Exclusive: Democrats seek up to $3 trillion budget savings (Reuters)

WASHINGTON (Reuters) – Democrats are proposing up to $3 trillion in measures to slash the U.S. budget deficit, including revenue increases and significant cuts to the Medicare health insurance program for the elderly.

The plan was unveiled on Tuesday at a closed-door meeting of a 12-member congressional panel -- the so-called "super committee" that is assigned the task of finding at least $1.2 trillion in deficit reduction over 10 years, congressional aides told Reuters.

It was the first formal proposal by Democrats on the committee and is aimed at galvanizing closed-door talks that are quickly running up against a November 23 deadline.

The plan proposes cutting the deficit by $2.5 trillion to $3 trillion through a roughly equal mix of spending cuts and revenue increases.

It calls for between $200 billion and $300 billion in new economic stimulus spending that would be paid for with lower interest payments from reducing deficits.

It also seeks around $400 billion in Medicare savings, with half coming in benefit cuts and the other half in cuts to healthcare providers. Details of that proposal were scant but tackling the popular Medicare program is always politically risky for politicians.

The congressional aides were not immediately able to say how the revenue increases would be achieved.

One of the congressional aides noted that parts of the Democrats' proposal are similar to long-term spending cuts that President Barack Obama discussed with House of Representatives Speaker John Boehner, the top Republican in Congress, a few months ago when they were struggling to get a "grand bargain" to raise the U.S. debt ceiling.

Those talks faltered and the White House and Congress ended up agreeing to a smaller, $917 billion deficit-reduction package that also raised the U.S. borrowing authority and averted a government default on its debt.

One of the congressional sources said Republicans on the committee did not react favorably to the new Democratic plan.

Republicans have long been opposed to more economic stimulus spending and increasing revenues in deficit-reduction efforts.

RATING AGENCIES WATCHING CLOSELY

But with U.S. budget deficits topping $1 trillion annually, ratings agencies are watching closely for how the committee advances toward a credible long-term solution to restore the U.S. fiscal health.

Standard & Poor's cut the U.S. AAA rating by one notch in August after the fractious negotiations between Republicans and Democrats on raising the debt ceiling failed to agree on a comprehensive deal.

Rating agencies say Washington needs to find a total of about $4 trillion in savings, including the amount agreed to in August. That total is far beyond the $1.2 trillion minimum the super committee must find by November 23.

The congressional aides did not say why Democrats were proposing such a big deal, but Democratic congressional leaders have repeatedly called on the committee to go beyond its mandate to fix the country's fiscal mess.

While sources portrayed the proposal as a Democratic plan, they also noted that at least one Democrat on the super committee, Representative James Clyburn, had reservations about the move to cut Medicare spending.

(Editing by Will Dunham)

View the original article here

EU ministers sign off on tougher budget rules (AP)

WROCLAW, Poland – Poland's finance minister says that after a yearlong dispute his European Union counterparts have signed off on tougher budget rules that punish overspending governments.

Jacek Rostowski said Friday that the 27 ministers approved a compromise that Polish officials had worked out with the European Parliament earlier this week.

Under the new rules, it will be easier to put sanctions on governments that breach the EU's limits on debts and deficits. Governments who ignore warnings that they risk breaking debt rules can also be punished.

Rampant overspending has come into focus during the eurozone debt crisis, which has already pushed three states into multibillion euro bailouts.

The parliament succeeded in centralizing the sanctions rules that states had tried to water down.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

WROCLAW, Poland (AP) — U.S. Treasury Chief Timothy Geithner suggested his European counterparts give their bailout fund more firing power by allowing it to draw on money from the European Central Bank, Ireland's finance minister said Friday.

Geithner addressed a meeting of eurozone finance ministers in Wroclaw, Poland, amid growing concerns that Europe's crippling debt crisis is hitting the U.S. and global economies.

The U.S. Treasury Chief "talked about a system of the EFSF fund leveraging additional resources in combination with the European Central Bank," said Michael Noonan, adding that he was keen to learn more about the scheme.

