Contentious U.S. budget talks point to small deficit-cut deal
* Federal pensions, chained CPI among possible savings
* Republicans holding firm against tax increases
* Frank talk at a glitzy dinner
By Richard Cowan and David Lawder
WASHINGTON, March 14 (Reuters) - As divisions over major reductions in federal budget deficits solidify, President Barack Obama and members of Congress on Thursday began weighing limited steps that might be brokered in a bipartisan deal later this year.
Obama spent much of Thursday afternoon on Capitol Hill, first meeting with Republican senators and then huddling with fellow Democrats in the House of Representatives.
Despite nearly two weeks of outreach to lawmakers, Obama and Republicans seemed nowhere closer to agreeing on a large deficit-reduction deal by mid-year.
Instead, Republicans and Obama's Democratic allies in Congress engaged in partisan rhetoric, even as the president was striking a moderate tone in his private meetings with Republican senators.
"The president's idea of compromise is, 'Just do it my way.' That's just not going to work," House Speaker John Boehner, a Republican, told reporters.
Obama has been calling for more tax hikes on the rich, coupled with new spending cuts, to help curb budget deficits that have exceeded $1 trillion in each of the last four years, in part because of the weak economy.
"No more tax hikes," Boehner added, referring to the more than $600 billion in new revenues Obama won at the beginning of this year by raising income taxes on the wealthy.
House Democratic leader Nancy Pelosi, noting the yawning gap between her party and Republicans on the functions of government, told reporters: "This is a bigger difference than I have seen ... well I've never seen anything quite like it. I don't think anybody has seen anything quite like it."
And so some lawmakers have begun hinting at more incremental steps if Republicans cannot swallow any more tax hikes for deficit reduction and Democrats cannot deliver on the "entitlement" program reforms Obama has dangled.
The latter could include changes to the Social Security retirement program and Medicare and Medicaid healthcare for the elderly, disabled and poor.
"You set aside differences and you find where you can work together. That's what we ought to be doing," House Majority Leader Eric Cantor said on Wednesday after his fellow Republicans met privately with Obama.
A senior House Republican aide said one such idea is cutting federal workers pensions, putting them more in line with private sector retirement funds. Democrats in the past have acknowledged this is an area that could be ripe for reform.
Meanwhile, Pelosi and Senator Dick Durbin, the second-ranking Senate Democrat, both expressed a willingness to look at changes to how cost-of-living benefit increases are calculated in order to save money.
"I'd have to say if we can demonstrate that it doesn't hurt the poor and the very elderly, let's take a look at it," Pelosi told reporters.
Durbin warned that "some senators will never, ever consider" the change, which is called "chained CPI." But he too said it was "worth looking at" as part of any effort to restore the solvency of Social Security.
An estimated $340 billion could be saved over 10 years with the new method for calculating cost-of-living increases that proponents say takes into account more real-world estimates of the cost of consumer goods.
Part of the budget savings also would come from higher revenues collected as tax bracket thresholds do not keep pace as closely as they do now with rising incomes.
SOME WORRY ABOUT SMALL DEAL
Meanwhile, as chances dim for a comprehensive reform of the U.S. tax code as part of this year's budget negotiations, Obama has told Republicans in both chambers that he favors a revenue-neutral reform of corporate taxes.
That conversation went a step further on Thursday when the president and Republican senators talked about the possibility of doing corporate tax reform as a stand-alone fix, instead of folding it into more far-reaching reforms as had been assumed.
All of this talk of limited steps has some lawmakers worried.
Republican Senator Rob Portman of Ohio, a former Bush administration budget director, told Reuters that a deficit-reduction deal of between $1.5 trillion-$2 trillion is the minimum necessary to stabilize the nation's debt at a safe level. This would be on top of the $1.2 trillion in automatic spending cuts over 10 years that began to take hold on March 1.
"A lot of people are talking about a lot less than that," Portman said.
Obama embarked on his private sessions with Republicans after a couple of them signaled a willingness to accept higher taxes to help reduce budget deficits.
One congressional aide said the intimate meetings were aimed at gauging just how deep support might be among congressional Republicans.
Obama got a bleak assessment last Saturday night, in the midst of the "Gridiron Club" white-tie dinner, which Obama attended. He was seen holding a sustained conversation with House Republican Whip Kevin McCarthy.
A source who asked not to be identified said that McCarthy thanked the president for reaching out to Republicans on the budget issue. Obama, the source said, told McCarthy that he would talk to more people than just Boehner, a change from previous budget negotiations.
McCarthy then told Obama, according to the source, "'It doesn't matter who you talk to, if you keep talking about tax revenues, you're going to get the same answer."
And that answer appears to be "no."
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