<p>WASHINGTON (Reuters) – Facing a midnight deadline, the White House and Congress were working furiously on Friday to break a U.S. budget deadlock and avoid a government shutdown, after President Barack Obama and congressional leaders failed to reach a deal in late-night talks.</p>
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"I'm not prepared to express 'wild optimism,' but I think we are further along today than we were yesterday," Obama told reporters late on Thursday following a meeting with House Speaker John Boehner and Senate Majority Leader Harry Reid.</p>
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Without an agreement on spending for the next six months, money to operate the government runs out at midnight on Friday (0400 GMT on Saturday) and agencies such as the Internal Revenue Service would have to begin a partial shutdown.</p>
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A government closing would continue until Republicans and Democrats either resolve their differences or pass a temporary funding bill.</p>
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Vital services such as national defense, law enforcement, emergency medical care and air traffic control would continue.</p>
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Obama, who has held four face-to-face meetings with the Republican and Democratic congressional leaders over three days, said a few "difficult issues" still had to be resolved. He did not provide details.</p>
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Repeatedly over the past few days, optimism over prospects for a deal have been dashed, prompting the two sides to accuse each other of acting to shut down the government for the first time since the mid-1990s.</p>
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But Boehner, the top Republican in the House of Representatives, and Reid, a Democrat, managed to issue a joint statement after their latest meeting with Obama.</p>
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"We have narrowed the issues, however, we have not yet reached an agreement. We will continue to work through the night to attempt to resolve our remaining differences," they said.</p>
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Obama's Democrats have been blaming the impasse on a Republican push for policy provisions that would block public funding of birth control and stymie environmental protection efforts.</p>
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Republicans say they need to lock in the biggest spending cuts possible now to begin bringing down budget deficits that some economists say have reached dangerous levels -- a projected $1.4 trillion just this year.</p>
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The high-stakes negotiations have aimed to cut spending in the range of $33 billion to $40 billion for the rest of this year in an overall federal budget of about $3.7 trillion.</p>
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A government shutdown would idle hundreds of thousands of workers, potentially put a crimp on the U.S. economic recovery, and carry political risks for both Democrats and Republicans who would be seen by voters as failing to make compromises.</p>
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Boehner is under pressure to stand firm in the talks from Tea Party conservatives who helped fuel last year's big Republican election gains with promises of deep spending cuts and reduced government.</p>
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He likely could ram a spending-cut deal through the House without the support of the dozens of Tea Party freshmen. In doing so he would rely on support from a coalition of more moderate Republicans and moderate Democrats.</p>
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But no House Speaker likes to abandon any wing of his or her political party in a legislative fight. It's also unclear whether Tea Party activists would try to remove Boehner from power sometime down the road if he got on their wrong side.</p>
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(Additional reporting by Patricia Zengerle, Kim Dixon, Donna Smith, David Alexander, Andy Sullivan, Thomas Ferraro and David Morgan; editing by Mohammad Zargham)</p>
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