"We're trying to find common ground, but we're not there yet," House Budget Committee Chairman Paul Ryan, R-Wis., said as he opened the meeting. "The hard part is figuring out where we agree."
Senate Budget Committee Chairman Patty Murray of Washington, the lead Democratic negotiator, expressed more optimism, saying she and Ryan have had a number of private discussions about the "parameters" of a potential agreement.
"I'm very encouraged," Murray said, adding: "I'm hopeful we will get to a bipartisan compromise very soon."
At the very least, both sides hope to agree on a plan to replace sharp automatic cuts to agency spending -- known as the sequester -- with more considered reductions to other parts of the federal budget. That would permit Congress to set a funding level for federal agencies in the fiscal year that began Oct. 1 and keep the government open past a Jan. 15 deadline.
But the parties disagree about how to replace the sequester, which is set to reduce agency budgets by roughly $109 billion a year through 2021. Soaring health spending is an obvious target, but Democrats say they will take steps to reduce federal health benefits only if Republicans agree to close a few of the hundreds of loopholes that litter the tax code, reducing federal revenues by more than $1 trillion a year.
Senior Republicans say they would rather live with the sequester - despite an additional $20 billion cut scheduled to hit the Pentagon in January - than agree to replace existing spending cuts with potential tax increases. Tax loopholes should be eliminated, they say, but the savings should be returned to taxpayers in the form of lower rates as part of a comprehensive overhaul of the federal tax code, not used to increase government spending.
The dispute over taxes and spending has roiled Washington since 2011, when the GOP took control of the House on a promise to shrink government and get the then-skyrocketing national debt under control.
These days, annual deficits are shrinking, and the debt is growing much more slowly. Lawmakers in both parties have grown weary of the partisan confrontations that have rattled consumer confidence and weakened an economy struggling to fully recover from the 2007 recession - most recently by shutting down the government for 16 days.
Though both sides say they are powerfully motivated to cut a deal and avoid another showdown, evidence of compromise was scarce Wednesday. One panelist, Sen. Charles Grassley, R-Iowa, even questioned the need to replace the sequester, arguing that "sequestration is working" to ease America's indebtedness.
Republicans in the House who worry about scheduled cuts to the Defense Department are "shortsighted," Grassley said, adding: "The economic strength of our nation is a necessary precondition of our military strength."
Panelists from both parties who serve on the House Appropriations Committee pleaded with their colleagues to set aside their differences and settle on a spending level for fiscal 2014 that would get rid of at least a portion of the sequester and let them pass appropriations bills for most agencies.
Democrats and Republicans "are only about $90 billion apart. That's not that big a deal" in a budget of $3.5 trillion, said Rep. Tom Cole, R-Okla. Cole asked the committee's only witness, Congressional Budget Office Director Doug Elmendorf, to itemize overlapping proposals to save money from each of the budgets prepared earlier this year by Ryan, Murray and President Barack Obama.
Elmendorf, meanwhile, counseled lawmakers to consider any deal that would avoid another economy-rattling clash in Washington.
"Big steps are better than small steps. Small steps are better than no steps at all," he said. "If we can move the ball a little bit . . . to reduce uncertainty about what will happen in January, that would be an important lift to the economy."
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