Behind the scenes, some budget cuts may not be that hard

11/21/2012 1:51 PM

11/30/2012 4:44 PM

Saving billions of dollars in anticipated federal spending, at least for awhile, may not be that difficult.

Democratic and Republican leaders are in general agreement over less controversial trims and changes to a host of federal programs, such as federal retirement, state policies on Medicaid, farm subsidies and others.

The changes aren’t the big-ticket, widely publicized measures that spark instant headlines or fiscal splashes. But added up, they would provide the kind of projected deficit reduction that could become a vital part of any deal to avoid the “fiscal cliff.”

Unless Congress acts, the nation will plunge over that cliff in January as Bush-era tax cuts expire and $109 billion in automatic spending cuts take effect.

White House and congressional staffs are expected to present a framework for negotiations early next week, and President Barack Obama and top congressional leaders will attempt to grind out a compromise.

The talks are likely to aim at both a short-term fix and a grand bargain. The bigger package would be a multitrillion-dollar plan aimed at breaking the government’s annual string of trillion-dollar-plus deficits. Consensus is that such an effort is too ambitious and complex to be finalized in the next five weeks, but negotiators could at least set the framework and a deadline for a 2013 deal.

Insiders now expect any such bargain to include three general parts. The thorniest two pieces involve raising revenue with major alterations to income tax rates and deductions, and revamping expensive entitlement programs such as Medicare and Social Security.

Both involve the kind of big-money savings pact that has eluded lawmakers for years. Medicare spending alone consumed 15.4 percent of the federal budget in fiscal 2012, and its share is expected to grow to 19.3 percent over the decade. The system’s hospital trust fund, financed largely by taxes on employers and employees, is expected to be depleted by 2024. But attempts to cut benefits or effect major structural changes have met fierce resistance.

The third area of budget talks is likely to involve the “smaller” items, the so-called easy stuff likely to be an integral part of the shorter-term fix. Blueprints for those plans, which can involve less spending and special “user” fees, are already in place, thanks to 2011 bipartisan negotiations as well as detailed reports from two independent commissions.

“There’s enough on the spending side so they could work that kind of (short-term) deal,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan budget research group.

One serious hurdle: All the programs have influential constituencies that are mobilizing with advertising, in-person lobbying and rallies. The hope of negotiators is to convince each other that everyone’s giving up something.

That’s why it’s important to remember that “there’s no agreement till there’s agreement on everything,” said veteran budget analyst Stan Collender. “They’re not going to do the ‘small things’ in isolation.”

Key players are laying the political groundwork. Obama last week met with representatives of liberal groups and Democratic constituencies historically opposed to steep spending cuts. Republicans also seemed to be setting the stage for decisions that could rattle their constituencies.

Adding momentum is the detail provided by bipartisan panels such as the 2010 commission headed by Democrat Erskine Bowles and Republican Alan Simpson. Though plenty of specifics remain to be decided, there is support for – and lots of discussion about – changes that include:

– Health care costs. A prime target could be Medigap, the coverage seniors buy to help pay items Medicare does not cover. Also widely discussed is whether to increase costs for wealthier seniors for Medicare. Savings estimates vary widely.

– Medicaid. States often use a gimmick to get more federal money from Medicaid, the joint state-federal health insurance for the poor. Changing the law could save up to $50 billion over 10 years.

– Farm programs. The administration has proposed several changes including reducing subsidies for crop insurance and changing conservation assistance programs. Simpson-Bowles predicts $15 billion can be saved through 2020 with similar steps.

– Pension Benefit Guaranty Corp. Big corporations with pension funds often fail to put aside enough money to cover those obligations, and the government program steps in to make sure workers get what they are owed. Companies may be required have to provide more of that funding. Simpson-Bowles saw savings of up to $16 billion through 2020.

– Federal workforce. The White House and Republicans are open to the idea of increasing pension contributions from federal employees, and there is sentiment for curbing cost-of-living adjustments. Simpson-Bowles suggested a task force to review military and federal health and retirement programs, with an aim of finding ways to cut $70 billion over 10 years.

– U.S. Postal Service. Give officials more authority to reduce service and make other cuts, such as ending Saturday delivery, as well as increase postal rates. Nothing has been decided, and getting into details still could hamstring negotiators. But Bixby had hope, explaining, “It’s one way to get you around the cliff.”

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