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Focus shifting in Congress from automatic cuts to dueling budget plans

Senate Budget Committee chair Senator Patty Murray holds up a copy of a federal employees' Worker Adjustment and Retraining Notification (WA
Senate Budget Committee chair Senator Patty Murray holds up a copy of a federal employees' Worker Adjustment and Retraining Notification (WA

By David Lawder and Mark Felsenthal

WASHINGTON (Reuters) - With little prospect of getting rid of the automatic spending cuts that kicked in on March 1, the Congress and the White House will move on to bigger budget battles this week as dueling Republican and Democratic proposals land in the House of Representatives and the Senate.

Neither budget plan is likely to be enacted. But the proposals to be submitted by Republican Representative Paul Ryan of Wisconsin and Democratic Senator Patty Murray of Washington should frame the debate over the government's taxing and spending priorities for the next few months and possibly into the 2014 Congressional elections.

The budgets from Ryan and Murray, who chair the budget committees in the two chambers, are widely seen as wish-lists unacceptable to the opposing party, underscoring the depth of the fiscal divide.

Ryan plans to unveil on Tuesday a slightly modified version of the budgets passed by the House in each of the past two years, cutting spending by $5 trillion over a decade and partially privatizing the Medicare health plan for retirees and dismantling President Barack Obama's healthcare overhaul law.

With the help of $620 billion in new tax increases on the wealthy as a result of the January "fiscal cliff" deal, Ryan's plan aims to balance the budget by 2023, compared with 2040 in his last year's proposal. But further tax increases are out of the question, he said on Sunday.

Murray has signaled that her budget will aim to give the economy some breathing room to allow faster growth in the next few years, while maintaining social safety net programs and making critical investments in education and research.

Her budget is not expected to achieve balance as Ryan's does, but will aim to shrink deficits down to a sustainable level that will allow debt as a percentage of the economy to start declining.

The plan will get there by eliminating some of the estimated $1 trillion in "tax expenditures" - subsidies paid through tax deductions, credits and other exclusions. Based on Murray's comments and recent Senate Democratic proposals to replace the automatic cuts, these loophole closures will focus on the wealthy.

"At a time when we absolutely must cut where we can, looking at ways we can close special tax breaks that aren't targeted to help the middle class or our economy just makes sense," Murray told a Senate Budget Committee hearing last week.

"There's no good reason, for example, that taxpayers currently subsidize millionaires more, when they purchase a second home, or a yacht, than they do middle-class families purchasing their first home."

Many Republicans, including Ryan, also want to close these loopholes, but they want to divert the savings to reduce tax rates. This sort of comprehensive tax reform, they argue, will create a simpler, cleaner tax code that will foster economic growth.

The budget proposals will focus on the 2014 fiscal year that starts on October 1, leaving in place the first $85 billion in automatic cuts - called the "sequestration" - at least for the time being.

A Senate Democratic bill to fund the government through the end of the current fiscal year will make no effort to replace the cuts, focusing instead on ways to grant agencies authority to better manage their expenditures.

"We know that coming up with the $85 billion to solve sequester has to be done at the leadership and presidential level," the bill's author, Senate Appropriations Committee Chair Barbara Mikulski of Maryland, said last week.

The White House on Monday acknowledged that elimination of the across-the-board spending cuts will likely come only as part of a larger, comprehensive budget deal with Republicans, many of whom are determined to keep the $85 billion in savings.

"So, our focus now, as the president has said, is on working with Congress" on the regular budget process, "and through that process hopefully produce a bipartisan agreement on deficit reduction," White House spokesman Jay Carney told reporters.

NEW STARTING LINES

The week marks "a transitional moment" for Congress, said one aide, because it represents a return to the normal legislative process of considering budget resolutions in both chambers.

For more than two years, Washington has lurched from crisis to crisis amid "leadership-brokered" deficit deals and stop-gap spending extensions.

The Democratic-controlled Senate has not passed a formal budget resolution in nearly four years.

By returning to so-called "regular order," the Republican-controlled House in particular aims to engage more lawmakers in the process of deciding how to cut deficits so that there is more support among rank-and-file members for the finished product.

The last two major deficit deals were reached at the last minute at the highest levels of the White House and Congress, staving off a potentially devastating debt default in 2011 and averting a massive tax increase on January 1.

Obama will continue his efforts to engage congressional Republicans and Democrats directly, by holding meetings with lawmakers this week.

Obama's shift to a "charm offensive" in dealing with members of Congress likely reflects a sense of public weariness from endless budget battles, said Steve Bell, a former staff director of the Senate Budget Committee and now with the Bipartisan Policy Center, a Washington think tank.

"It's important to change the subject away from debts and deficits and instead talk about things where you can make progress - immigration reform, for example, or on guns," Bell said.

With the effects of the automatic spending reductions yet to fully kick in, the president may be counting on public pressure to build on for an alternative to the deep cuts, Bell said.

In the meantime, the president can establish links with members of Congress of both parties and work on other issues.

(Editing by Fred Barbash and Mohammad Zargham)

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