EXCLUSIVE-Gang forms inside US debt panel in quest for deal

* Revenues and spending cuts being discussed (Adds Boehner comments, background)

WASHINGTON (Reuters) - Six members of a U.S. congressional debt reduction "super committee" have struck out on their own in a new effort to come up with a plan to slash America's huge deficits before a Nov. 23 deadline.

The three Republicans and three Democrats are looking at a deficit-reduction deal of between $1.2 trillion to $1.5 trillion, congressional aides told Reuters on condition of anonymity because of the sensitive nature of the talks.

Despite widespread calls for the 12-member super committee to reach a multi-trillion dollar "grand bargain" to fix the country's fiscal mess, the six lawmakers are seeking a smaller deal because they recognize the differences between both sides over taxes and spending are too wide, the aides said.

If the committee fails to reach a deal by Nov. 23, $1.2 trillion in automatic spending cuts will be triggered across U.S. government agencies, beginning in 2013.

Democrats and Republicans on the super committee last week each outlined multi-trillion dollar deficit reduction plans. Each side rejected the other's as unworkable.

Aides stressed that the six lawmakers are still in talks with the full super committee and have not splintered off. Instead, they are making an internal effort to try to broker a bipartisan deal.

Significantly, at least two Republican members of the smaller group are willing to consider revenue increases as part of a deficit-reduction plan, two sources with direct knowledge of the talks said.

Most rank-and-file Republicans in Congress reject the idea of revenue increases in any plan to reduce U.S. deficits, although party leaders have expressed openness toward tax reform and closing some corporate tax loopholes. Democrats insist that new revenue be part of any deal.

Revenue increases do not have to involve tax hikes, which Republicans vehemently oppose, but can be generated by reform of the tax code and the closing or reduction of tax loopholes.

The six lawmakers, who began meeting only recently, include: Republicans Rob Portman, Dave Camp and Fred Upton; and Democrats John Kerry, Max Baucus and Chris Van Hollen, according to the aides.

A simple majority of seven votes is required for a deal and it is unclear where the seventh vote will come from. Congress must also approve the accord by Dec. 23.

With little sign of visible progress by the full committee so far and with time running out, the six lawmakers "know the odds are stacked against them," a source with direct knowledge of the group's discussions said.

"But it is a deadly serious and good-faith effort to come up with a plan. The Republican members know revenue increases are opposed by most congressional Republicans," the source said.

Credit ratings agencies have already warned that a failure to rein in America's deficits could lead to a further downgrade of its AAA rating. Standard & Poor's cut the long-term U.S. credit rating by one notch to AA-plus in August on concerns that Washington did not have the political will to deal with the country's rising debt burden.

John Boehner, the Republican House Speaker, acknowledged in a speech Monday that the United States faced the possibility of further downgrades but said he had high hopes that the super committee would find common ground on a deficit deal.

Another downgrade could cause U.S. interest rates to spike and cause turmoil on financial markets at a time of global economic fragility.

Two sources said the group was acting with the knowledge and direction of congressional leadership in both parties. The six members meet and talk by telephone almost daily.


Some of the lawmakers met for dinner in a Chinese restaurant on Capitol Hill last Wednesday, the same day Republicans presented their deficit reduction proposal to the super committee.

A congressional source said all six members were operating under the premise that Democrats on the committee would never agree to a deal unless revenues were in the mix.

The Democratic deficit reduction proposal presented last week was almost evenly split between revenue increase and cuts to entitlement programs such as Medicare and Medicaid, the government-run healthcare programs for the elderly and poor.

"Anyone who is at the table now, has not ruled it (revenues) out yet," the congressional source said.

Another aide said the group was informal and that there were a number of similar groups within the super committee looking at various issues, but this group was the biggest.

Two of the sources said Kerry, the losing 2004 Democratic presidential candidate and now chairman of the Senate Foreign Relations Committee, was working hard toward a deal.

Senator Portman is a former White House budget director, Representative Camp is chairman of the House Ways and Means Committee and Representative Upton worked in former president Ronald Reagan's budget office.

"They really know this stuff and are serious policy guys that want to keep the nation as well-off as fiscally possible," one source said.

Representative Van Hollen was part of deficit-reduction discussions led by Vice-President Joe Biden that collapsed in the summer and is also the top Democrat on the House Budget Committee.

Senator Baucus is chairman of the Senate Finance Committee, which will be deeply involved in implementing any deficit reduction deal that is reached. (Additional reporting by Richard Cowan, Editing by Ross Colvin and Paul Simao)