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Congress, dreading automatic cuts, eyes yet another trigger

By David Lawder

WASHINGTON (Reuters) - Of the many distasteful elements to the year-end "fiscal cliff" that Washington is desperately trying to avoid, few are more loathed than the automatic, indiscriminate spending cuts scheduled to begin on January 2.

Yet a repeat of this agonizing drama could play out next summer.

That is because Congress, as part of deal to avert the year-end fiscal cliff of steep tax increases and across-the-board budget cuts, is likely to enact another forcing mechanism, or trigger, to make sure it keeps its latest round of deficit-reduction promises.

Lawmakers say automatic cuts and tax changes will be needed later because there is too little time now to get specific, with Congress racing to undo the damage it did in 2011.

At best, President Barack Obama and House of Representatives Speaker John Boehner will agree on broad targets for increased tax revenues, cuts to federal healthcare and retirement programs and other savings.

"We are going to need an enforcement mechanism," said Representative James Lankford, a Republican on the House Budget Committee from Oklahoma. "I've only been here two years but the one thing I've learned is Congress won't do anything until they have to. Until we create a have-to moment, it'll never occur."

The so-called automatic "sequester" cuts - split evenly between the military and domestic programs - were dictated by the last deficit reduction deal in August 2011, which settled a bruising fight over raising the U.S. debt limit.

Those cuts were meant to be so painful that Congress would have no choice but to find $1.2 trillion in 10-year savings elsewhere by the end of 2012.

This does not mean that Congress will use the same meat-ax approach. Instead, lawmakers and policy analysts are recommending a rebranded version that is more targeted with a new name to replace the discredited term "sequester."

Among the possible substitutes under consideration are "fallback," "failsafe" and "backstop."

Democratic Senator Kent Conrad of North Dakota, the retiring chairman of the Senate Budget Committee, said the only way to get a deal by the end of the year is to agree on a "down payment" of some revenue increases, such as tax rises for the wealthy, and spending cuts.

The two sides would set forth a "framework" outlining targets for tax reform revenues and healthcare savings next year, he said, with the failsafe available in the event Congress fails to act.

"It's very important that the failsafe actually be good policy, because the failsafe may actually become the default position," said Conrad.

NO ROADMAP IN SEQUESTER

Most agree that the sequester was bad budget policy, leaving little flexibility in its implementation. Even Obama's latest public offer proposes to turn it off.

Because it targeted only discretionary spending on government programs, agencies and defense, it did not encourage lawmakers to make any progress on the biggest sources of potential savings - increased tax revenues and cuts to federal benefit programs known as entitlements.

"The current sequester doesn't do anything to tell you where the deal should be," said Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, a deficit- reduction group.

Essentially, more targeted trigger cuts and tax rises would be better than reductions to largely unrelated to programs that have already taken big cuts this year. But they would still pale in comparison with the full and specific savings that Congress aims to achieve next year, when it fills in the details of targets set out in any year-end deal.

For example, if lawmakers cannot agree on specific program cuts to achieve a certain level of savings to the Medicare healthcare program for the elderly, the trigger could automatically increase premiums charged to seniors or reduce reimbursement payments to healthcare providers.

Similarly, if revenue targets are not met through tax reform, across-the-board tax increases or caps on deductions could be imposed, analysts say.

"We don't want a trigger ever to be easy to live with. We want it to be related to the agreements that are reached," said Democratic Senator Ben Cardin of Maryland.

But skeptics say that any new, gentler trigger is unlikely to work any better than the sequester.

"They are looking for the 'Goldilocks' trigger - not so harsh that it would hurt to be implemented, but harsh enough that it will get them to act," said William Gale, a tax policy expert at the Brookings Institution.

"But there is no such thing, since they can always abolish triggers that they set earlier, as the deadline approaches. If the fiscal cliff is not a big enough of a trigger to get them to act, what would be?"

Some lawmakers, notably conservative budget hawks who want to cut military budgets as well as domestic spending, say the sequester is doing its job - forcing Congress to act.

"There has to be cuts to the budget. If the sequesters are the only way we can get them, so be it." said Representative Justin Amash, a Republican and libertarian maverick from Michigan.

(Additional reporting by Rachelle Younglai; Editing by Fred Barbash and Mohammad Zargham)

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