Senate Takes Reins of Fiscal Deal After House Fails to Take Up Plan

PHOTO: Senate Majority Leader Harry Reid, D-Nev., leaves the Capitol office of his Republican counterpart
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Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., have re-opened negotiations on their bipartisan budget deal after House Republican proposals fell through tonight.

Aides to both men tell ABC News tonight they are "optimistic" an agreement can be reached.

"Given tonight's events, the leaders have decided to work toward a solution that would reopen the government and prevent default," said Don Stewart, a spokesman for McConnell. "They are optimistic an agreement can be reached."

Adam Jentleson, a spokesman for Reid, said: "Senator Reid and Senator McConnell have re-engaged in negotiations and are optimistic that an agreement is within reach."

House Speaker John Boehner left the Capitol tonight after calling off a planned vote on a House Republican plan to fund the government until Dec. 15 and temporarily extend the debt limit until Feb. 7, 2014.

With that now off the table, the Senate offers the best hope breaking the stalemate before the Oct. 17 deadline.

A Senate Democrat leadership aide said that a deal is "very close," though there are some technical legislative details to work out.

The contours of the plan remain largely the same as the one they put on hold this morning. And the Senate remains in session in the event that a deal can be filed tonight, when the details are worked out.

In order for a bill to be moved before the Thursday deadline, the Senate would need unanimous consent, meaning no senator could object.

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The broad contours of the Senate compromise include funding the government until Jan. 15 and raising the debt limit through Feb. 7, 2014.

The Senate is still considering including income verification for people eligible for health care subsidies, a provision some House Republicans support.

Though those terms would take these debates largely off the table through the holiday season, it would only kick the can down the road. Eventually, lawmakers will face a similar need to both extend funding for the government and raise the debt ceiling in 2014.

The deal could also include some minor provisions that address the president's health care law, but the negotiations notably exclude any of the demands Republicans initially made to either defund or delay the law's central provisions.

The plan the GOP failed to take up tonight -- the second they had floated in one day -- proposed to end the partial government shutdown and raise the debt limit in exchange for eliminating the Treasury Department's ability to use "extraordinary measures" to temporarily extend the debt limit, and it would prevent congressional and administration staff from receiving government subsidies for health insurance premiums on the exchanges.

Their plan also did not delay or repeal the medical device tax, a provision in President Obama's health care law that Democrats want to preserve.

Yet even sweeteners that changed Obamacare were not enough to please conservative activists. Heritage Action, an arm of the conservative think tank the Heritage Foundation, as well as the tea party-backed group FreedomWorks, have both urged Republican lawmakers to vote against the House proposal.

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Earlier this morning, the House proposed a plan that would make more changes to Obama's health care law, including a delay in a tax on medical devices and a provision that would force members of Congress, their staff and cabinet members to get their health insurance from exchanges without government subsidies.

But even before the details of the plan emerged, the White House signaled that Obama would reject it. And it was unclear whether it even had enough Republican support for passage in the House.

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House Republicans, amid the challenge of pushing Democrats for more concessions in a compromise deal, began their 9 a.m. meeting today by singing the hymn "Amazing Grace" to "strengthen their resolve," according to a senior GOP aide.

"There are a lot of opinions about what direction to go," Boehner told reporters this morning after a two-hour meeting with rank and file Republicans. "But we are going to continue to work with our members on both sides of the aisle to try to make sure there is no issue of default and we get our government reopened."

Obama today in an interview with ABC station WABC-TV in New York suggested that Boehner is getting in the way of a bipartisan compromise because he can't control his own Republicans caucus.

"The problem that we've got is that for Speaker Boehner for example, him negotiating with me isn't necessarily good for the extreme faction in his caucus. It weakens him," Obama said. "So there have been repeated situations where we have agreements then he goes back and it turns out that he can't control his caucus."

ABC News' Arlette Saenz contributed to this report.

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