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FACTBOX-Can U.S. budget players find common ground?

Thu, 9 Jun 2011 11:00 GMT

Source: reuters // Reuters

June 9 (Reuters) - Top U.S. lawmakers meeting with Vice President Joe Biden hope to reduce deficits by trillions of dollars over 10 years to give Congress political cover to back an increase in the country's $14.3 trillion debt ceiling.

Republican Senator Jon Kyl says the seven-member group has agreed on about $150 billion in savings so far. [ID:nN08256586]

Roughly $2 trillion in deficit reduction is needed to offset a debt ceiling increase that would carry through the November 2012 elections.

Democrats and Republicans agree the United States needs to reduce deficits by $4 trillion over the coming decade to ensure its debt remains at a manageable level.

Kyl and other panel members have not given specifics on the cuts, but there are areas of overlap between the budget offered by President Barack Obama in February and the one passed by the Republican-led House of Representatives in April. Other plans put forward by outside groups provide further options.

According to an analysis by the Committee for a Responsible Federal Budget, a bipartisan group of budget experts, the two sides could easily find hundreds of billions dollars more in savings.

But the Biden group could have a hard time reaching its goal without addressing the two main stumbling blocks in the debate -- taxes and healthcare.

Following are deficit-reduction measures on which Republicans and Democrats could agree, as well as other areas where they disagree, along with the amount they would save over the next 10 years.

AREAS OF AGREEMENT

These steps were proposed in both Obama's budget and the House Republican budget, which was drafted by House Budget Committee Chairman Paul Ryan.

* FREEZE ANNUAL SPENDING: Stop the growth of annual spending programs, such as law enforcement, space exploration and the military, for several years.

Savings: $580 billion to $1.589 trillion.

* REVISE PENSION INSURANCE: Allow the Pension Benefit Guaranty Corporation to set higher pension-insurance premiums for companies that are less financially sound.

Savings: $5 billion to $10 billion.

* REDUCE FARM SUBSIDIES:

Savings: $5 billion to $30 billion.

* TORT REFORM: to limit the amount of money awarded in medical malpractice lawsuits.

Savings: up to $60 billion.

* SCALE BACK STUDENT-LOAN SUBSIDIES: which would require graduate students to pay interest on their loans.

Savings: $20 billion to $65 billion.

* AUCTION ELECTROMAGNETIC SPECTRUM LICENSES: freeing up underused frequencies for mobile broadband Internet.

Savings: $25 billion.

* SELL EXCESS FEDERAL PROPERTY: no longer needed by the government. Savings: $10 billion to $15 billion.

* REDUCE MEDICAL FRAUD AND OVERPAYMENTS:

Savings: $10 billion to $50 billion.

Total savings: $655 billion to $1.84 trillion.

OTHER POSSIBLE SAVINGS

REPEAL TAX BREAKS FOR BIG OIL COMPANIES: Republicans defeated this proposal in the Senate, but Democrats say they will push to include it in the deficit-reduction plan.

Savings: $32 billion.

SCALE BACK RETIREMENT BENEFITS FOR FEDERAL WORKERS: This measure was not included in Obama's budget proposal, but it is reported to be on the table in the Biden group's discussions. It could be a tough sell for many Democrats.

Savings: $65 billion to $120 billion.

CHANGE THE WAY INFLATION IS MEASURED: Doing so would have the effect of slowing the growth of benefit payments in Social Security and other benefit programs, which could stir fierce opposition from powerful interest groups.

Savings: $255 billion.

BANK FEES: Democrats have proposed raising fees on banks to recapture some of the remaining funds from the 2008 Troubled Asset Relief Program that have not been repaid.

Savings: $30 billion.

Total savings: $382 billion to $437 billion.

STUMBLING BLOCKS

HEALTHCARE: The Ryan plan would partially privatize the Medicare health program for future retirees and scale back the Medicaid health plan for the poor by giving states more control over how it was administered. It also would repeal the 2010 Affordable Care Act, Obama's signature health reform law.

Those moves would save $2.2 trillion, but Democrats are already campaigning against them as the 2012 election season gets underway.

Obama has proposed accelerating Medicare cost savings in the Affordable Care Act and would save Medicaid money by streamlining the formula for giving federal funds to states. He would also allow the government to use its purchasing power to negotiate lower costs on prescription drugs.

That would save $340 billion, though Republicans aren't likely to offer support because it would require keeping the divisive Affordable Care Act in place.

TAXES: The two parties differ sharply here as the Ryan plan would raise $1.8 trillion less in revenue than Obama's February budget.

The Ryan plan would lower the top individual tax rate from 35 percent to 25 percent, while Obama would boost it to 39.6 percent. The Affordable Care Act also raises taxes on dividends and capital gains for the wealthiest by 3.8 percent.

Lawmakers in both parties support reducing exemptions and loopholes, but Democrats say it should lead to an overall increase in revenue, while Republicans say the total tax burden should not rise.

Kyl said low-income Americans, who currently do not pay federal income taxes, should have to pay at least a nominal amount. Democrats are not likely to back that idea. (Reporting by Andy Sullivan in Washington; Editing by Vicki Allen)