Leveraging the euro440 billion ($605 billion) European Financial Stability Facility could mean using eurozone states' guarantees for the fund to also back loans from the ECB, which would give the eurozone more crisis money without further commitments from governments.

However, a European official said there was opposition to such a scheme from Germany, the largest eurozone economy. The official was speaking on condition of anonymity because of the sensitivity of the discussions.

Germany has traditionally been skeptical of heaving more credit risk onto the ECB and has seen itself as a defender of the bank's independence from political quarrels.

Geithner's suggestion comes after the president of the European Commission, the EU's executive, as well as other high-raking European officials have called for a significant expansion of the EFSF.

In a summit in July, eurozone leaders equipped the fund with several new powers, such as giving pre-emptive credit lines to struggling countries and buying government bonds to support their prices during a market selloff. But economists say that, at its current size, the fund, which is already being depleted by rescue loans to Ireland, Portugal and an agreed second bailout for Greece, cannot effectively use the new tools.

View the original article here

U.S. budget improves, economy weighs: CBO (Reuters)

WASHINGTON (Reuters) – A sweeping U.S. budget deal has brightened the country's fiscal outlook but unemployment will remain high over the near term, nonpartisan congressional forecasters said on Wednesday.

The report by the Congressional Budget Office is likely to add fuel to the debate over jobs and the economy that is set to dominate Washington through the 2012 elections.

The recent budget deal, passed earlier this month after months of acrimonious debate, will help slash projected budget deficits nearly in half over the next 10 years, CBO said.

But economic growth will remain sluggish through 2012, CBO said. It said the unemployment rate, currently at 9.1 percent, will only fall to 8.5 percent by the time voters head to the polls in November 2012.

The economic picture is probably even worse as grimmer data has emerged since the office completed its work in early July, CBO Director Doug Elmendorf said.

"The pace of the recovery has been slow, and the economy remains in a severe slump," Elmendorf wrote in a blog post.

That could complicate President Barack Obama's re-election hopes and give more ammunition to Republican rivals who have criticized his economic policies.

Obama plans to unveil a job-creation package next month to help boost an economy that threatens to slide back into recession. At the same time, lawmakers on a special congressional committee will try to squeeze more budget savings from the tax code and popular benefit programs like Medicare.

Policymakers will have to balance austerity and stimulus efforts over the coming months, Obama's fellow Democrats said.

The report "underscores the need for the Joint Committee to propose a plan to help put America back to work, coupled with a blueprint to reduce the long term deficit," said Democratic Representative Chris Van Hollen, one of 12 lawmakers named to the bipartisan panel.

Republicans said the report showed that Obama's efforts to boost the economy in the wake of the 2008-2009 financial crisis have not borne fruit.

"A slight decrease in the projected deficit is nothing to celebrate, particularly when it is accompanied by the grim news that CBO expects the national unemployment rate to continue to exceed 8 percent well past next year," House of Representatives Speaker John Boehner said in a statement. "The president's policies were supposed to keep that from happening."

BUDGET DEAL YIELDS BIG SAVINGS

The United States will rack up $3.487 trillion in cumulative deficits over 10 years, some $3.3 trillion below its previous projection, CBO said.

Nearly two-thirds of that savings is due to the deficit-reduction deal, which passed earlier this month as part of a package to raise the national debt limit. Another one-fifth is attributable to lower projected interest rates during the coming decade, CBO said.

Stocks rose as much as 1 percent and Treasury bond prices fell as the figures revealed a stronger fiscal outlook than previously thought. Both markets later flattened out as other factors overtook early enthusiasm about the CBO data.

The economic picture could worsen considerably if Congress extends temporary tax cuts that were passed under President George W. Bush.

CBO's budget projections assume that those cuts will expire at the end of 2012. Democrats want to extend them for middle and low income taxpayers, while Republicans want to extend the tax cuts for the wealthiest households as well.

An aging population and rising healthcare costs will force Congress to raise taxes or pursue further spending cuts if it wants to keep deficits and debt under control, Elmendorf wrote.

