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Contentious budget talks point to small deficit-cut deal

U.S. President Barack Obama delivers remarks at the Organizing for Action dinner in Washington March 13, 2013. REUTERS/Yuri Gripas
U.S. President Barack Obama delivers remarks at the Organizing for Action dinner in Washington March 13, 2013. REUTERS/Yuri Gripas

By Richard Cowan and David Lawder

WASHINGTON (Reuters) - As divisions over major reductions in federal budget deficits solidify, President Barack Obama and members of Congress on Thursday began weighing limited steps that might be brokered in a bipartisan deal later this year.

Obama spent much of Thursday afternoon on Capitol Hill, first meeting with Republican senators and then huddling with fellow Democrats in the House of Representatives.

Despite nearly two weeks of outreach to lawmakers, Obama seemed no closer to an agreement with Republicans on a large deficit reduction deal by midyear.

Instead, Republicans and Obama's Democratic allies in Congress engaged in partisan rhetoric, even as the president was striking a moderate tone in his private meetings with Republican senators.

"The president's idea of compromise is, 'Just do it my way.' That's just not going to work," Republican House Speaker John Boehner told reporters.

Obama has been calling for more tax hikes on the wealthiest taxpayers, coupled with new spending cuts, to help curb budget deficits that have exceeded $1 trillion in each of the past four years, in part because of the weak economy.

"No more tax hikes," Boehner added, referring to the more than $600 billion in new revenues Obama won at the beginning of this year by raising income taxes on the wealthy.

The Democratic-controlled Senate Budget Committee was on track on Thursday to pass a budget plan that calls for $1 trillion in new tax revenues by ending tax breaks for the highest earners and corporations, while replacing automatic spending cuts and making modest cuts elsewhere.

Republican Paul Ryan's budget, passed by the House of Representatives budget panel on Wednesday, aims to slash $4.6 trillion largely from social programs to reach balance by 2023. It contains no new tax revenues.

House Democratic leader Nancy Pelosi, noting the yawning gap between her party and Republicans on the functions of government, told reporters: "This is a bigger difference than I have seen ... well I've never seen anything quite like it. I don't think anybody has seen anything quite like it."

Some lawmakers have begun hinting at more incremental steps if Republicans cannot swallow any more tax hikes for deficit reduction and Democrats cannot deliver on the "entitlement" program reforms Obama has dangled.

The latter could include changes to the Social Security retirement program and Medicare and Medicaid healthcare for the elderly, disabled and poor.

"You set aside differences and you find where you can work together. That's what we ought to be doing," House Majority Leader Eric Cantor said on Wednesday after his fellow Republicans met privately with Obama.

A senior House Republican aide said one such idea was cutting federal workers' pensions, putting them more in line with private-sector retirement funds. Democrats in the past have acknowledged that is an area that could be ripe for reform.

Pelosi and Senator Dick Durbin, the second-ranking Senate Democrat, both expressed a willingness to look at changes to how cost-of-living benefit increases are calculated in order to save money.

"I'd have to say if we can demonstrate that it doesn't hurt the poor and the very elderly, let's take a look at it," Pelosi told reporters.

Durbin warned that "some senators will never, ever consider" the change, which is called "chained CPI." But he too said it was "worth looking at" as part of any effort to restore the solvency of Social Security.

An estimated $340 billion could be saved over 10 years with the new method for calculating cost-of-living increases that proponents say takes into account more real-world estimates of the cost of consumer goods.

Part of the budget savings also would come from higher revenues collected as tax bracket thresholds fail to keep pace as closely as they do now with rising incomes.

SOME WORRY ABOUT SMALL DEAL

As chances dim for a comprehensive reform of the U.S. tax code as part of this year's budget negotiations, Obama has told Republicans in both chambers that he favors a revenue-neutral reform of corporate taxes.

That conversation went a step further on Thursday when the president and Republican senators talked about the possibility of doing corporate tax reform as a stand-alone fix, instead of folding it into more far-reaching reforms as had been assumed.

All the talk of limited steps has some lawmakers worried.

Republican Senator Rob Portman of Ohio, a former Bush administration budget director, told Reuters that a deficit-reduction deal of between $1.5 trillion and $2 trillion was the minimum necessary to stabilize the nation's debt at a safe level. That would be on top of the $1.2 trillion in automatic spending cuts over 10 years that began to take hold on March 1.

"A lot of people are talking about a lot less than that," Portman said.

Obama embarked on his private sessions with Republicans after a couple of them signaled a willingness to accept higher taxes to help reduce budget deficits.

One congressional aide said the intimate meetings were aimed at gauging just how deep support might be among congressional Republicans.

Obama got a bleak assessment last Saturday night during an annual white-tie dinner held by the Gridiron Club, a Washington press organization. He was seen holding a sustained conversation at the event with House Republican Whip Kevin McCarthy.

A source who asked not to be identified said McCarthy thanked the president for reaching out to Republicans on the budget issue. Obama, the source said, told McCarthy he would talk to more people than just Boehner, a change from previous budget negotiations.

McCarthy then told Obama, according to the source, "'It doesn't matter who you talk to, if you keep talking about tax revenues, you're going to get the same answer."

That answer appears to be "no."

(Additional reporting by Rachelle Younglai, Thomas Ferraro and Patricia Zengerle; Editing by Fred Barbash, Tim Dobbyn and Peter Cooney)

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