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U.S. deficits will have to wait as Congress moves on

Pedestrians walk past the U.S. Capitol building prior to U.S. President Barack Obama's State of the Union address in front of the U.S. Congr
Pedestrians walk past the U.S. Capitol building prior to U.S. President Barack Obama's State of the Union address in front of the U.S. Congr

By David Lawder

WASHINGTON (Reuters) - Congress just wants the U.S. budget wars to be over. If any more evidence was needed, 12 Republican senators swallowed their principles and voted to propel a "clean" one-year debt limit increase toward passage on Wednesday.

As a result, any major deficit reduction efforts are stalled in Washington for at least a year, and perhaps until the next president takes office in 2017.

The procedural vote, potentially toxic for some of the senators, would have been considered heresy three years ago, when the Republican Party made deficit reduction its top priority and the debt limit its main lever.

But the bitter fiscal battles since 2011, culminating in a 16-day government shutdown last October that was blamed on Republicans, have worn down party leaders, who would rather move on to more politically advantageous issues such as the problems plaguing President Barack Obama's signature healthcare reform law.

Indeed, lawmakers from both parties showed they have no lasting resolve to reduce entitlement spending, bowing to political pressure this week and reversing even modest cuts to military pension benefits.

WAIT UNTIL NEXT YEAR

Rank-and-file Republicans in both the Senate and House of Representatives grumbled about their failure to attach spending reductions to the debt ceiling extension, but the mood was that of a defeated sports team vowing to win the title next year. They voiced little appetite for another major showdown.

"There's a lot of frustration that this is our last moment to make progress on debt and deficits in this session (of Congress) and the moment's slipping away," said Representative James Lankford, a conservative Republican from Oklahoma.

"The next time that this will come up will be after the next election," he added. "Hopefully we can win the Senate and we can have a completely different conversation at that point."

Republicans need to gain six seats in the Senate to wrest control from Democrats, which would give them both chambers in Congress if they retain their majority in the House.

But political analysts say Republicans risked being blamed for another messy showdown over the debt limit, which could have imperiled their electoral prospects in this year's elections.

Lawmakers elected this November will take office in January 2015, three months before the newly approved borrowing extension expires.

Obama and his Democrats, who succeeded in their demands for a debt limit hike that was free of conditions, will certainly take the same defensive position.

They have shown little inclination to consider Republican demands for cuts to popular federal benefit programs such as Medicare and Social Security, which are consuming an ever larger share of the federal budget. Instead, they would prefer to increase tax revenues to ease deficits - a move consistently rejected by Republicans.

Hopes for an elusive "grand bargain" that would slash trillions of dollars from U.S. deficits over the next decade and start to shrink the $17.2 trillion federal debt have given way to political expediency.

"You're fighting a combination of no political leadership, a really hard issue, midterm elections and a complicit agreement between the parties to put this off for the time being," said Maya MacGuineas, who heads the Committee for a Responsible Federal Budget, a Washington group advocating deficit reduction.

Both Congress and Obama may be lulled into a sense of complacency by the dramatic shrinkage of deficits in recent years. The Congressional Budget Office forecasts that deficits for the next few years will be about half that of the more than $1 trillion in each of Obama's recession-shadowed first four years in office.

Treasury Secretary Jack Lew has said the United States now has some time to tackle its long-term deficit problem and that measures to boost economic growth should take priority.

FAST REVERSAL

Another sign of the waning appetite for tough budget decisions came this week in the form of a swiftly passed measure to repeal modest cuts to military pension benefits.

The 1 percent reduction to cost-of-living adjustments for non-disabled military retirees of working age were only approved in December and were hailed at the time as a small step toward dealing with the heavy costs of "entitlement" programs.

But members of both parties clamored to reverse the cut, with votes of 326-90 in the House and 95-3 in the Senate. The move will add $6.9 billion to deficits through 2024, when offsetting savings are scheduled to occur.

"They took a tiny, tiny try at dealing with budgetary trade-offs, and they didn't like it. They repealed it at the very first opportunity," MacGuineas said.

But a Congress that has only been able to pass major fiscal legislation when faced with a crushing deadline, may get an actual crisis to motivate it in 2016.

That is when the Social Security Disability Insurance trust fund, which pays benefits to people who cannot work because of medical conditions, is forecast to be depleted. If that occurs, some 11 million beneficiaries would lose 20 percent of their benefits.

"That would be the first time that we might be able to scare people into doing the right thing for the long term," said Steve Bell, a former Republican Senate Budget Committee staffer, who is now a senior policy analyst at the Bipartisan Policy Center.

But in a presidential election year, Congress may be more likely to enact a temporary funding fix that pushes the problem to the next administration, he added.

If that does not work, the CBO forecasts that deficits will begin rising again by 2017 as more of the huge baby-boom generation retires and starts to draw benefits. Deficits will approach the $1 trillion range again in the early 2020s, according to the CBO.

(Reporting By David Lawder; Editing by Peter Cooney and Ken Wills)

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