Republicans and President Barack Obama's Democrats, facing huge economic stakes, may soon reach a budget deal for this fiscal year after weeks of half measures to avert a government shutdown.
Worried about the fragile U.S. recovery and their own political well-being, members on both sides seem willing to resolve a gap between them on how much needs to be cut from federal spending this fiscal year to rein in the budget deficit.
"Chances of a deal seem reasonably good," a senior congressional aide said, adding that talks may deepen when they move from staff level to the involvement of party leadership in the Senate and House of Representatives as early as next week.
The aide said at least some House Republicans may back off demands for deeper cuts this year after House Budget Committee Chairman Paul Ryan unveils plans next week for additional reductions in fiscal 2012.
"That's the hope," the aide said, asking not to be identified, citing the sensitivity of the talks.
The Congressional Budget Office projected the fiscal 2011 deficit will hit $1.48 trillion, a jump of nearly 40 percent over prior forecasts.
Boosted by election victories last November, Republicans have proposed $61 billion in cuts this fiscal year, which ends in September. Democrats have backed only $10 billion in cuts.
House Speaker John Boehner has signaled to Democrats they need to step up and make some tough choices.
"Senate Democrats have yet to come to the table with any serious plan to cut spending," said Kevin Smith, a Boehner spokesman. "The American people are waiting, and it's time for Democrats to stop ducking their responsibility."
Another senior Republican aide predicted: "There'll be a deal. It's in everyone's best interest."
The latest in the series of short-term government funding measures expires on April 8.
Failure to agree on a spending bill would result in a government shutdown that could backfire against one or both political parties.
Non-essential government offices would close and thousands of federal workers would be laid off, 18 months before presidential and congressional elections in 2012.
Political fallout
"Neither side has the guts to risk the political fallout," said Dan Ripp of Bradley Woods, a private firm that tracks Washington for investors.
With time running out, Republicans are eager to keep a 2010 campaign vow to shrink government, saying it would provide a climate for job creation in the private sector.
Democrats warn that the proposed Republican cuts for the rest of this fiscal year would cost hundreds of thousands of jobs and threaten the U.S. economy.
In recent weeks, Congress and Obama agreed to $10 billion in spending cuts. Republicans are pushing for an additional $50 billion in reductions by the end of September.
If they agree to additional cuts somewhere in the middle — between $25 billion to $35 billion — Republicans could still declare victory.
Boehner expressed pride last week that Republicans had managed to begin to slash spending.
"When was the last time you saw the government here in Washington cut anything?" he said.
But a lot of members of the conservative Tea Party movement, which helped Republicans win the House in last year's election, have demanded at least $100 billion in cuts.
It will be up to Boehner to explain how he can get more cuts down the road — when Congress tackles a bid to increase the federal debt limit and begins considering the fiscal 2012 budget.
Republicans also hope to use budget cuts to choke off government funding for a number of activities, ranging from public radio to Planned Parenthood family planning centers.
Analysts say Democrats may have to agree to at least a few controversial cuts to muster needed Republican support for a final deal.
But they expect Democrats to stand firm and reject most of the other "policy riders" in the spending cut bill, including ones to defund Obama's healthcare overhaul and prevent the Environmental Protection Agency from regulating greenhouse gases blamed for global warming.
"Obviously time will tell, but I think both sides have a vested interest to get a deal," said Chris Krueger, an analyst with MF Global, a financial services company.
"Politicians tend to react unfavorably to uncertainty and a government shutdown is the very definition of an uncertain situation," Krueger said.
Boehner said last week he remained hopeful of a deal soon.
"It's not going to be easy," he said. "We never thought it was going to be easy."