(Updates with Van Hollen comments in fourth paragraph, Cantor in sixth.)
June 16 (Bloomberg) -- Vice President Joe Biden’s debt- reduction group is focusing on possible spending cuts for military and federal workers’ pensions and programs including agriculture, said lawmakers of both parties involved in the talks.
House Majority Leader Eric Cantor, a Republican, and Democratic Representative Chris Van Hollen said mandatory spending on non-health-care programs was on today’s agenda. Such programs account for about 12 percent of the federal budget, underscoring the difficulty of cutting trillions of dollars over the next 10 years.
Republicans are insisting on trillions in savings in exchange for their votes to increase the nation’s $14.3 trillion debt ceiling. Democrats say major changes to Medicare, the long- term driver of the debt, are off the table, while Republicans have dug in against tax increases.
“We’ve got a long way to go here before we resolve the toughest issues,” Van Hollen told reporters after today’s meeting. “We spent a lot of time refining ideas for saving funds,” although “it wasn’t necessarily a huge amount of dollar savings.”
Van Hollen, of Maryland, said negotiators hope to determine whether they can reach a deal by early July.
Cantor said negotiations are intensifying and that Biden and the bipartisan group of six lawmakers will meet as many as four times next week.
“We’re very serious about seeing if we can come to some resolution,” Cantor, of Virginia, told reporters.
Steve Bell, a onetime budget aide to Republican former Senator Pete Domenici of New Mexico, said the federal debt is projected to rise to $23 trillion over the next 10 years, diluting the effect of even a $2 trillion spending-cut deal.
“You are taking off the table the single biggest drivers of our future problems in the fiscal realm,” said Bell, whose boss was budget committee chairman during part of his Senate tenure. “It will have made no changes in the underlying structural, fiscal problems that we face.”
Biden and the six House and Senate lawmakers are picking up the pace of their talks to try to reach an agreement well in advance of an Aug. 2 deadline when the Treasury Department projects the government risks defaulting on its debt.
Bell is senior director of the economic policy project at the Bipartisan Policy Center in Washington, which seeks to develop proposals that both parties can support. His group estimates that the Biden group may find $600 billion over 10 years in domestic discretionary accounts, including spending on education, highways and foreign aid.
Cutting so-called mandatory spending outside of health care, the focus of the Biden group today, could save an additional $100 billion over 10 years, Bell’s group estimates.
Over the next 10 years, spending on federal civilian and military retirement is projected to be $1.6 trillion and agriculture is $152.7 billion, according to the group. It said spending on Social Security will be $9.9 trillion and Medicare will be $7.7 trillion.
According to an analysis by the nonpartisan Committee for a Responsible Federal Budget in Washington, there are areas of overlap in debt-reduction plans proposed by House Republicans and the White House, meaning they are likely to be included in any debt deal.
These include: eliminating some interest subsidies on student loans, which could save $20 billion to $65 billion over 10 years; changing the way the Pension Benefit Guarantee Corp. collects fees, to save $5 billion to $10 billion; selling excess federal property for $10 billion to $15 billion; and reducing health-care fraud and overpayments, at $10 billion to $35 billion.
Even with these savings, achieving $2 trillion over 10 years remains elusive, said Ed Lorenzen, senior adviser at the committee. “If you’re not dealing with the health entitlements in a significant way or adding in revenues, it’s going to be hard” to find significant savings, he said.
That’s where a budget process agreement, intended to commit lawmakers to future cuts, becomes important, according to Lorenzen and Bell.
While Republicans have said they won’t accept revenue increases, 33 party members voted with Senate Democrats today in favor of eliminating a tax credit and a tariff that subsidize ethanol production.
Van Hollen called the vote a “good sign” that showed “people are willing to close special-interest corporate loopholes for the purpose of deficit reduction. And the same argument applies to oil and gas subsidies.” He also said Democrats support repealing tax cuts for the highest-earning individuals.
Yesterday, debt talks focused on spending restraint mechanisms, including spending caps to control the deficit. A congressional aide close to the negotiations said Republicans are pushing for a 10-year cap on discretionary spending as well as an overall deficit cap, most likely based on a percentage of gross domestic product.
The two sides disagree on how to enforce such a cap. Republicans support automatic spending cuts and Democrats insist on a mix of spending cuts and higher revenue, including by phasing out some corporate tax breaks, Van Hollen said yesterday. Without new revenue, the government would have to make deep cuts in social programs, Democrats say.
Spending on Medicare, Medicaid and Social Security, which accounted for 40 percent of President Barack Obama’s fiscal 2012 budget, is largely off limits. Democrats made clear from the beginning of the talks that Social Security is not driving the deficit and shouldn’t be targeted in a budget-cutting plan. Democrats say Medicare benefit cuts are also off the table.
“We will continue to look for waste and fraud, for duplication and inefficiency in the system,” Democratic Senator Chuck Schumer of New York said at a June 14 news conference. “But we will not go along with any cuts to beneficiaries.”
Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said today he is concerned the Biden group won’t adequately address the entitlements driving the government’s long-term debt.
Conrad said he is concerned it will devise a plan “that doesn’t fundamentally change the trajectory of our debt but just gets by this debt-limit vote.” He said, “That would be a real missed opportunity.”
--With assistance from Brian Faler, Richard Rubin and Steven Sloan in Washington. Editors: Laurie Asseo, Don Frederick
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