In the current fiscal year, which ends on September 30, the government will spend $1.284 trillion more than it collects, according to CBO's latest estimate. That is a $115 billion improvement over its last estimate in March.

Gross domestic product will grow by an annual rate of 2.4 percent this year and 2.6 percent next year, CBO said.

(Additional reporting by Richard Cowan in Washington and Chris Sanders in New York; editing by Deborah Charles and Vicki Allen)

View the original article here

Minn. governor signs budget, ends state shutdown (AP)

ST. PAUL, Minn. – Minnesota Gov. Mark Dayton signed a new budget Wednesday, ending the nation's longest state government shutdown in the past decade.

Dayton's signature came just hours after lawmakers gave their own approval to the deal after meeting in special session that started Tuesday afternoon and lasted until early Wednesday morning. All sides formalized an agreement that Dayton struck with leading Republicans late last week.

The two sides argued bitterly over taxes and spending for months. When government shut down July 1, it closed state parks and rest stops, laid off 22,000 state employees, stopped road projects and much more.

The end to the shutdown began when Dayton moved last week to accept a borrowing plan offered by the GOP shortly before the stoppage began.

After signing the budget, Dayton said he was "not entirely happy" with it.

"It's not what I wanted, but it's the best option that was available and would be for any time," he said. Dayton said the budget "gets Minnesota back to work."

Details were still emerging Wednesday about how quickly state operations would restart. Dayton said he expected most state employees to be back on the job Thursday.

Jim Schowalter, the state's budget commissioner, said it will take longer to restart some state agencies than others since some have continued partial operations during the shutdown. He predicted it would take weeks for agencies to work through paperwork backlogs, clean up parks and other sites and return to normal operations.

The state lost millions of dollars in the shutdown, including lost revenue from lottery sales, tax audits and state park fees, money spent preparing to shut down and the cost of unemployment and health benefits for laid-off workers. The full cost wasn't expected to be known for some time because the workers who could calculate it weren't on the job.

The budget was widely panned for setting up a new problem down the road. It borrows money from schools and from future payments on a legal settlement with tobacco companies to erase a $5 billion deficit through mid-2013. Republicans and Democrats have been at odds for years over how to address persistent deficits, with GOP leaders pushing for deeper spending cuts and Democrats arguing for new taxes.

Minnesota became a national example of political dysfunction, mirroring in miniature the partisan standoff in Washington over raising the debt ceiling. State leaders are more accustomed to being recognized for efficiency and innovation.

The end of the shutdown was a relief to Kim Leonhardt, owner of High Banks Resort on Lake Winnibigoshish in northern Minnesota. When the state stopped issuing fishing licenses during the shutdown, she had to talk at least a dozen parties out of canceling. The resort wound up promising guests it would cover the costs of any tickets for fishing without a license.

Then Leonhardt found that the state-issued card that allows the resort to buy beer and liquor was about to expire, sending her into a panic and scrambling to stock up for a marathon shutdown. Despite all that, Leonardt said she didn't blame one side more than the other.

"I guess I'm staying neutral on that. I'm glad to see that things are coming back on track," she said.

___

Associated Press writers Patrick Condon and Steve Karnowski contributed to this report.

View the original article here

Senate postpones Libya vote amid budget dispute (AP)

WASHINGTON – Senate Democratic leaders abandoned plans for a test vote Tuesday on authorizing the U.S. military operation against Libya as Republicans insisted they should instead focus on government spending and the nation's borrowing limit.

Just hours before the vote, Senate Majority Leader Harry Reid, D-Nev., announced the change in plans, leaving the fate of the resolution in doubt. One after another, GOP senators had stood on the Senate floor and signaled they would oppose any effort to move ahead on the Libya measure, arguing that dealing with the debt was far more important than working on a resolution with no practical impact.

The Senate had already canceled this week's recess to deal with the financial issue.

"No real work is scheduled in the Senate this week on the budget, nor is any on the debt ceiling," said Sen. Jeff Sessions, R-Ala. "Instead, we are moving today to a Libya resolution. This resolution, not requested by the president, is not why we asked to cancel recess."

