Lawmakers Likely to Hash Out Easy Fiscal-Cliff Compromises First, Then Tackle Big Issues

Published Nov 23, 2012. By David Lightman.

WASHINGTON -- Saving billions of dollars in anticipated federal spending, at least for a while, may not be that difficult.

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

The changes aren't the big, 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. The 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 expect any bargain to include three general parts. The thorniest two involve raising revenue with major alterations to income tax rates and deductions, and revamping programs such as Medicare and Social Security.

Medicare spending alone consumed 15.4% of the federal budget in fiscal 2012, and its share is expected to grow to 19.3% during the decade. The system's hospital trust fund, financed largely by taxes on employers and employees, is expected to be depleted by 2024.

The third area of budget talks is likely to involve what is considered 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 one another that everyone's giving up something.

It's important to remember that "there's no agreement till there's agreement on everything," said veteran budget analyst Stan Collender.

Key players are laying the political groundwork. Last week, Obama 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 and discussion over changes that include:

• Health care costs. A prime target could be Medigap, the coverage seniors buy to help pay for 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 gimmicks to get more federal money from Medicaid, the joint state-federal health insurance for poor people. Changing the law could save up to $50 billion over 10 years.

• Farm programs. The administration has proposed 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. When big corporations fail to put aside enough money to cover pension obligations, the government program steps in to make sure workers get what they are owed. Companies may be required to provide more of that funding. Simpson-Bowles estimated savings of up to $16 billion through 2020.

• Federal work force. 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 cutting $70 billion over 10 years.

• U.S. Postal Service. Ideas include giving officials more authority to reduce service and make other cuts, such as ending Saturday delivery, as well as increasing postal rates.