As some in GOP weigh more cuts, deficit picture improves--for now

The federal budget deficit is projected to fall to $317 billion for the fiscal year that ended last Friday, a nearly $100 billion improvement from the previous year's record-setting $412 billion, the Congressional Budget Office reported Thursday.

The new number might provide a short-term boost for Republican lawmakers, who are eager to head home for the Columbus Day recess and be able to reassure constituents they are acting to curb soaring disaster-related and other spending.

But the help is likely to be short-lived, as the number does not take into account the impact of Hurricanes Katrina and Rita, which CBO has said will cause the deficit to spike over the next few years.

After prodding from GOP conservatives, House Budget Committee Chairman Jim Nussle, R-Iowa, Thursday proposed to sharply increase cuts in entitlements as part of reconciliation -- to $50 billion over five years rather than $38.5 billion he had proposed just a day earlier.

Meanwhile, Senate Republicans are considering taking a page from Democrats by going after a favored GOP initiative -- Medicare funds allotted to entice private health plans to offer managed care -- to save some money.

At a meeting of the House Republican conference Thursday night, Nussle was to outline a series of principles developed with leadership.

Along with further entitlement cuts, they were to include a 2 percent across-the-board cut in discretionary accounts; "de-authorization" of terminated programs; rescissions of "unnecessary, or low-priority" spending; and enforcement of offsets for any hurricane-related mandatory spending increases.

Senate Budget Committee Chairman Judd Gregg, R-N.H., said $50 billion was needed to simply offset immediate Katrina relief expenses -- roughly 75 percent to come from mandatory spending -- on top of the regularly scheduled reconciliation process. Gregg also favors offsetting new mandatory spending.

Under a rarely used "sequestration" process, the Office of Management and Budget can reduce many entitlement programs across the board if new legislation increases the deficit.

Gregg is soliciting ideas from senators ranging from freezing congressional pay raises and federal cost-of-living-adjustments to larger offsets like scaling back the new Medicare prescription drug benefit to its initial cost estimates, tightening requirements for the Earned Income Tax Credit and trimming non-security discretionary spending by 1 percent. The latter three proposals alone would save $50 billion over five years.

Any targeting of the Medicare drug benefit is unlikely to garner leadership or White House support. But Gregg and Senate Finance Committee Chairman Chuck Grassley, R-Iowa, are clearly going after Medicare as a whole for savings.

Grassley is trying to work out an agreement among Finance Committee Republicans that would reduce the growth of entitlements within his jurisdiction by $12 billion, as he prepares to mark up his portion of the reconciliation package after Columbus Day.

As much as $8 billion in net savings could come from Medicare, with the rest from Medicaid, although Grassley is considering attaching a $6 billion Gulf Coast Medicaid expansion plan that would require additional offsets.

But overall Medicare cuts could reach as high as $16.5 billion, with some savings plowed back into other spending such as Medicare physician payments. Sources said the Finance Committee is considering finding some of the savings by dipping into the $10 billion Medicare "stabilization" fund included in the 2003 law creating the new prescription drug benefit.

The HHS secretary can use that money to give private plans incentives to offer managed care in areas that otherwise would be too expensive for them to serve. Democrats have long wanted to repeal the fund, calling it a "slush fund" for HMOs.

Reports of a raid on that fund have prompted furor among private insurers. If Congress uses those funds before the Medicare prescription drug bill goes into full effect, insurance plans might not be able to count on keeping their plans in place, they argue.

"It signals that the government is not a reliable business partner," said Alyssa Fox, vice president for legislative and regulatory policy for Blue Cross Blue Shield, one of the biggest providers of private Medicare plans.