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Partisan battle lines drawn on taxes as U.S. budget talks begin

Rep. Paul Ryan (R-WI) questions Marilyn Tavenner, administrator of the Centers for Medicare & Medicaid Services, during a House Ways and Mea
Rep. Paul Ryan (R-WI) questions Marilyn Tavenner, administrator of the Centers for Medicare & Medicaid Services, during a House Ways and Mea

By David Lawder and Caren Bohan

WASHINGTON (Reuters) - U.S. lawmakers launched a new round of budget talks on Wednesday with pledges to work toward easing automatic government spending cuts, but drew familiar partisan battle lines over boosting tax revenues to help pay for that.

The 29-member congressional negotiating panel, commissioned under this month's deal to end a government shutdown and lift the federal debt limit, has until December 13 to agree on a plan that would at least reduce the effects of $109 billion in spending cuts looming in 2014.

Opening statements from both Republicans and Democrats were consistent with recent comments from some lawmakers that a "grand bargain" to reduce deficits by more than $1 trillion is simply not possible in the current environment. Instead, lawmakers said it was important to focus on a smaller deal to ease the automatic "sequester" spending cuts.

"I want to say this from the get-go: If this conference becomes an argument about taxes, we're not going to get anywhere," said Representative Paul Ryan, the House of Representatives Budget Committee chairman, who is leading the Republicans on the panel.

Democratic leaders of the conference committee said they wanted part of any budget savings to come from increased revenue raised by closing some tax breaks for corporations and wealthy Americans.

Ryan and other Republicans said the sequester cuts, which hit the military and domestic discretionary spending, should be shifted to expensive federal benefits such as the Social Security retirement program and the Medicare health insurance program for the elderly.

Any savings from eliminating tax deductions and subsidies should instead be used to lower tax rates, Ryan said, arguing that would spur stronger economic growth, leading to increased revenue collection.

"Let's focus our energy on the task at hand: a budget that cuts spending in a smarter way," said Ryan, his party's vice presidential nominee last year.

The panel's Democratic leader, Senate Budget Committee Chairwoman Patty Murray, said she was prepared to make some compromises on spending cuts, but only if Republicans were willing to do the same on taxes.

"While we scour programs to find responsible savings, Republicans are also going to have to work with us to scour the bloated tax code - and close some wasteful tax loopholes and special-interest subsidies," Murray said, adding it was "unfair - and unacceptable - to ask seniors and families to bear this burden alone."

The panel will next convene publicly on November 13, but members and staff will hold informal discussions over the next two weeks.

NON-TAX REVENUE HOPE

Representative Tom Cole, a moderate Republican on the panel, offered a ray of hope for some middle ground on revenue, proposing that the panel consider moves that would increase non-tax revenues.

Those include allowing corporate profits held overseas to be repatriated at a lower tax rate than the current 35 percent, encouraging more money to be brought back and invested in job-creating projects. He also suggested offering more leases for oil and gas drilling on federal lands and offshore, and one-time federal asset sales.

"More revenue doesn't, and shouldn't, mean higher taxes," said Cole, who is from energy-rich Oklahoma.

Asked by reporters after the meeting whether he would consider any revenue from closing tax breaks, he joked he wanted to "leave a little bit of helpful ambiguity."

The budget panel has 22 senators and seven House members. Any deal would need a majority vote in each chamber. Democrats control the Senate, while Republicans control the House.

DIVISION ON BENEFIT CUTS

While Democrats were united in their demand for revenues to ease the sequester, some argued against cutting programs that aid the elderly and the poor.

Representative James Clyburn of South Carolina, the third-ranking House Democrat, said such cuts would reduce spending on other goods and services, slowing economic growth.

"Cutting benefits cuts jobs and cutting jobs is not the way to reduce the deficit," Clyburn said.

Members of the negotiating panel from both parties cautioned against another government shutdown threat after this month's 16-day closure of many federal agencies.

While there is no immediate consequence if the committee fails to reach a deal by December 13, the government would face a new shutdown threat on January 15 as the current funding extension expires. On the same day, a new round of automatic "sequester" spending cuts would be due to start.

"Let's pledge to do this - not shut the government down," said Senator Lindsey Graham, a South Carolina Republican, adding he did not see a lot of room for reconciling vastly different longer-term budget visions.

"I hope we can find a way to fund this government through September. That would be good for all of us," Graham added.

While many Republican conservatives have sought to keep the automatic spending cuts in place, the next round of cuts would hit the military harder next year with about $20 billion more in cuts compared to 2013.

That may motivate some Republicans to push for alternative savings.

(Editing by Will Dunham and Peter Cooney)

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