* Budget to take advantage of tax hikes, lower war spending
* Ryan sees "modest changes" to achieve balance in 10 years
* Will be difficult to reconcile with Democratic proposal
By David Lawder
WASHINGTON, March 6 (Reuters) - House Budget Committee Chairman Paul Ryan said on Wednesday he would unveil a "no-surprises" Republican budget next week that reaches balance in 10 years with only modestly deeper spending cuts than those he proposed a year ago.
The conservative budget blueprint will retain $620 billion in tax increases on the wealthiest taxpayers that were approved in the Jan. 1 deal to resolve the "fiscal cliff," Budget Committee aides said. But in keeping with a critical Republican demand, it will not include any further revenue increases.
The budget will also assume that about $1.2 trillion in 10-year deficit reductions from automatic spending cuts "is the law of the land," Ryan said. The first installment of $85 billion in the "sequestration" cuts through Sept. 30 was triggered last week.
While those automatic cuts may be replaced or redistributed, the savings are here to stay and will be incorporated in the Republican "baseline" assumptions, he added.
Ryan's budget is expected to be unveiled in the Republican-controlled House of Representatives on Tuesday, with approval by the House Budget Committee on Wednesday.
His blueprint and a rival budget that Democrat Patty Murray plans to introduce in the Democratic-led Senate next week will open the next front in Washington's fiscal battle over how to halt growth of the $16.7 trillion federal debt.
It will likely be difficult to reconcile the two versions, with the Republican budget relying solely on spending cuts and the Democrats proposing tax increases and some spending cuts.
The House moved on Wednesday to avert a government shutdown fight by passing a measure to keep the agencies funded through Sept. 30.
Ryan's plan will make adjustments for an expected decline in war spending, a move that could reduce assumed expenditures by up to $600 billion over the next decade. Other revisions are being made to assume less disaster spending, the aides said.
"So I wouldn't expect big surprises from us next week," Ryan told reporters. "We're making some additional modest changes to get to balance."
The revised assumptions will differ from those used in recent projections by the Congressional Budget Office. Ryan said they meant his budget would need less than the $4 trillion in additional 10-year savings the CBO said were needed to achieve balance by 2023. He declined to specify the amount of cuts planned in his budget.
Ryan's budget proposal last year did not achieve balance until around 2040, but did not include any tax hikes.
That budget also proposed deep cuts to the Medicare and Medicaid healthcare programs, and other domestic benefit programs and education funding. Its prominence as a Republican policy tool helped propel Ryan to a spot as Republican presidential nominee Mitt Romney's vice presidential running mate.
After four straight years of deficits over $1 trillion, the CBO, Congress' non-partisan fiscal referee, projects that the fiscal 2013 gap will fall to $845 billion. As the economy improves, deficits will fall to about $430 billion by 2015, the CBO said, but are projected to rise after that, nearing $1 trillion again by 2023 as the massive "baby-boom" generation ages and draws more retirement and health benefits.
Both Ryan and his committee aides declined to discuss specific budget policy items in the forthcoming budget plan, but it will again include changes aimed at shoring up the popular but increasingly expensive Medicare program for seniors.
Those changes are expected to be similar to Ryan's budget plan from last year, which proposed turning Medicare into a voucher-like program that offered seniors subsidies private health insurance or coverage through the traditional Medicare fee-for-service-plan.
The subsidies, derided in 2011 as "vouchers," were rebranded as "premium support" last year. A Budget Committee aide said last week that this year's version would be referred to as "competitive bidding."
Other congressional sources said Ryan decided to back off a proposal he recently floated that would have imposed the Medicare changes on Americans 56 and younger. He pledged during his vice presidential campaign last year that he would not touch benefits for those 55 or older in a bid to allay the fears of senior citizens who depend on Medicare benefits.
The age tweak would have entailed significant political cost, as Democrats were poised to pounce on a broken campaign promise, and it would not really help balance the budget in 10 years because today's 56-year-olds would only just be starting to enter the Medicare system when they turn 65.
A Budget Committee aide declined on Wednesday to discuss specific changes related to Medicare, but said they were designed to "make sure that we can protect and save this critical program."