By Donna Smith
WASHINGTON (Reuters) - Wide-ranging U.S. spending cuts set to kick in next year for domestic and military programs would be scrapped by a proposal that some top Republicans plan to outline on Thursday.
Senator John McCain has joined forces with assistant Senate Republican leader Jon Kyl and other party members to introduce legislation that would eliminate the first installment of $1.2 trillion in automatic spending reductions over a decade.
These cuts were at the center of a budget brawl between President Barack Obama and Republicans in Congress last year during a fight to increase the U.S. debt limit.
The new proposal by McCain, Kyl and four other Senate Republicans would spare the military and selected domestic programs of cuts set to go into effect in January 2013. The $127 billion in budget savings would be achieved, instead, by scaling back the federal workforce and freezing its pay.
The move is designed to buy time for lawmakers to decide on more orderly reductions than the across-the-board cuts put in place after a special congressional committee failed to develop a deficit reduction plan last year, a Republican aide said.
The senators plan to unveil their proposal at a press conference on Thursday.
The bill calls for reducing the federal work force by 5 percent through attrition. Agencies would only be able to hire two people for every three people who retire or leave government employment. It also calls for extending a pay freeze for federal workers until June 2014.
The current freeze expires at the end of this year and Obama has proposed a 0.5 percent increase next year.
Similar legislation has been introduced in the Republican-led House by Armed Services Committee Chairman Howard McKeon. That bill would slash the federal work force by 10 percent.
The White House has said it opposes any effort to circumvent the automatic spending cuts, and the proposed federal workforce reduction and pay freeze are likely to meet stiff opposition from Democrats.
But Republicans are likely to point to a recent Congressional Budget Office report that showed many federal workers without advanced degrees earn on average higher salaries and benefits than those in the private sector.
Also, concerns expressed by Defense Secretary Leon Panetta that the automatic cuts on top of other reductions in defense spending would "inflict severe damage to our national defense for generations" could help build support for the bill.
The legislation would head off cuts to domestic programs as well, a provision its Republican sponsors hope will attract Democratic support.
The $1.2 trillion in automatic cuts were linked to an increase in U.S. borrowing authority opposed by Republicans, many aligned with the conservative Tea Party movement.
The bitter political fight prompted the U.S. credit ratings agency Standard & Poor's to downgrade the federal government's top AAA rating for borrowing for the first time.
With U.S. budget deficits topping $1 trillion for the last three years and the national debt exceeding $15 trillion, the ratings agencies and economists are worried Washington is courting a financial disaster similar to turmoil facing many European countries.
Any move by Congress to dismantle the automatic spending cuts could further erode the confidence of credit rating agencies, which are hoping U.S. lawmakers can agree on $4 trillion in deficit reductions over a decade - well beyond the approximately $2 trillion enacted last year.
(Reporting By Donna Smith; editing by Todd Eastham)