Democrats, Republicans edge closer on debt deal

WASHINGTON Fri May 6, 2011 10:11am EDT

A worker departs the U.S. Capitol April 8, 2011. REUTERS/Kevin Lamarque

A worker departs the U.S. Capitol April 8, 2011.

Credit: Reuters/Kevin Lamarque

WASHINGTON (Reuters) - The outlines of a deal that would allow the United States to avert a debt default emerged on Thursday as top Republican and Democratic lawmakers held their first meeting aimed at cutting the bloated U.S. deficit.

Republicans edged toward a White House plan that would cut some spending now and set long-term deficit reduction targets, but said more difficult decisions on taxes and healthcare spending would have to wait until after the 2012 election.

A top Republican lawmaker, Paul Ryan, said there would be no immediate "grand slam" agreement on tackling the budget deficit, expected to reach $1.4 trillion this year and a major worry for Americans and investors.

If both parties can reach agreement on the framework for cutting the long-term U.S. deficit, that could clear the path for a vote on raising the $14.3 trillion debt ceiling.

The U.S. Treasury says the borrowing cap will be breached on May 16, although it can take steps to keep funding the government until August 2. An increase of roughly $2 trillion is needed to ensure enough borrowing power through the November 2012 election, Treasury officials have said.

Like the White House, Ryan and other top Republicans favor setting a long-term deficit reduction goal with automatic triggers that would kick in if deficit-cutting targets had not been met.

But a clear fault line remains as Republicans say those triggers should only require spending cuts, not automatic tax increases. Democrats say tax hikes need to be part of the equation.

"Any credible debt cap would require a revenue component to go with spending cuts," said Democratic Representative Chris Van Hollen, one of the six lawmakers who met with Vice President Joe Biden for a first round of negotiations.

Biden voiced optimism after the meeting as Republicans drew back from a plan to scale back the Medicare health program for the elderly, an approach Democrats firmly oppose.

"We had a good, productive first meeting today," Biden said in a statement. A second get-together has been scheduled for next Tuesday.

James Clyburn, a member of the House of Representatives Democratic leadership, said he hoped the seven-member panel would "get down to nuts and bolts" at the next meeting.

Their encouraging tone was echoed by Republicans leaving the meeting.

Although few members of the panel have deep budgetary expertise, Clyburn and others are experienced vote-counters who could make it easier to win passage of any deal that emerges.

TACKLE MEDICARE LATER

The two sides remain deeply divided on the balance between spending cuts and tax increases to tackle the deficit.

Panel member Eric Cantor, the No. 2 Republican in the House, said tax hikes were off the table after the meeting.

President Barack Obama, a Democrat, wants to raise taxes on wealthier Americans and shield cherished social spending like the Social Security retirement program and Medicare, messages that will be central to his re-election campaign in 2012.

Obama seeks $4 trillion in deficit cuts over 12 years. House Republicans want to hit that target in 10 years, but would take a very different route to get there.

Playing on broad voter anger over the size of the U.S. budget deficit, Republicans prefer to keep taxes low and slash healthcare spending, which is expected to eat up a growing portion of the budget as the population ages.

But their proposed overhaul of Medicare has been shown in opinion polls to be unpopular with many Americans.

Ryan said the question about how to slow the growth of Medicare would have to wait until after voters weigh in November 2012.

"We're not under any illusion that we are going to get any grand slam agreement," said Ryan, chairman of the House Budget Committee.

Republican John Boehner, speaker of the House of Representatives, said the debt limit would not be raised without "real spending cuts."

"It is time to start talking about trillions" of dollars in cuts, he said on Capitol Hill.

The two sides could find common ground on some areas to cut, such as crop subsidies, but other areas are likely to prove contentious.

Congress took the government to the brink of a shutdown last month in what was seen as the first of many tough budget battles. Republicans won the largest domestic spending cut in history, but Democrats who are concerned about the fragile economy managed to minimize the immediate impact of the deal.

Analysts warn the United States cannot afford to postpone action to curb growth in entitlement spending costs.

"I don't think another election is going to help, why should it? If we put this off until 2013, it doesn't get easier, it gets harder," said Alice Rivlin at the Brookings Institution, who sat on several deficit-reduction commissions.

A bipartisan group of six senior senators -- the so-called Gang of Six -- is separately pursuing discussions to structure a deal, although it has yet to publish a plan.

The Gang of Six members concede they will become "irrelevant" if they do not come up with their own bipartisan plan soon. They were widely expected to unveil their proposals this week but that has been postponed until at least next week.

(Additional reporting by Matt Spetalnick, Richard Cowan, Thomas Ferraro, Steve Holland, Emily Stephenson, David Morgan, and Donna Smith; Writing by Alister Bull, Editing by Jackie Frank and Peter Cooney)

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