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)

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Some flyers may not see savings from expired taxes (AP)

DALLAS – Some airline customers won't see savings this weekend even though several federal taxes on tickets have expired.

US Airways and American Airlines raised fares to offset the tax savings.

That means instead of passing along the savings from expired taxes, the carriers are pocketing the money while customers pay the same amount as before.

But other airlines left their prices unchanged on Saturday. Consumers could save money by shopping around.

The expired taxes can total $25 or more on a typical $300 round-trip ticket. For a September trip between Dallas and San Francisco, the cheapest American flight on Travelocity.com was $24 higher than offerings from United, Continental, Delta and Virgin America, which did not raise fares.

The taxes expired after midnight Friday night when Congress failed to pass legislation to keep the Federal Aviation Administration running.

That gave airlines a choice: They could do nothing — and pass the savings to customers — or they could grab some of the money themselves.

"We adjusted prices so the bottom-line price of a ticket remains the same as it was before ... expiration of federal excise taxes," said American spokesman Tim Smith. US Airways spokesman John McDonald said much the same thing — passengers will pay the same amount for a ticket as they did before the taxes expired.

Smith declined to say whether the increase would be rescinded if Congress revives the travel taxes.

Tom Parsons, who runs the Bestfares.com travel website, said consumers should get a break.

"Why would the airlines deserve it?" he said. "They already hit us with enough fees. Now they're keeping the government fees too."

The Transportation Department says it will lose $200 million a week. J.P. Morgan analyst Jamie Baker said airlines could take in an extra $25 million a day by raising fares during the tax holiday.

Parsons said competitive pressure eventually will force the airlines to match — either they'll all pass the tax savings on to passengers, or they'll all raise fares and keep the money themselves.

Southwest Airlines and its AirTran subsidiary raised prices by $8 per round trip, said spokeswoman Marilee McInnis.

Southwest's support could be crucial if the airlines decide to keep the tax money. Southwest carries more U.S. passengers than anyone, and it effectively sets rates on many routes. Southwest torpedoed attempts by other airlines to raise prices in the last two weeks. CEO Gary Kelly has publicly worried that airlines could frighten away passengers by raising prices too high.

That may be less of a fear this time, however, since consumers wouldn't be shelling out more money for tickets — they just wouldn't get an unexpected discount, courtesy of Congress.

Several federal travel taxes expired when Congress adjourned for the weekend without passing FAA legislation. Lawmakers couldn't break a stalemate over a Republican proposal to make it harder for airline and railroad workers to unionize.

Air traffic controllers stayed on the job, but thousands of other FAA employees were likely to be furloughed.

Airlines stopped collecting a 7.5 percent ticket tax, a separate excise tax of $3.70 per takeoff and landing, and other fees. Those add up to about $32 on a round-trip itinerary with base fare of $240 and one stop in each direction.

Other government fees for security and local airport projects are still being collected. They boost the final cost of that $240 base-fare ticket to $300.

Passengers who bought tickets before this weekend but travel during the FAA shutdown could be entitled to a refund of the taxes that they paid, said Treasury Department spokeswoman Sandra Salstrom. She said it's unclear whether the government can keep taxes for travel at a time when it doesn't have authority to collect the money.

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AP Airlines Writer Joshua Freed in Minneapolis contributed to this report.

Follow David Koenig at http://www.twitter.com/airlinewriter

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