiling, leaving senators scrambling to kick-start their own deal before Thursday's deadline for a potential default.
The conservatives said Mr. Boehner's plan sounded too much like a surrender to President Obama, as it left most of his health law in place.
As the chances grew for missing the Treasury Department's Thursday deadline to increase the debt limit, stock markets tumbled and one of the nation's three credit ratings agencies put U.S. debt on a negative watch, which could precede a downgrade.
After the House efforts collapsed, top Democrat Sen. Harry Reid and top Republican Sen. Mitch McConnell resurrected their negotiations, which had been put on hold all day.
"Sen. Reid and Sen. McConnell have re-engaged in negotiations and are optimistic that an agreement is within reach," Adam Jentleson, Mr. Reid's spokesman, said late Tuesday — though they adjourned late Tuesday without having finalized anything.
If the Senate can pass its bill, it essentially will challenge Mr. Boehner to try to get it through the House on the strength of Democratic votes.
The two Senate leaders had been working on a plan that would include stopgap funding for the government through Jan. 15 and give the government borrowing authority through February. Mr. McConnell was still hoping to make some dents in Obamacare, but he lost much of his leverage when House conservatives undercut Mr. Boehner.
Without action, the government shutdown, already in its third week, will continue. And the Treasury Department says that if the $16.7 trillion debt ceiling isn't raised by Thursday, it will run out of maneuvering room and will only be able to pay bills with cash on hand.
At some point — the time is hotly debated — that will mean missing payments on Social Security checks or veterans' benefits or other government operations.
While the Treasury Department has not said it will stop making debt payments, which would avoid a technical default, it said the consequences could still be disastrous.
Indeed, Fitch Ratings put U.S. Treasury bonds on a negative ratings watch Tuesday, saying that even if the federal government continued to make debt payments, cuts to other spending would "damage the perception of U.S. sovereign creditworthiness."
The other two ratings agencies, Moody's Investors Service and Standard & Poor's, have not signaled similar warnings yet.
House Republicans were left reeling by the conservative revolt within their ranks.
In characterizing the situation, one Republican, Rep. Devin Nunes, posted a Twitter message Tuesday night that linked to a video of the climactic scene in "Star Wars" when the Death Star explodes.
Emerging from an evening closed-door meeting with Mr. Boehner, Rep. Pete Sessions told reporters they were no longer going to put the House bill on the floor Tuesday.
"We are going to be prepared tomorrow to make some decisions," Mr. Sessions said.
Earlier Tuesday, the GOP thought it had a solution. In a meeting of the entire House GOP conference, Mr. Boehner presented a plan to reopen the government through Dec. 15, to raise the debt ceiling through early February, to repeal the medical device tax in Obamacare, to require Mr. Obama and his top aides to take part in the health exchanges, and to stiffen income verification for those getting government subsidies under the Affordable Care Act.
But by the end of the two-hour meeting it was clear there was dissent, and Mr. Boehner told reporters they were still working on the plan.
By Tuesday afternoon, they had narrowed the bill down to just the requirement that Mr. Obama and top political appointees take part in the health exchanges, without the benefit of government subsidies to pay their premiums.
"If Obamacare is good for members of Congress, then it's good for the president," said Rep. Darrell E. Issa, California Republican.
A vocal group of conservatives rebelled again, though, forcing the GOP to scrap that new bill.
"It was going to raise the debt ceiling hundreds of billions of dollars with no change in spending," Rep. Tim Huelskamp, Kansas Republican, told CNN.
The conservatives were prodded by Heritage Action, a pressure group that has demanded Republicans refuse to fund any of the government unless Mr. Obama agrees to cancel Obamacare.
Even amid the government shutdown, most of Obamacare is up and running, because it is based on independent funding, not on the annual spending bills.
Those bills were due to pass by Sept. 30. Without them, the government went into a partial shutdown on Oct. 1. Some employees in the Defense Department have been let back on the job, but about 350,000 government workers remain on furlough, most national parks are closed, the Internal Revenue Service isn't issuing refunds and a host of other functions have halted.
Amid the GOP wrangling, Senate negotiations — which began on Saturday and which both sides said were bearing fruit — halted.
Mr. Reid, Senate Democrats' leader, was incensed at Mr. Boehner's attempt to try to fashion his own bill.
"We felt blindsided," Mr. Reid said.
Mr. Reid personally attacked Mr. Boehner, saying he is kowtowing to "extreme" elements of the GOP in order to maintain his speakership.
"I am very disappointed in John Boehner, who once again tried to preserve his role at the expense of the country," Mr. Reid said
The White House has steadfastly resisted any major changes to its health law, and it has rejected attaching any strings to bills to reopen the government and raise the Treasury Department's borrowing limit.
"The president has said repeatedly that members of Congress don't get to demand ransom for fulfilling their basic responsibilities to pass a budget and pay the nation's bills," White House spokeswoman Amy Brundage said.
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