McConnell Seeks Cuts to Medicare and Medicaid in U.S. Debt-Cutting Talks

Senate Minority Leader Mitch McConnell said he wants “significant” near-term cuts in federal agency budgets paired with longer-term reductions to programs like Medicare and Medicaid in exchange for his support for a boost in the U.S. debt limit.

Speaking to reporters yesterday after Senate Republicans met with President Barack Obama in Washington, McConnell said he wants goals set over time to help curb federal budget deficits, including caps for the next two years on spending for programs appropriated by Congress.

McConnell, a Kentucky Republican, said he will insist on big policy changes in the Medicare and Medicaid health-care programs to help restore the nation’s fiscal balance. He urged Obama to help specify adjustments both parties can embrace. Doing so now, with bipartisan support, would help nullify the policy changes as issues in the 2012 elections, he said.

“We can do something important for the country together, and this is the opportunity,” the top Senate Republican said. “That is the importance of this debt ceiling moment. It is the one time when we have to come together, and we need to come together to do something really significant.”

While he said he favors addressing the long-term solvency of Social Security, McConnell said that is unlikely to happen as part of a debt-limit vote because of Democratic opposition.

Obama is reaching out to lawmakers in both parties to win approval of an increase in the debt ceiling. The government is scheduled to hit the $14.3 trillion debt limit next week and will run out of options for avoiding default by early August, according to projections by Treasury Secretary Timothy Geithner.

Republican Support

Republican support for any deficit-cutting plan is critical in both chambers. Republicans control the House, and while Democrats control 53 seats in the 100-member Senate, that’s well short of the 60 needed to end a filibuster that blocks legislation.

The meeting Obama held yesterday with Senate Republicans was described by White House press secretary Jay Carney as “constructive.”

Obama delivered the same message that he did in a session with Senate Democrats a day earlier: “We all need to work together to find common ground,” Carney said at a White House briefing. “Both sides have to give a little.”

Republicans who met with Obama said a major area of disagreement was whether to include tax increases in any agreement. Republicans argued against them while the administration supports some tax increases, they said.

‘Point of Disagreement’

“The president indicated that’s a point of disagreement,” said Senator John Hoeven, a Republican from North Dakota.

Vice President Joe Biden held a separate discussion yesterday with a bipartisan group of legislative leaders who first began meeting with him of the fiscal issues May 5.

“We are actually making progress,” Biden told reporters afterward. “I’m convinced we can get a significant down payment” on reducing the debt. The group plans to meet again after the House’s one-week recess next week, said the vice president, who also said he doesn’t have a timetable for reaching a decision.

‘Positive’ Talks

Representative Chris Van Hollen, a Maryland Democrat participating in the talks, called them “positive and constructive,” while also saying in an interview that the group hadn’t yet dealt with “politically nuclear” issues.

McConnell told reporters a comprehensive tax overhaul can’t be accomplished before August. On spending caps, he said that in addition to a two-year agreement on discretionary spending limits, he wants a five- or 10-year plan to reduce spending for entitlement programs and for programs determined annually by Congress.

He declined to specify any changes he would make to Medicare or Medicaid, and said the ideas outlined by leaders of Obama’s debt commission last year could be a basis for a plan.

McConnell’s push for strict limits came as House Speaker John Boehner, an Ohio Republican, said he wants any deal to lean in favor of specific cuts to programs, including entitlement programs. He expressed skepticism about broad longer-term limits on debt, deficits or spending.

Obama Proposal

Obama has proposed a debt “fail-safe” that would trigger cuts and tax changes to raise more revenue if the ratio of debt to gross domestic product hasn’t stabilized by 2014. Senate Republicans have been weighing a bipartisan proposal to cap spending at 20.6 percent of GDP in a decade, down from 24.3 percent now.

“I don’t want phony caps, I don’t want phony targets” because “Congress has found a way to wiggle out of them,” Boehner said. Congress must act now to curb spending, the speaker said, as otherwise “the markets will act for us very soon.”

Legislation to cap federal spending at 18 percent of gross domestic product by 2016 was proposed today by House Republicans. The measure would automatically rescind spending if Congress misses the target, as calculated by the Office of Management and Budget.

Georgia Republican Jack Kingston, the primary sponsor, told reporters he believed the House Republican leadership “wants this to be part of the discussion with the president” when he was asked about the speaker’s comments about “phony caps.”

Boehner’s spokesman, Michael Steel, responded to Kingston’s comment by saying, “We’re willing to look at any proposal that would result in real spending cuts.”

Support Predicted

Ohio Representative Jim Jordan, chairman of the Republican Study Group, predicted that spending caps would get support of many members of that caucus.

The cost of government borrowing has remained low by historical standards. The yield on the benchmark 10-year Treasury note was 3.172 percent at 1:38 p.m. in New York and has averaged 3.36 percent since April 18, when Standard & Poor’s warned that U.S. debt risks losing its AAA credit rating unless Congress and the president implement a plan to reduce annual deficits and long-term debt by 2013.

Obama has proposed cutting $4 trillion over 12 years through spending cuts and tax increases, such as eliminating tax incentives for oil companies to drill for new petroleum sources. The House-approved Republican budget resolution would cut $6 trillion over a decade and privatize Medicare for people now younger than 55.

To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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