Debt Cutting Talks Focus on Pensions, Agriculture

Photographer: Chip Somodevilla/Getty Images

Vice President Joe Biden, center, talks with staff members as he arrives for bipartisan and bicameral budget negotiations at the U.S. Capitol June 16, 2011 in Washington, DC. Close

Vice President Joe Biden, center, talks with staff members as he arrives for bipartisan... Read More

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Photographer: Chip Somodevilla/Getty Images

Vice President Joe Biden, center, talks with staff members as he arrives for bipartisan and bicameral budget negotiations at the U.S. Capitol June 16, 2011 in Washington, DC.

Vice President Joe Biden is focusing on possible spending cuts for military and federal workers’ pensions and programs including agriculture on the third day of bipartisan debt-reduction talks this week, said Representative Chris Van Hollen, who is part of the discussions.

Such mandatory non-health spending, which Van Hollen said was on today’s agenda, accounts for about 12 percent of the federal budget, underscoring the difficulty of cutting trillions of dollars over the next 10 years. Republicans are insisting on such savings in exchange for their votes to increase the nation’s $14.3 trillion debt ceiling.

Democrats say major changes to Medicare, the long-term driver of the debt, are off the table, while Republicans have dug in against tax increases. Steve Bell, a onetime budget aide to Republican former Senator Pete Domenici of New Mexico, said the federal debt is projected to rise to $23 trillion over the next 10 years, diluting the effect of even a $2 trillion spending-cut deal.

“You are taking off the table the single biggest drivers of our future problems in the fiscal realm,” said Bell, whose boss was budget committee during part of his Senate tenure. “It will have made no changes in the underlying structural, fiscal problems that we face.”

Biden and six House and Senate lawmakers -- including Van Hollen, a Maryland Democrat -- are picking up the pace of their talks to try to reach an agreement well in advance of an Aug. 2 deadline when the Treasury Department projects the government risks defaulting on its debt.

Discretionary Accounts

Bell is senior director of the economic policy project at the Bipartisan Policy Center in Washington, which seeks to develop proposals that both parties can support. His group estimates that the Biden group may find $600 billion over 10 years in domestic discretionary accounts, including spending on education, highways and foreign aid.

Cutting so-called mandatory spending outside of health care, the focus of the Biden group today, could save an additional $100 billion over 10 years, Bell’s group estimates.

Over the next 10 years, spending on federal civilian and military retirement is projected to be $1.6 trillion and agriculture is $152.7 billion, according to the group. It said spending on Social Security will be $9.9 trillion and Medicare will be $7.7 trillion.

According to an analysis by the nonpartisan Committee for a Responsible Federal Budget in Washington, there are areas of overlap in debt-reduction plans proposed by House Republicans and the White House, meaning they are likely to be included in any debt deal.

Student Loans

These include: eliminating some interest subsidies on student loans, which could save $20 billion to $65 billion over 10 years; changing the way the Pension Benefit Guarantee Corp. collects fees, to save $5 billion to $10 billion; selling excess federal property for $10 billion to $15 billion; and reducing health-care fraud and overpayments, at $10 billion to $35 billion.

Even with these savings, achieving $2 trillion over 10 years remains elusive, said Ed Lorenzen, senior adviser at the committee. “If you’re not dealing with the health entitlements in a significant way or adding in revenues, it’s going to be hard to come up with a big number,” he said.

That’s where a budget process agreement, intended to commit lawmakers to future cuts, becomes important, according to Lorenzen and Bell.

Ethanol Subsidies

While Republicans have said they won’t accept revenue increases, 33 party members voted with Senate Democrats today in favor of eliminating a tax credit and a tariff that subsidize ethanol production.

Van Hollen called the vote a “good sign” that showed “people are willing to close special-interest corporate loopholes for the purpose of deficit reduction. And the same argument applies to oil and gas subsidies.”

Yesterday, debt talks focused on spending restraint mechanisms, including spending caps to control the deficit. A congressional aide close to the negotiations said Republicans are pushing for a 10-year cap on discretionary spending as well as an overall deficit cap, most likely based on a percentage of gross domestic product.

The two sides disagree on how to enforce such a cap. Republicans support automatic spending cuts and Democrats insist on a mix of spending cuts and higher revenue, including by phasing out some corporate tax breaks, Van Hollen said yesterday. Without new revenue, the government would have to make deep cuts in social programs, Democrats say.

Medicare, Medicaid

Spending on Medicare, Medicaid and Social Security, which accounted for 40 percent of President Barack Obama’s fiscal 2012 budget, is largely off limits. Democrats made clear from the beginning of the talks that Social Security is not driving the deficit and shouldn’t be targeted in a budget-cutting plan. Democrats say Medicare benefit cuts are also off the table.

“We will continue to look for waste and fraud, for duplication and inefficiency in the system,” Democratic Senator Chuck Schumer of New York said at a June 14 news conference. “But we will not go along with any cuts to beneficiaries.”

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said today he is concerned the Biden group won’t adequately address the entitlements driving the government’s long-term debt.

Conrad said he is concerned it will devise a plan “that doesn’t fundamentally change the trajectory of our debt but just gets by this debt-limit vote.” He said, “That would be a real missed opportunity.”

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net; 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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