Initial Deficit Cuts Are Sticking Point in Negotiations

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WASHINGTON -- For all the growing angst over the state of negotiations to head off a fiscal crisis in January, the parties are farthest apart on a relatively small part of the overall deficit reduction program -- the down payment.

President Obama and the House speaker, John A. Boehner, are in general agreement that the relevant Congressional committees must sit down next year and work out changes to the tax code and entitlement programs to save well more than $1 trillion over the next decade.

But before that work begins, both men want Congress to approve a first installment on deficit reduction in the coming weeks. The installment would replace the automatic spending cuts and tax increases that make up the "fiscal cliff," while signaling Washington's seriousness about getting its fiscal house in order. That is where the chasm lies in size and scope.

Mr. Obama says the down payment should be large and made up almost completely of tax increases on top incomes, partly because he and Congressional leaders last year agreed on some spending cuts over the next decade but have yet to agree on any tax increases.

Republicans have countered by arguing for a smaller down payment that must include immediate savings from Medicare and other social programs. Republicans, using almost mirror-image language, have said that they do not want to agree to specific tax increases and vague promises of future spending cuts.

Senator Kent Conrad of North Dakota, chairman of the Budget Committee and part of a bipartisan "Gang of Six" senators who devised the two-stage process, said: "I think there's a lot of confusion between the initial down payment and the framework. That's for sure."

The two biggest areas of dispute are tax increases and the big government health insurance programs, Medicare and Medicaid. On the health programs, neither side believes Congress could meaningfully overhaul them in the four weeks that remain before the fiscal deadline.

"Entitlement reform is a big step, and it affects tens of millions of people," said Senator Richard J. Durbin, Democrat of Illinois, another architect of the two-stage framework. "It's not just a matter of cutting spending in an appropriation. It's changing policy. And that's why I was reluctant to include it in the down-payment conversation. I want this to be a thoughtful effort on both sides that doesn't jeopardize this program."

But Republicans say that it is possible to make some initial changes to the programs in coming weeks. "There are simpler things that can be done," said Senator Michael D. Crapo, Republican of Idaho and another Gang of Six member. "The real structural changes would come later."

Mr. Crapo said Congress could agree on some additional cuts to health care providers and change the way inflation is calculated to slow not only automatic increases in Medicare and Social Security benefits, but also the annual rise in tax brackets.

Democrats instead argue that the down payment should consist of a combination of tax increases and cuts to programs outside Medicare, Medicaid and Social Security, like farm programs. Mr. Obama has pushed for a return to the top tax rates under President Bill Clinton.

Republican leaders have said that they are willing to raise new tax revenues -- albeit not as much as Democrats want -- but Republicans want taxes to rise by closing loopholes and curbing tax deductions and credits.

If the two sides are able to come to an agreement on the down payment, it would also likely fix targets for larger savings in the tax code and entitlement programs. The White House and Congress would then spend much of the next year trying to hash out the specific policy changes needed to hit those targets.

nation

This article originally appeared in The New York Times.


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