By Richard Cowan
WASHINGTON (Reuters) - A budget deal aimed at avoiding a U.S. government shutdown on January 15 and relieving federal agencies of some indiscriminate spending cuts that are set to begin with the new year could emerge in Congress on Tuesday, congressional aides said on Monday.
Democratic Senator Patty Murray and Republican Representative Paul Ryan are scheduled to meet on Tuesday with the goal of finalizing a deal, according to aides who asked not to be identified.
While Ryan and Murray have not yet struck a deal and negotiations could still fall apart, one of the aides said, "They are very close. You could maybe see a handshake come out of that meeting" on Tuesday.
If such a deal is reached, the specifics could then be given to senators who are holding closed-door meetings during lunches that Democrats and Republicans hold separately on Tuesdays.
For the past several weeks, Murray and Ryan, who head their chambers' respective budget panels, have been privately trying to reach a two-year budget deal that aims to end the Republican-Democratic brinkmanship over fiscal affairs that led to October's 16-day partial federal government shutdown.
According to aides, Ryan and Murray have been discussing an unambitious plan that would suspend some of the automatic spending cuts, known in Washington as "sequestration," that hit the Pentagon and other agencies hard.
In return for suspending some of the spending cuts, some revenues would be raised by cutting federal employees retirement benefits and raising some fees, such as those paid by air travelers.
Democrats have been resisting cuts to pension benefits for federal workers, and they also have been pushing for extending federal benefits for the long-term unemployed set to expire at the end of this month.
Republicans, meanwhile are balking at easing the automatic spending cuts, arguing that they have been effective in holding back Washington's spending that has contributed to a record $17.2 trillion in national debt that keeps rising every day.
INCREASED PENSION CONTRIBUTIONS
On Monday, a senior Senate Democratic aide said that workers would not have to increase their own contributions toward their pensions as much as previously thought.
The Congressional Budget Office had previously estimated that if each employee contributed an additional 1.2 percent of their salaries to get the same retirement annuities, it would save the government $19 billion over 10 years.
The fate of the long-term unemployment insurance extension remained unclear.
If Murray and Ryan can settle on a budget package, which would do nothing to rein in deficits over the long run, it likely would take support from both parties to get the measure passed in the House and Senate in coming days.
The core of the deal they have been discussing entails setting spending levels at around $1 trillion for each of 2014 and 2015 fiscal years for government agencies and discretionary programs ranging from education to the military. That's a slight increase from the $967 billion level expected for fiscal 2014, which began October 1, after the across-the-board sequestration cuts.
But some conservative House Republicans are expected to oppose even a small increase in planned spending levels because they view the sequestration cuts as the only tangible budget savings that Congress has achieved in recent years.
Senate Republican leader Mitch McConnell has expressed similar reservations.
"There is a lot of respect for Paul Ryan, and everyone will give him a fair chance to make his case," said a House Republican aide. "But beyond that, among the very conservative members there is a lot of skepticism about breaking the sequester caps."
A large group of conservative House Republicans has written a letter to House Speaker John Boehner urging him to maintain the automatic spending cuts and the tough budget caps that would keep spending at $967 billion through the current fiscal year.
"We encourage you to allow a vote as soon as practicable on a full-year ... funding bill at the levels established in law by the Budget Control Act," they wrote.
(Additional reporting By Susan Cornwell and David Lawder; Editing by Philip Barbara)