At least five Republican senators indicated they would oppose the vote.

"If the resolution we're debating is debated and passed, it would not affect one iota what we're doing in Libya," said Sen. Bob Corker, R-Tenn., a member of the Foreign Relations Committee.

Congress was already sending a muddled message on Libya to both U.S. allies and Moammar Gadhafi.

Bipartisan Senate support for giving President Barack Obama limited authority to continue military involvement against Gadhafi was at odds with overwhelming opposition in the House to the commander in chief's actions. Democrats as well as Republicans in the House have criticized Obama for failing to seek congressional consent for the operation in a constitutional stalemate that has dragged on for weeks.

The Senate had scheduled a vote on whether to proceed with a resolution authorizing "the limited use of United States Armed Forces in support of the NATO mission in Libya." The resolution would expire when the NATO operation ends or after one year, and it would prohibit the use of American ground forces or private security contractors in Libya. The Foreign Relations Committee easily adopted the measure on a 14-5 vote last week.

Leading backers of the resolution include Foreign Relations Committee Chairman John Kerry, D-Mass., and John McCain of Arizona, the top Republican on the Armed Services Committee. They have been the strongest voices in the Senate for the military action against Gadhafi's forces. Also sponsoring the resolution are Sen. Jon Kyl of Arizona, the No. 2 Republican, and Senate Intelligence Committee Chairwoman Dianne Feinstein, D-Calif.

McCain said he understood the reason for the Senate delay, but he hoped they would return to the resolution next week.

"The Senate does need to have a debate about United States policy and military action in Libya," McCain said.

Since NATO took command of the Libya operation in early April, the U.S. role has largely been limited to support efforts such as intelligence, surveillance and electronic warfare. The U.S. has launched airstrikes and drone attacks, flying more than 3,400 sorties.

"In Libya today, no American troop is being shot at," Kerry said last week.

But that hasn't silenced the congressional debate pitting the executive branch against the legislative.

Obama last week defended his decision to order U.S. military action more than three months ago and insisted he had not violated the 1973 War Powers Resolution, which demands congressional authorization within 60 days of first military strikes. The president contends American forces supporting the NATO-led operation are not engaged in full-blown hostilities, making congressional consent unnecessary.

Even members of the Foreign Relations Committee, which backed the resolution, rejected Obama's legal argument that the operation does not constitute full-blown hostilities. The panel adopted an amendment that specified the operation included "hostilities" that fall under the War Powers Resolution and require congressional authorization.

The sponsor of that amendment, Republican Richard Lugar of Indiana, is one of the strongest Senate critics of the Libya operation. He said Obama had ignored Congress, dealing a setback to the Constitution in a "fundamental failure of leadership that placed expedience above constitutional responsibility."

Lugar, the top GOP lawmaker on the Foreign Relations panel, also questioned the expensive, open-ended commitment of U.S. forces. Last month, the White House put the cost of U.S. military operations in Libya at about $715 million, with the total increasing to $1.1 billion by early September.

"Let us be clear that we are deliberately trying to overthrow the government of Libya with military force," Lugar said on the Senate floor.

In Libya on Tuesday, at least 11 people were killed in fighting that began late Monday and continued Tuesday as Gadhafi forces stepped up pressure to try to block rebel fighters from advancing toward the capital of Tripoli, rebels said.

Libyan government troops have been unable to retake two main rebel strongholds in the west — Misrata and several towns in the Nafusa mountain range. The rebels have been trying to break out of those bridgeheads.

View the original article here

Senate cancels recess as budget battle heats up (Reuters)

WASHINGTON (Reuters) – Democrats stepped up their attack in a budget battle with Republicans on Thursday as the Senate canceled its July 4 recess and a top lawmaker accused Republicans of deliberately sabotaging the economic recovery.

With time running short before a possible default in early August, Senate Democratic Leader Harry Reid said he would hold the chamber in session next week to work on a budget deal that would allow the country to keep paying all its bills.

July 4 is the Independence Day holiday.

