Factbox: New U.S. budget panel, same problems on taxes, spending

Factbox: New U.S. budget panel, same problems on taxes, spending Thu, Oct 17 15:53 PM EDT WASHINGTON (Reuters) - Another U.S. budget deal, another special committee in Congress to find future budget savings. The creation of this latest panel is a fundamental part of the emergency law signed by President Barack Obama early on Thursday to end a 16-day federal government shutdown and avoid a default on Washington's debt. Reminiscent of the 2011 "supercommittee" that failed to agree upon one penny's worth of deficit-reduction - much less the $1.2 trillion in savings over 10 years it was tasked to identify - this newly formed group is hoping to arrive at a happier outcome. Some lawmakers have suggested a modest compromise of perhaps a few hundred billion dollars is achievable, but there is still skepticism about its chances of success. The Republican and Democratic negotiators from the House of Representatives and Senate have less than two months to bridge deep divisions over taxes and spending that have been festering for years. The new law requires the panel to report a budget plan by December 13. For those who are superstitious, it is worth noting that is a Friday. Government funding runs out again on January 15, providing a new shutdown threat as an incentive. Here are some of the deficit-cutting ideas the committee is likely to consider: ENTITLEMENT REFORMS AND OTHER SPENDING The long-term costs of Social Security, Medicare and Medicaid are rising sharply as an aging U.S. population increasingly draws benefits from these retirement and healthcare programs, ballooning projected deficits in the next decade and beyond. A major hang-up of past budget fights: Many liberal Democrats fought entitlement savings, saying they will hurt the elderly and poor. Obama has argued that if the poor and middle class shoulder some of the deficit reduction burden, so should the rich through higher taxes, which Republicans oppose. Obama's budgets have proposed hundreds of billions of dollars in relatively modest savings that were never taken up by Congress. House Budget Committee Chairman Paul Ryan, a member of the new negotiating panel, has his own more dramatic proposals for savings. Among ideas that have been floated: using a less generous inflation measure to hold down benefits growth, means testing to require the wealthy to contribute more towards their elderly health coverage, paring doctors' payments, reducing military medical and retirement benefits as well as prescription drug coverage. Farm subsidies and some higher education grants have also been discussed as cuts from automatic spending programs. TAX REFORMS Tax-writing committees of Congress have been looking at comprehensive reforms for years. Republicans want to simplify the tax system. By eliminating deductions and credits and using the savings to reduce individual and corporate tax rates, they hope to spark an explosion in growth that will fill federal coffers and eliminate deficits. Democrats back the overall approach, but many say that Washington needs to collect more taxes from the wealthy, on top of the tax increase on individual income above $400,000 and on capital gains that they won in last January's fiscal cliff fight. In past negotiations between Obama and House Speaker John Boehner, the two talked about additional tax revenues of around $800 billion. But that was before the January tax increase. Since then, Boehner has insisted on no more revenue increases. Eliminating all sorts of tax breaks could be debated, from imposing new taxes on healthcare benefits to ending deductions and credits for corporate jets and oil drilling to home mortgage interest. The U.S. tax code, last revamped in 1986, is an outdated, sprawling behemoth riddled with "loopholes" and it is unlikely this committee can accomplish a total rewrite in two months. But some hope the special panel can provide some directions that the Senate Finance Committee and House Ways and Means Committee could build upon early next year. AUTOMATIC SPENDING CUTS Democrats hate automatic spending cuts. So do some influential Republicans such as House Appropriations Committee Chairman Harold Rogers and those who support strong military spending. Tea Party activists love them. The $1.2 trillion in across-the-board cuts over 10 years started phasing in early this year because of the failure of the supercommittee to find more targeted savings. Among ideas that have circulated: Give federal agencies more flexibility in carrying out the automatic cuts; exempt the military from some or all of the cuts; replace them with savings from mandatory programs or tax increases discussed above. OBAMACARE After Republicans failed in their efforts to use the government shutdown and debt limit deadlines to delay core parts of Obama's signature healthcare reform law, some are looking to the budget panel as the next round in their fight against Obamacare. They argue that it is an expensive new federal benefit with $1 trillion in new outlays over a decade, and is already costing jobs and raising insurance premiums, hurting economic growth. Democrats claim that the program is already contributing to a slowdown in the growth of healthcare costs and point to Congressional Budget Office estimates that, overall, it will reduce deficits by $165 billion over 10 years and by more than $1 trillion in the subsequent decade. Problems with the launch of new Obamacare insurance exchanges will influence the debate. ECONOMIC GROWTH, INTEREST COSTS Senate Democrats have proposed new spending on infrastructure projects as a means to jolt an anemic economy into a higher level of job growth. Creating more jobs will generate more tax revenues to shrink deficits, but Republicans are in no mood for more stimulus. Democrats are more likely to argue in favor of solutions that emphasize near-term growth, such as turning off the sequester spending cuts, which the CBO projects will cost around 600,000 jobs through the end of 2014. Interest costs remain a wildcard in any budget solution to be considered by the committee. House Budget Chairman Ryan notes that unless some serious new budget cuts are achieved, Washington could get socked with higher interest costs that blow up deficits and spiral out of control in future years as the interest rates rise from historically low levels. These rates would have shot up much higher, much faster had a failure to lift the debt ceiling thrown the U.S. Treasury into default. (Reporting By Richard Cowan and David Lawder; Editing by Karey Van Hall and Cynthia Osterman)

Laura Hallam I think the global economic decline spear headed by the States is wonderful stuff. First and foremost it will stop rampant consumerism, ensure that be get back to our base values and live within our means. Will also stall the raping and pillaging of our planet, stop the absolute reliance on the dollar and level the playing field that other global players can see their day. Frankly, it allows all of us to become decent human beings who live our lives with empathy - something that is very lacking currently. So I sit and smile and wait for when the cards come tumbling down for the States. America was a country that I always aspired to live in, at least for a couple of years. Now... no thank you!!