Both parties in Congress are discussing fallback plans for $60billion to $100 billion in deficit reduction to avert largerspending cuts and tax increases that could trigger a recession in2013, according to several congressional aides.

With Republicans including House Speaker John Boehner saying abroad tax-and-spending deal after the Nov. 6 election probablycan't happen, the two parties are separately discussing a downpayment to replace at least half of $110 billion in automaticspending cuts set to begin in January, said the Democratic andRepublican aides.

Congress might delay the rest of the spending cuts whilelawmakers work on entitlement or tax policy changes in the firsthalf of 2013, said the aides, who weren't authorized to talkpublicly about the discussions.

“There is this developing consensus around a down payment and aframework,” said Bob Bixby, head of the Concord Coalition inWashington, which advocates limited spending. The $60 billionfigure is “just enough to be taken seriously” by the nation'screditors, he said. “It's something to show that you're in thegame, that it's not just a total can-kick.”

The $60 billion to $100 billion in reductions would come fromunspecified savings from mandatory and discretionary federalspending, said the aides, who didn't give details because any planwould be open to negotiation.

Republicans and Democrats are still far apart on a broaderagreement on taxes. Republicans want the George W. Bush-era taxcuts, scheduled to expire at the end of this year, to be extendedfor everyone. Democrats want top earners to pay more.

One Democratic aide said the party may be willing to considercutting a larger share of spending from non-defense programs to geta deal through the House, assuming the Bush tax cuts expire becauseboth sides can't reach a consensus on continuing them.

The parties have fought during Obama's presidency overRepublicans' desire to extend the tax cuts for all income levelsand Democrats' effort to end the cuts for income exceeding $250,000a year for married couples and $200,000 for individuals.Republicans have insisted that tax increases can't be part of anagreement on deficit reduction, while Democrats say top earnersshould pay more.

A 2011 deficit-reduction agreement between Obama andcongressional leaders created the so-called fiscal cliff of $607billion in spending cuts and tax increases starting in Januaryunless Congress acts to stop it.

BlackRock Inc. Chief Executive Officer Laurence D. Fink saidyesterday the economy could shrink at the start of 2013 ascompanies curb hiring ahead of the fiscal cliff.

Creditors' Concerns

The Democratic and Republican congressional aides say a $60billion down payment on spending cuts may be the largest amountthey can come up with this year, and the minimum needed to calmconcerns by the nation's creditors that Congress and the presidentare incapable of addressing the budget deficit.

The aides said stopgap plans being considered by each partycould continue miscellaneous tax breaks, prevent more people fromhaving to pay the alternative minimum tax and delay cuts inMedicare payments to doctors. Democrats are also talking about waysto extend expanded unemployment benefits.

The Senate's No. 2 Democrat, Dick Durbin of Illinois, said atthe Democratic presidential convention in Charlotte, NorthCarolina, that many lawmakers want to “buy” a six-month delay inthe scheduled tax increases and spending cuts by finding other waysto reduce the deficit.

Paul Weinstein, a former White House domestic policy aide whoadvised Obama's 2010 fiscal commission, said a $60 billion dealwould be “pretty small.” He said it would give Congress only a fewmonths to work out differences on a broader agreement withoutroiling the credit markets.

“I wouldn't be surprised if there's a short-term deal,”Weinstein said. “I'm not sure that $60 billion without some kind oftimetable or bigger deal is going to satisfy the ratingsagencies.”

In September, Moody's Investors Service said it would probablycut its triple A rating on U.S. government debt if deficitnegotiations fail. Moody's cut its outlook on U.S. debt to“negative” in August 2011, a warning that it might downgrade therating. That same month, Standard & Poor's stripped thegovernment of its triple A rating on bonds.

There's little sign that Republicans and Democrats areaccomplishing much before the election to bridge theirdifferences.

Bipartisan Group

Last week, a bipartisan group of U.S. senators that has workedon the issue for almost two years finished a three-day retreat atMount Vernon in Virginia with no sign of progress. The Democraticand Republican aides said little or no bipartisan work is beingdone by the committees governing taxes and entitlements.

Last week, New York Senator Chuck Schumer, the Senate'sthird-ranking Democrat, rejected a tax overhaul that would lowerincome tax rates while limiting deductions and credits, whichRepublicans consider an essential part of a deficit agreement.

In the House, Boehner said he is reluctant to back a majordeficit-reduction deal in a post-election session. It's unclearwhether Boehner, an Ohio Republican, could get the chamber'santi-deficit advocates to go along with a $60 billion deal thatwould delay the second half of the scheduled spending cuts.

Failure to reach a deal would put the nation at risk of anotherrecession, said former New Hampshire Senator Judd Gregg, aRepublican and co-chairman of the Campaign to Fix the Debt, anonpartisan group urging a debt compromise.

“We cannot afford to have the fiscal cliff,” Gregg said. 'Itwould definitely throw us into reverse, if not directly intorecession. It would be a terrible failure of government for that tohappen.''

Many Democrats, including Senate Majority Leader Harry Reid ofNevada, predict that an Obama victory on Nov. 6 would strengthenhis hand in persuading Republicans to agree to tax increases.Conversely, Republicans say a win by Republican presidentialnominee Mitt Romney would cause Democrats to give in on extendingtax cuts for all income levels.

There will be other political considerations after the election.Boehner will be reluctant to agree to a compromise that wouldfrustrate anti-tax Tea Party members in the House before January,when the Republican rank-and-file will decide whether to re-electhim as speaker.

Some Democratic leaders, including Senator Patty Murray ofWashington, say they are willing to let all of the Bush-era taxcuts temporarily expire next year rather than continue them for allincome levels.

White House and congressional aides are working on ways toaddress the tax-and-spending issues depending on which party willcontrol the White House and the House and Senate in 2013, accordingto congressional aides.

In July 2011, Obama and Boehner came close to reaching anagreement before talks broke down, at least in part over whetherfresh tax revenue should amount to $800 billion or $1.2 trillion.Democrats say that could provide the basis of negotiations betweenObama and Boehner after the election.

Bloomberg News