Negotiators set target for spending cuts

House and Senate budget negotiators Tuesday agreed on a $40.5 billion target for reducing mandatory spending over five years, as they try to wrap up conference deliberations on a $2.6 trillion fiscal 2006 budget resolution today in time for floor action Thursday.

Final details were still in flux Tuesday evening, but negotiators were focusing on finding nearly half the required savings by slowing the rate of growth of Medicaid and requiring employers to pay higher premiums to the Pension Benefit Guaranty Corp. Medicaid savings were expected to total about $10 billion, while higher pension premiums were hovering in the $8-9 billion range, according to congressional aides.

Many Republicans in Congress are unhappy with the proposals, and business groups on Tuesday were mounting a last-ditch lobbying effort to head off higher pension premium hikes. But Senate Budget Committee Chairman Judd Gregg, R-N.H., called Medicaid and PBGC savings the centerpiece of the budget blueprint's goal of trimming entitlements.

"I think whatever number we reach will drive policy in both those areas to try to get our fiscal house in order," Gregg said.

Farm groups and their backers in Congress were able to head off higher cuts from Agriculture Department programs, however, as negotiators have apparently settled for about $3 billion in savings, as proposed by the Senate. Gregg, a longtime critic of farm subsidies, nonetheless backed the demands of Senate Agriculture Committee Chairman Saxby Chambliss, R-Ga.

The Bush administration had originally proposed $18.1 billion in pension savings, in part to head off a savings-and-loan type bailout of the troubled federal insurer, which ran a $23.3 billion deficit during the last fiscal year. But even halving the administration proposal did not please business groups.

"The best way to ensure the financial health of the PBGC and the defined benefit system is to keep employers in the system, not to tax them out of the system," seven business groups, including the U.S. Chamber of Commerce and National Association of Manufacturers, wrote to lawmakers Tuesday.

The emerging budget agreement also calls for about $7 billion in additional cuts to programs within the expansive jurisdictions of the House Ways and Means and Senate Finance committees. That could eventually include some Medicare savings in areas other than the new prescription drug program, which President Bush has vociferously opposed, as well as savings from the Earned Income Tax Credit and other low-income programs.

Also within the jurisdiction of those committees is an eventual tax cut package, for which negotiators were closing in on a $70 billion five-year target. House Ways and Means Committee Chairman Bill Thomas, R-Ill., had not yet signed off on that late Tuesday night. That total will allow for temporary extensions of lower capital gains and dividend tax rates, among other GOP priorities, to move under reconciliation protections in the Senate, although it would be more difficult to enact permanent extensions, as Thomas has sought.

The budget also assumes $2.5 billion in revenues from legislation to open the Arctic National Wildlife Refuge to oil and gas drilling, which would not be subject to a Senate filibuster when included in reconciliation.

House Majority Whip Roy Blunt, R-Mo., said he thought House Budget Committee Chairman Jim Nussle, R-Iowa, had produced an agreement the House could pass, noting its mandatory spending reductions and tight $843 billion fiscal 2006 discretionary spending cap, which assumes almost a 1 percent cut to domestic programs.

"I think this is a budget that our members will be able to move forward with and feel good about. I believe it's the first time since Reagan was president that we've actually cut domestic discretionary spending," Blunt said.