One day after President Barack Obama compared Senate Republicans to lazy schoolchildren, the Senate's top Republican, Mitch McConnell, said Obama should come to Capitol Hill as soon as possible to discuss what could pass Congress.

"The president says he wants us to get working. I can't think of a better way than to have him come right over today. We're waiting," McConnell said on the Senate floor.

There was no immediate response from the White House. Obama, who has challenged Congress to stay in town until a deal is reached, was scheduled to leave in the afternoon for an election fund-raiser in Philadelphia.

Obama and lawmakers have ratcheted up their rhetoric after budget talks collapsed last week. Republicans say tax increases cannot be part of the deal, and Democrats have ruled out cuts to healthcare benefits. But both sides have some wiggle room. A face-saving deal could close a few tax breaks and restructure health programs in a way that would not trim benefits.

Democrats said they were awaiting a response from House of Representatives Speaker John Boehner, the top Republican in Congress, over the general elements that would be possible.

Boehner aides said there was no firm offer on the table.

RACEHORSES, YACHTS AND JETS

Democrats took to the Senate floor to blast tax breaks for racehorses, yachts and corporate jets that benefit the wealthy. Democrats want to end $400 billion worth of these breaks.

The debate is getting increasingly personal. Democratic Senator Jeff Merkley called the racehorse tax break the "bluegrass boondoggle" in a slap at McConnell, whose home state of Kentucky is famous for horse racing.

"Giving Triple Crown treatment to millionaires while workers are put out to pasture, that's not right and it's not the American way," Merkley said, referring to thoroughbred racing's Triple Crown series of races.

Senator Charles Schumer, a member of the Senate Democratic leadership, said Republicans are pushing steep spending cuts and blocking job-creation efforts in order to pin the sluggish economy on Obama in the November 2012 elections.

"Republicans aren't just opposing the president any more," Schumer said at the Economic Policy Institute, a liberal think tank. "They are opposing the economic recovery itself."

Schumer said Democrats will advance a range of job-creation measures over the next six months. These will have a tough time becoming law but could put Republicans in an uncomfortable spot as the unemployment rate remains stuck at 9.1 percent and the 2012 election cycle heats up.

Those proposals, such as increased construction spending and an extended payroll tax break, could carry a price tag of hundreds of billions of dollars. That runs counter to the focus of the budget talks, where negotiators aim to reduce stubborn budget deficits by roughly $2 trillion over 10 years.

The deficit reduction measures would make it less politically painful for lawmakers to raise the $14.3 trillion debt ceiling before August 2, when the Treasury Department has warned it will run out of money to pay the country's bills.

Budget deficits in recent years have hovered near their highest levels relative to the size of the economy since World War Two. Experts warn that the United States could face a Greek-style crisis if it does not slow the growth of its debt.

The deficit for the current fiscal year, which ends September 30, is projected to hit $1.4 trillion.

McConnell said any deal that includes tax increases will not pass Congress, but other Republicans could be more flexible. Most in the Senate have voted to end a tax break for ethanol providers, and some have been working on a bipartisan deal that would include a range of revenue hikes.

Schumer said Democrats could back changes to the Medicare and Medicaid government health insurance programs that would not trim benefits. Compromise is also possible on military cuts, he said.

(Additional reporting by Deborah Charles and Thomas Ferraro; Editing by Will Dunham)

View the original article here

Top Republican Cantor exits budget talks (AP)

WASHINGTON – House Majority Leader Eric Cantor pulled out of talks with Vice President Joe Biden on a deficit reduction-debt ceiling deal, saying they had reached an impasse over Democratic demands for tax increases to be paired with spending cuts wanted by the GOP.

The Virginia Republican said in a statement that the Republican-dominated House simply won't support tax increases, and that he wouldn't participate in the budget meeting scheduled for Thursday. Cantor said that it's time for President Barack Obama to weigh in directly on the budget because Democrats insist on negotiating some tax increases.

Sen. Jon Kyl of Arizona, who is representing Senate Republicans in the talks, also dropped out. White House press secretary Jay Carney declared the talks "in abeyance" but said they had been successful in identifying areas of common ground.

