Just two weeks ago, it appeared the fight to block the new health care law was the central focus of the debate to fund the federal government and raise the nation's borrowing limit.

But a much bigger point of disagreement over spending levels between Republicans and Democrats has been lurking beneath the surface and it has reared its ugly head just as the two sides were struggling toward a compromise before Thursday's deadline.

Republicans and Democrats are intensely at odds over how to handle the Budget Control Act (BCA) that was signed into law in 2011.

The law calls for about $984 billion in cuts to all discretionary spending, including defense, every year for the next nine years.

Democrats and Republicans both hate the law, which essentially takes a hatchet to the federal budget without regard to which programs might be more valuable than others.

The BCA was intended as a threat, to motivate Congress to make the cuts strategically or raise revenue. But lawmakers still could not agree on how to do that, allowing the across-the-board cuts to kick in automatically earlier this year.

Democrats want to get rid of the so-called sequestration cuts and restore funding to an annual level of $1.059 trillion. Republicans, however, want to maintain the current top line number, citing the need to rein in the debt, and instead rearrange the cuts.

The BCA has been a major sticking point in recent days as Republicans and Democrats have huddled over a combined deal that would both fund the government in 2014 and raise the $16.7 trillion debt ceiling before the country runs out of borrowing authority Thursday.

Democrats have rejected a bipartisan plan offered by Republican moderate Sen. Susan Collins, of Maine, and Democratic Sen. Joe Manchin, D-W.Va., that would have funded the government at $986 billion until January.

But going until January is a non-starter for Democrats because that keeps the budget funded at the sequester levels into 2014, which would make it much harder for Democrats to negotiate with Republicans a reversal in those reductions in the months ahead.

A new round of sequester cuts is set to kick in automatically each January.

Earlier, Democrats said they were perfectly happy to accept a government funding bill that included the sequester-level funding of $986 billion, but only until December. That would give them time and leverage to push for restoring the cuts in a new 2014 funding bill.

The Collins-Manchin proposal extended the sequester cuts to January, bringing the discussions to a screeching halt.

"The only thing that matters is January and the sequester," Reid said in late September, when asked why he was so willing to support a short-term spending bill at $986 billion level.