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Republicans unveil 10-year plan to shrink deficit

By Richard Cowan and David Lawder

WASHINGTON (Reuters) - A 10-year, $4.6 trillion balanced budget proposal unveiled by Republicans on Tuesday could either be shelved within weeks or help jump-start negotiations with President Barack Obama toward a major deficit-reduction deal.

House Budget Committee Chairman Paul Ryan's plan - his latest version of the "Path to Prosperity" measure that has been rejected by Democrats previously - likely will be approved this month by the Republican-controlled House of Representatives.

The House Republican budget "ends cronyism, eliminates waste, fraud, and abuse and returns the federal government to its proper sphere of activity," Ryan said.

The blueprint would give Republicans bragging rights that they have crafted a balanced-budget plan, even if it is based on pie-in-the-sky assumptions, such as the repeal of Obama's 2010 healthcare overhaul.

With its cuts to social programs including Medicaid, which provides healthcare for the poor and some people with disabilities, the measure will stand in stark contrast to a competing 2014 budget outline that Senate Democrats will unveil this week. That measure will rely partially on tax increases to get control of a massive government debt.

Democrats will argue that the Ryan budget would undercut U.S. economic growth and that their alternative will more effectively create jobs in the near-term.

A significant chunk of Ryan's proposed savings - about $1.8 trillion - come from the unlikely prospect of repealing the Obama health reforms.

Another slab, totaling $931 billion over 10 years, would come from counting savings from ending the wars in Iraq and Afghanistan, which is money that critics argue would not have been spent anyway, and from changing accounting methods for the cost of domestic emergencies, such as hurricane rebuilding.

Ryan's plan leaves savings in place from automatic spending cuts that began on January 1, and shaves another $249 billion from the discretionary spending category that funds the military and programs ranging from education to national parks.

'FRAUDULENT AT WORST'

Democrats' response to Ryan's budget was biting.

Senate Majority Leader Harry Reid said the plan would shower new tax breaks on the rich and hit the middle class with higher taxes, all the while cutting essential government services such as food inspections and law enforcement, and weakening Medicare.

That budget, Reid added in a speech on the Senate floor, "relies on accounting that's creative at best and fraudulent at worst."

Despite their severe differences, budget optimists hope that the House Republican and Senate Democratic plans will be the opening salvos in a serious deficit-reduction effort this year.

Ryan, a Wisconsin lawmaker who was the Republican vice presidential nominee in 2012, relies again on major cutbacks to Medicaid by giving states more flexibility to run the program.

A total of $756 billion in savings would be achieved over 10 years on Medicaid, according to a summary of the House Republican budget outline.

Medicare, the federally-backed healthcare program for the elderly and disabled, would see savings of $129 billion over a decade. Eventually, the program would be converted into a voucher-like plan with the elderly receiving subsidies to purchase private insurance or traditional Medicare.

Those Americans now aged 55 or older would maintain their current benefits, however.

Democrats have complained that Ryan's approach would cost older Americans thousands of dollars a year in added healthcare costs while letting the rich keep tax breaks that cost the Treasury Department tens of billions of dollars.

Ironically, Ryan's drive to balance the budget in 10 years is aided by new tax revenues on the rich that Democrats won at the beginning of this year - the very ones that Republicans fought to stop.

REACHING FOR A BUDGET DEAL

Over the past four years, U.S. budget deficits have surpassed $1 trillion annually, contributing to a rapidly escalating national debt that now stands at nearly $16.7 trillion.

Ryan's proposal comes as Republicans and Democrats have been considering the possibility of finding a long-term budget compromise following more than two years of bitter disputes.

Over the past week, Obama has met privately with Republican lawmakers to feel out their willingness to cut a deal. This week the Democratic president is holding four separate meetings with members of Congress to explore possibilities.

Even so, some Republican lawmakers in recent days have noted "an impasse" over tax policy, as Democrats continue to insist on additional tax increases on the wealthy and some corporations.

And Ryan's budget does not shy away from new taunts at Obama as it proposes repealing the president's landmark healthcare law that is gradually being implemented after several failed attempts by Republicans to kill it and a U.S. Supreme Court ruling that rejected key challenges to the law.

The House Republican plan envisions U.S. budget deficits falling sharply to $528 billion next year, $125 billion in 2015 and $69 billion in 2016.

While the nation's finances would be strengthened through $4.6 trillion in lower deficits over 10 years, not all of the savings would come through spending cuts.

The Republican budget foresees $700 billion less in interest payments over the next decade, compared to current policy, because of the slowdown in government borrowing.

Debt held by the public would fall from 77.2 percent of GDP next year to 54.8 percent by the end of the 10-year budget window, according to the House Budget Committee.

Besides tackling spending, the Ryan budget calls for reforming the nation's outdated tax code and creating just two income tax brackets of 10 percent and 25 percent.

With Obama and lawmakers trying to reach a budget deal by late July or early August, there is widespread skepticism that an overhaul of tax laws can be accomplished in such little time.

(Editing by Fred Barbash and Xavier Briand)

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