Oct. 31 (Bloomberg) -- House and Senate lawmakers opened their latest bipartisan attempt to curb the U.S. deficit by clashing over whether to raise revenue or cut entitlement spending. Chances are they’ll do neither.
Instead, they’re moving toward a third path, reductions to mandatory programs outside Social Security and Medicare to replace automatic cuts hitting the Pentagon, research and other programs, said two staff members involved in the process.
The contours for a limited agreement emerged yesterday as Republicans and Democrats on a House-Senate conference panel held their first meeting. Aides who asked not to be identified to discuss private talks said the mandatory program cuts could include farm subsidies and health-care provider payments.
Such a compromise would let Republicans say they prevented tax increases and Democrats, who are studying the budget items amid a stalemate over revenue, to say they fended off benefit cuts to Medicare and Social Security. Democrats probably would want a minimum increase in revenue as part of any deal.
“A great number of entitlement programs, mandatory programs, are not Social Security and Medicare,” Senator Jeff Sessions of Alabama, the top Republican on the Budget Committee, said yesterday in an interview. “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 an accord 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 revived disputes over revenue that have scuttled previous budget efforts. Given political differences on taxes, negotiators may fail to reach even a limited deal.
In that case, the government faces a second round of automatic spending cuts in January under the 2011 law that set the across-the-board cuts, known as sequestration. The conference committee was created in a measure passed Oct. 16 that ended a partial government shutdown and raised U.S. borrowing authority.
“We are hopeful that, at a minimum, out of this process that the Democrats and Republicans can come together to replace the sequester,” White House spokesman Josh Earnest said yesterday on Air Force One, as Obama traveled to Boston for a speech on health care.
With aides on both sides describing similar menus as the backbone for an even less ambitious 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 most the conference panel may achieve on long-term debt reduction is 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 able to settle only on a “small-ball” package, giving instructions to the relevant panels “at least provides the possibility of taking another step forward next year.”
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 possible deal.
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 Oct. 29 by the Campaign to Fix the Debt, a nonpartisan fiscal advocacy group.
Senate Agriculture Committee Chairwoman Debbie Stabenow, a Michigan Democrat and a member of the budget conference panel, said any agreement on farm legislation will survive the broader budget accord.
“We will be the ones writing the farm bill,” she said yesterday. “We will write, we will edit, we will offer, as we have, responsible deficit reduction.”
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.
Such a deal would be a dramatic departure from the “grand bargain” President Barack Obama and Republican congressional leaders have sought to reach for the past three years.
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 29-member panel 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 cuts starting 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 U.S. deficit or 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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