The GOP moves seem aimed at drawing Obama more directly into the talks. Cantor expressed frustration earlier this week that the president had not been more involved. Whether the tactic generates hard feelings that could jeopardize an agreement remains to be seen.

House Speaker John Boehner, an Ohio Republican, met with Obama Wednesday night at the White House to discuss the debt limit, Carney said.

Senate Majority Leader Harry Reid shrugged off Cantor's announcement. "I'm disappointed that he would walk out, but obviously he felt he couldn't do any more and wanted to kick it up to Boehner," he said.

Officials have said repeatedly in recent days they expected that those involved in the Biden-led talks would turn their work over to Obama, Boehner and other congressional leaders by week's end.

In the wake of Cantor's announcement, both Democrats and Republicans publicly doubled down on positions that are at odds with achieving an agreement.

"President Obama needs to decide between his goal of higher taxes or a bipartisan plan to address our deficit," said Senate Republican leader Mitch McConnell, R-Ky. "He can't have both."

"It will take Democratic votes to pass any debt-ceiling agreement," said Sen. Chuck Schumer, D-N.Y. "As a result, certain things are going to have to be true. We cannot make cuts to Medicare benefits. We have to allow for revenues like wasteful subsidies for ethanol and oil companies. And we have to do something on jobs."

Cantor said that plenty of progress has been made in identifying trillions of dollars in potential spending cuts to accompany legislation to raise the $14.3 trillion cap on the government's ability to borrow money. Passage of the legislation this summer is necessary to meet the government's obligations to holders of U.S. Treasuries. The alternative is a market-shaking, first-ever default on U.S. obligations.

Senate Finance Committee Chairman Max Baucus, D-Mont., said that including tax increases on the wealthy is only fair, and that he's disappointed that Cantor has left the talks.

Baucus said that almost every deficit reduction deal in the past has involved a mix of tax increases and spending cuts. He said upper income Americans have seen a significant increase in wealth, so balancing the budget only through cuts in programs that serve the middle class and the poor is not fair.

"Revenues must be included so everyone can participate in addressing a critical national problem," Baucus said.

Cantor said that once the tax issue is solved, negotiators could quickly seal agreement.

"It is time for the president to speak clearly and resolve this tax issue," Cantor said. "Once resolved, we have a blueprint to move forward to trillions of spending cuts and binding mechanisms to change the way things are done around here."

The Biden-led group has been meeting since early May, trying to come up with areas of agreement on curbing a budget deficit that's requiring the government to borrow more than 40 cents of every dollar it spends. Areas of tentative agreement include trimming farm subsidies, auctioning electromagnetic spectrum to communications companies, and cutting student loan subsidies.

But with Republicans unwilling to accept some higher taxes — even in the wake of a sweeping Senate vote to eliminate the ethanol tax subsidy — Democrats were unwilling to agree to tougher steps like curbing Medicare and Medicaid.

All along, it was anticipated that the Biden group would only be able to get so far and that the toughest decisions, such as taxes and cuts to federal health care programs, would be kicked upstairs. Obama and Boehner sealed agreement in April on legislation to fund the government through the end of September.

"I would to expect to hear from (Obama)," Boehner said Thursday. Of Cantor's decision, the House speaker said: "I understand why he did what he did. I think those talks could continue if they're willing to take the tax hikes off the table."

There are only 5 1/2 weeks remaining until an Aug. 2 deadline for enacting an increase in the nation's debt limit to prevent a U.S. default. Economists warn that could damage the nation's credit rating and force the government to pay higher interest rates to continue to borrow the $125 billion a month it needs to finance its operations.

But increasing the borrowing cap is a politically poisonous vote for lawmakers, especially the tea party-backed Republicans controlling the House. Even while there's agreement between Obama and top congressional leaders that the debt cap simply has to be raised, a majority of the public — especially core conservative GOP supporters — says the debt limit shouldn't be lifted.

___

Associated Press writer Ricardo Alonso-Zaldivar contributed to this report.

View the original article here