By Bob Cusack - 07/09/11 06:00 PM EDT
The White House and leaders in Congress have been looking at a range of options to cut government spending, including closing tax loopholes, slashing farm subsidies and boosting healthcare deductibles.
Democrats on Capitol Hill have pressed the White House to not focus exclusively on budget cutting, urging President Obama to push for initiatives in the debt deal that will create jobs. The nation's unemployment rate tucked up to 9.2 percent for last month, sparking anxiety that the ailing economy is headed in the wrong direction.
Some Democrats have tried to take Medicare and Social Security benefit cuts off the table while Republicans are balking at raising taxes and reductions in defense spending.
But the only way to compile a package that cuts trillions must include entitlement spending, tax revenue and/or defense spending. In others words, both the parties will have to bend.
The following is a rundown of items that have been floated in recent weeks that could make it into a final bipartisan agreement.
♦ Medicare and Medicaid
Healthcare providers are nervous that their payments will be slashed, a year after healthcare reform made major cuts across the healthcare spectrum. And they're not waiting to go on the offensive. Health plans are calling on Congress to protect Medigap coverage while hospital groups are running television and newspaper ads. For years, lawmakers have homed in on hospital payments, specifically graduate medical education and disproportionate share hospital (DSH) reimbursements. DSH payments help hospitals offset the cost of caring for low-income people. However, the hospital lobby has significant clout on Capitol Hill and has successfully beaten back prior efforts to pare back their reimbursement levels.
The pharmaceutical industry could be targeted. The GOP hasn't forgotten that drug companies struck a major deal with the White House in the last Congress that helped Obama pass healthcare reform. Ideas that have been floated included giving the government enhanced drug negotiating power, legislation Democrats have been pushing for a decade.
A fundamental change that has been discussed is means testing Medicare, which would lower benefits for wealthy beneficiaries. This would would alter the entitlement program, revamping its long defined-benefit structure. Democrats, including the late Sen. Edward Kennedy (D-Mass.), have long expressed opposition to means testing.
Mathematically, an easy way to raise revenue is to hike Medicare co-pays and deductibles. Politically, such moves are extremely difficult to pass.
Republicans want to turn Medicaid into a block-grant program, though such a radical change is unlikely to be blessed by Obama and congressional Democrats. However, Medicaid is less of a sacred cow than Medicare, and both parties agree that savings can be had. Sen Jay Rockefeller (D-W.Va.) has repeatedly warned negotiators not to gut the program.
The problem for Democratic and Republican negotiators is that most, if not all, of the low-hanging fruit of savings in healthcare was included in the 2010 health overhaul. Republicans have called for the repeal of the law, but have not made moves this year to specifically roll back the cuts that were included in the controversial measure.
♦ Social Security
Democrats were stunned to read this week that Obama is considering major changes to Social Security. That floated idea has triggered more distrust between Democrats and the White House, specifically Democrats in the House.
Democrats say if it's just a negotiating ploy, fine. But they call cuts to Social Security benefits a non-starter.
Political observers say the only way Obama might get Republicans off their tax message is to embrace changes to Social Security. Raising the retirement age is considered by most Democrats as a benefit cut, and would spark a huge backlash from the AARP.
There are other possible alterations, including changes to the consumer price index (CPI). Using a slower measure of inflation dubbed the "chained" CPI would save the government billions of dollars, though critics on the left say this, too, would constitute benefit cuts. While the CPI idea is complex, it will not be easy to pass because it would affect the pocketbooks of seniors.
♦ Tax loopholes and reform
There will be many tax provisions in the final agreement, whenever it is reached. Democrats have put Republicans on the defensive by focusing on "special interest" tax breaks, citing provisions in the law on ethanol, oil and gas, corporate jets and yachts.
In a recent interview, Rep. Chris Van Hollen (D-Md.) -- a negotiator in the talks -- said "pork-barrel spending through the tax code has got to be part of any solution." He mentioned eliminating provisions on the corporate and the individual sides.
Republicans now say they want to close tax loopholes, though stress that money saved must be used to cut taxes, not reduce the deficit. This position -- consistent with the Americans for Tax Reform tax pledge -- was flatly rejected by Sen. Charles Schumer (D-N.Y.) earlier this week. Democrats have been extremely frustrated with the GOP's unified position on tax, and say that Republicans must bend. Schumer told MSNBC's Rachel Maddow, "We've drawn a strong line on revenues."
Senate Minority Whip Jon Kyl (R-Ariz.), a negotiator in the discussions, has said Republicans are not against using revenue to lower the deficit, citing possible increases to government "user fees," but has not offered specifics. Speaker John Boehner (R-Ohio) has likewise reportedly offered $1 trillion in unspecified revenues.
One idea that emerged this week is taking "loophole" money and address the alternative minimum tax (AMT), a tax that has long bedeviled lawmakers. From a public relations perspective, both parties could hail the end of loopholes to protect the middle class from the AMT. Another plan that has gained traction is lowering the corporate tax rate, which was pushed by former President Clinton earlier this week.
Obama has called on Congress to back payroll tax cut for employers, which has attracted some, but not strong criticism, from Republicans.
Changing the ethanol tax credit is a wildcard. A proposal this week offered by Sens. John Thune (R-S.D.) and Amy Klobuchar (D-Minn.) was hailed this week by affected stakeholders, but the bill would appear to violate the ATR pledge. It remains unclear if that plan will make its way into the final deal.
♦ Balanced budget amendment
Republicans have been intensifying their push for a balanced budget amendment, putting Boehner and Senate Minority Leader Mitch McConnell (R-Ky.) on the spot. McConnell has suggested that the effort doesn't have the votes -- it needs the backing of two-thirds of Congress and then must be ratified by the states. To some on the right, getting this in the deal is a must. They contend that it could pass if Obama backs it, bringing along Democrats on Capitol Hill. However, asking for something that may not pass could be a waste of a bargaining chip for the GOP.
♦ Defense spending
Democrats say cuts must be across the board, but Republicans want a firewall around defense spending, according to media reports. Pentagon officials have been grumbling they have already cut back significantly, asserting they are already spread thin with ongoing conflicts in Afghanistan, Iraq and Libya.
The secret Senate Democratic budget resolution drafted by Senate Budget Committee Chairman Kent Conrad (D-N.D.) and shared with the White House relies heavily on cuts to the Pentagon which would see its budget slashed by more than $800 billion over 10 years, according to sources.
The politics of war are not what they used to be, with some Republicans in Congress calling for an end to U.S. involvement in these wars/conflicts. Republican leaders are torn on this issue between their defense hawks and fiscal hawks.
♦ Other issues
The secretive discussions will certainly yield surprises, especially when, as many policymakers have said, "everything is on the table." Farm subsidies have been mentioned though drastic cuts here could jeopardize votes, especially in the farm-friendly Senate. Cuts to financial aid for colleges and reductions to pensions for federal employees have also been floated.
Obama's fiscal commission has proposed eliminating the mortgage deduction for second homes, an idea that has attracted attention of members of Congress and opposition from powerful industry groups.
Majority Leader Eric Cantor (R-Va.) has been touting a repatriation proposal, which would allow companies to bring foreign-based income back into the U.S. at a reduced tax rate. The administration has raised major concerns with the bill, though Democrats on Capitol Hill are warming to it.
Boehner, meanwhile, has mentioned the need for "budget reforms" in several speeches this year. One such reform, backed by members of both parties, would require the president to submit a budget every other year at the beginning of the first session of Congress. The Speaker has not tipped his hand on this bill, but has previously voted for it. Some appropriators are strongly opposed to the legislation.