* Ryan eyes savings from benefits programs
* Lowered expectations seen improving chances for agreement
* "Can we get something better than this?"
By David Lawder
WASHINGTON, Oct 24 (Reuters) - A new round of U.S. budget negotiations starting next week should focus more narrowly on replacing automatic spending cuts rather than an elusive "grand bargain," House Budget Committee Chairman Paul Ryan said on Thursday.
Ryan told Reuters in an interview that simply maintaining the automatic "sequester" cuts was the fallback position for Republicans if Democrats do not agree to substitute longer-term savings on expensive federal benefits programs.
"We have spending cuts coming. The question is, can we get something that's better than this?" said Ryan, last year's Republican vice presidential nominee. "If we can get an agreement, it's obviously going to be better than the status quo."
He said reducing expectations could make the talks more successful than past efforts, such as the 2011 "supercommittee" that failed to find $1.2 trillion in savings over 10 years.
"My hope is that it has a better chance because we'll set more rational expectations of what we're setting out to achieve," Ryan said.
"If we focused on doing some big grand bargain, like those prior efforts ... then I don't think we'll be successful because we'll focus on our differences. Each party will demand that the other compromises a core principle and then we'll get nothing done," he said.
The 29-member negotiating committee, set in motion by last week's deal to end a government shutdown and raise the federal debt limit, will convene on Wednesday.
Ryan, who will lead Republicans on the panel, said there was a better chance of finding common ground with Democrats on "smarter" spending cuts to replace the across-the-board reductions to discretionary spending. He said those include reforms to "entitlements," which include the Medicare and Social Security programs for the elderly, Medicaid healthcare for the poor and some farm subsidy programs.
He noted that President Barack Obama had proposed changes to those programs, such as a lower inflation gauge for the Social Security retirement program's cost-of-living increases. His Democratic counterpart, Senate Budget Committee Chairwoman Patty Murray, also has proposed some ways to reduce healthcare costs by $275 billion over 10 years through new efficiencies.
Both parties want to mitigate the sequester's impact, especially with a further $109 billion round of cuts due to launch on Jan. 15 - the same date that government agency funding runs out again. Military programs favored by Republicans would bear more than half of those cuts.
Ryan reiterated his long-standing opposition to further tax revenue increases as part of the budget negotiations, saying a major tax hike for the wealthiest Americans in January was already hurting the economy.
"If people see this conference as an excuse to raise taxes, I don't think it's going to be successful," Ryan said.
Democratic Representative Chris Van Hollen, another member of the budget panel, told Reuters on Tuesday that Democrats would not agree to significant cuts in social programs without increasing revenues by eliminating some tax breaks.
Without that, they will not consider proposals such as the cost-of-living change or charging wealthier seniors more for their Medicare health coverage, Van Hollen said.
If the two sides remain at loggerheads over revenues and benefits cuts, Ryan said the sequester cuts would simply remain in place, hitting agencies and programs ranging from education to military readiness.
"It's not our preferred route to reducing deficit and spending, but it works," he said, adding that Republicans were "proud" of the fact it had produced tangible savings.
"If we can't replace these spending cuts with smarter spending cuts, then we'll take what we have," he said.
He also said he believed the panel could help ease some sequester pain on federal agencies and the military by offering them more flexibility to spend their reduced budgets more effectively.
He also would like the panel to discuss ways to support comprehensive tax reform, which he views as a revenue-neutral endeavor that jolts economic growth by closing tax breaks, reducing rates and simplifying a complex tax code.
The negotiating panel is due to issue a recommendation by Dec. 13, requiring majority approval among panelists from each chamber - seven House of Representatives members and 22 Senate members. The Jan. 15 expiration of government funding creates the threat of another government shutdown if the two sides cannot come to some agreement.
Ryan said he was not interested in threatening another shutdown, adding, "I'd rather focus on the here and the now rather than Jan. 15."