Republicans eye bigger cuts amid budget fight

By Andy Sullivan

WASHINGTON | Fri Apr 1, 2011 4:33pm EDT

WASHINGTON (Reuters) - As the biggest spending cut in U.S. history takes shape in Congress, Republicans are preparing a more ambitious proposal that could scale back the benefit programs that account for the majority of government spending.

Republicans in the House of Representatives are expected to unveil a budget plan next week for the coming fiscal year that would cut taxes, deepen spending cuts and cut the Medicaid health-insurance plan for the poor and disabled, according to lawmakers and aides familiar with the plan.

House Speaker John Boehner said Congress needed to address the rising cost of benefit programs that were expected to explode in the coming decades due to an aging population.

"It's clear that Washington has to act on the big challenges that face our country," Boehner said at a news conference. "It is time to quit kicking the can down the road."

The plan will move more aggressively to cut budget deficits, which have hovered around 10 percent of gross domestic product in recent years, than a proposal put forward by President Barack Obama, lawmakers said.

But it would not balance the budget for 20 years at the earliest, said Republican Representative Tim Scott. That may not be fast enough for the party's more conservative members, who are planning a budget proposal of their own.

The proposal, which House Budget Committee Chairman Paul Ryan is expected to unveil on Tuesday, serves as a blueprint for the coming fiscal year, which starts on October 1.

It will arrive in the thick of a debate over the budget for the current fiscal year. Lawmakers have taken the government to the brink of a shutdown as they struggle to reconcile a Republican plan that would cut $61 billion from the current budget with a Democratic plan that would keep spending essentially flat.

The two sides have tentatively agreed to a cut of $33 billion, which would be the largest domestic spending reduction in U.S. history and a big victory for Republicans who won control of the House of Representatives last fall on a promise to scale back the size of government.

That fight has been largely confined to the 13 percent of the $3.7 trillion federal budget that is devoted to annual domestic spending, but the Republican proposal for 2012 will broaden the battlefield to encompass healthcare spending, taxes and possibly retirement benefits as well.

"We need to get the debate over to where it matters: entitlements," said Republican Representative Tom Cole, a member of the House Budget Committee.

Though it does not have the force of law, Ryan's budget blueprint gives marching orders to other House members as they write tax policy, set spending levels and oversee benefit programs like crop subsidies, Social Security and the Medicare health-insurance program for retirees.

A Ryan spokesman said it was premature to comment on the details of the plan.

ANOTHER SHOWDOWN WITH THE SENATE

The plan will set up another showdown with the Democratic-controlled Senate, where Budget Committee Chairman Kent Conrad has said that more tax revenue may have to accompany spending cuts and an overhaul of benefits in order to balance the budget.

Ryan's budget will propose lowering corporate and individual income tax rates, said Republican Representative Bill Flores, who sits on the Budget Committee.

It will propose further cuts to domestic spending beyond the levels currently being debated by Congress, Cole said.

It will probably not cut defense spending beyond levels put forward by Defense Secretary Robert Gates, several Republican lawmakers indicated.

A likely target is Medicaid, which accounts for roughly 8 percent of federal spending. States will be required to expand their Medicaid programs to comply with Obama's healthcare reform law starting in 2014, which has drawn objections from many Republican governors.

Ryan has backed plans in the past that would give states block grants to run the program while cutting the overall cost of the program.

As a program primarily aimed at poor people, Medicaid is not as politically popular as programs that benefit all retirees, such as Medicare and Social Security. Lawmakers say it is one of the easiest benefit programs to fix.

Democrats have signaled their opposition.

A block grant proposal "simply gives governors a blank check and a license to deny critical care to millions of seniors and to people with disabilities," said Representative Chris Van Hollen, the top Democrat on the Budget Committee.

Ryan's plan may shy away from some of the more aggressive proposals put forward by Republicans in the past. Though Boehner and other Republican leaders have advocated raising the retirement age, Ryan's budget may steer clear of proposing changes to the Social Security retirement program, aides said.

A plan by former Republican President George W. Bush to allow workers to invest some of those savings in the markets died in Congress in 2005.

Though Ryan's plan may cut the Medicare healthcare program for retirees, it might leave out a controversial fix he has backed in the past that would give recipients a fixed amount of money to buy private health insurance.

(Editing by Paul Simao)