Oct. 30 (Bloomberg) -- Congressional aides are looking at reductions to mandatory programs outside of Social Security and Medicare to replace automatic spending cuts hurting research and the Pentagon, said two aides involved in the process.
The contours for a limited budget agreement are emerging as Republicans and Democrats on a House-Senate conference panel target mandatory programs, according to the aides who asked not to be identified discussing private talks. Mandatory programs include farm subsidies and health-care provider payments.
Such a compromise would let Republicans say they prevented additional tax increases. Democrats, who are studying the same budget items amid a stalemate over revenue, say they would still want a minimum increase in revenue as part of any deal.
Senator Jeff Sessions of Alabama, the top Republican on the Budget Committee, said today in an interview that such an accord could be a way to replace for a year or two the automatic spending cuts, known as sequestration, that both parties decry.
“A great number of entitlement programs, mandatory programs, are not Social Security and Medicare,” Sessions said. “There are a whole bunch of programs that are mandatory in nature and have never been looked at” and weren’t in the law setting up the automatic cuts, he said, citing farm subsidies and food stamps.
Asked if such a deal is a fallback to a broader deal, he said. “I would hope so.”
Sessions made the comments after a bipartisan budget panel of the House and Senate, meeting for the first time today, revived disputes over revenue that have scuttled previous congressional budget efforts. Given political differences on taxes, negotiators may fail to reach even a limited deal.
In that case, the federal government faces a second round of automatic spending cuts in January under the 2011 law that established the across-the-board cuts. The conference committee was created in a measure passed Oct. 16 that ended a partial government shutdown and raised U.S. borrowing authority.
Republican Representative Paul Ryan, a head of the panel, said today that using the talks as way to raise taxes will doom the process. Democratic Senator Patty Murray said replacing automatic spending cuts with a short-term budget must include ending some tax breaks. Any deal that trims Social Security and Medicare benefits must be tied to added revenue, she said.
“Republicans are also going to have to work with us to scour the bloated tax code -- and close some wasteful tax loopholes and special-interest subsidies,” said Murray of Washington, co-chairman of the panel.
With aides on both sides describing similar menus as the backbone for a scaled-down deal, odds are diminishing that any agreement will require changes to Social Security and Medicare, the long-term drivers of U.S. debt.
Instead, the conference panel may end up providing general instructions to the committees in Congress that oversee taxes and entitlements to hash out differences.
Republican Senators Rob Portman of Ohio and Mike Crapo of Idaho, veterans of past deficit-reduction efforts, said the committee should aim to create benchmarks for revising the tax code. “One of the best things this committee could do is to establish some processes to help us move forward,” Crapo said.
Ed Lorenzen, policy adviser at the Committee for a Responsible Federal Budget, said if conferees are only able to settle on a “small-ball” package, giving instructions to the relevant panels “at least provides the possibility of taking another step forward next year.”
Even that goal may be too ambitious.
Ryan, chairman of the House Budget Committee, said tax-code changes should be handled by other committees. “If we look at this conference as an argument about taxes we’re not going to get anywhere,” he said.
Democrats and Republicans are about $90 billion apart on their fiscal 2014 budget blueprints. Interest groups are drawing up a menu of options for a deal that would let Democrats protect Social Security and Medicare benefits and allow Republicans to say they didn’t increase taxes.
The list includes reducing farm subsidies for $35 billion in savings and increasing federal-worker contributions to retirement plans for another $20 billion, according to a report released yesterday by the Campaign to Fix the Debt, a nonpartisan fiscal advocacy group.
Other options would target health providers rather than beneficiaries, including adjusting payment updates for some health-care providers, for $45 billion in savings. The government also could collect about $55 billion by increasing user fees, including charges to cover aviation security and on mortgage providers Fannie Mae and Freddie Mac.
Senator Mark Warner, a Virginia Democrat on the budget conference panel, said cuts targeting other mandatory spending are “among the options out there.”
“In the past we’ve started with the macro deal and built down,” said Warner, co-chairman of a previous Senate budget negotiating group. “Let’s start with 2014 and build on replacing the worst of the sequester.”
The odds are that the 29-member committee will either reach consensus on a small-scale deal or that deeper spending cuts will start in January.
The committee will meet again Nov. 13, Ryan said, giving lawmakers four weeks to bridge differences before a Dec. 13 deadline.
Sequestration led to $80 billion in automatic cuts in March to programs that Democrats consider priorities, including Head Start for poor children and scientific and medical research.
At least five similar bipartisan attempts to draft a broad debt-reduction bill have failed in the past few years, and a deal to replace the automatic cuts would do nothing to change the long-term outlook for the debt.
According to the nonpartisan Congressional Budget Office, federal debt held by the public is 73 percent of the economy’s annual output, higher than at any point in U.S. history except a brief period around World War II.
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