Budget debate begins in Washington

March 12, 2008 6:17:29 PM PDT
Democrats in the House and Senate trumpeted surplus-producing fiscal plans Wednesday as their GOP rivals seized on looming tax increases in the Democratic budget outlines as a potent issue for the presidential campaign. Democrats are backing twin $3 trillion budgets for 2009 that would produce sizable surpluses in a few years and provide generous increases for many domestic programs, but only by assuming major tax increases when President Bush's tax cuts expire in about three years.

All three major presidential candidates planned to be on hand Thursday in the Senate for votes on taxes, a one-year ban on lawmakers' pet projects and a vote to pass the measure late in the day. The House does vote on Thursday.

House debate began Wednesday, as Republicans pressed an alternative plan to preserve Bush's income tax rate cuts and tax breaks for married couples, people with children, on investments and for those inheriting multimillion-dollar estates.

But the price for such generosity is harsh: unrealistic cuts in Medicare, housing, community development, and the Medicaid health care program for the poor and disabled.

The rival budget plans display the difficult trade-offs facing the next president, who must weigh tax cuts that expire at the end of 2010 against popular spending programs like education, highway construction and Medicare. Simply put, it's impossible, under current estimates, to have it all and still being able to produce a balanced budget in a few years. The White House forecasts the deficit for the current year at $410 billion, a near-record.

Republicans blasted the measures for assuming the 2001 and 2003 cuts in taxes on income, investments, parents with children and married couples will expire at the end of 2010.

"The child tax credit gets cut in half," said Rep. Paul Ryan of Wisconsin, the top Republican on the House Budget Committee. "The marriage penalty comes back. ... It requires that income tax rates are raised across the board."

Democrats countered that their nonbinding plan puts the budget back in surplus while also making investments in infrastructure, education, community development, clean energy and other programs. They say it also avoids $196 billion worth of Bush-proposed cuts to Medicare and the Medicaid health care program for the poor and disabled.

"The Democratic budget restores fiscal responsibility," said Rep. Jim McGovern, D-Mass. "It rejects the president's harmful cuts to basic services, and invests in proven programs that boost economic growth, create jobs and make America safer."

Some Democrats, especially in the Senate, are nervous on taxes.

There, Democrats offered an amendment to renew the 10 percent tax bracket on the first $7,825 of income for individuals, the $1,000 per child tax credit and estate tax relief. But the tax plan, offered by Sen. Max Baucus, D-Mont., would eat up virtually all of the planned surpluses, while allowing income tax rates to bounce back to pre-Bush levels, as would taxes on dividends and capital gains on stock and real estate sales.

Senate Republicans countered with an amendment extending income tax cuts and current rates on investments, but the move would mean the budget would stay in the red, producing deficits of about $130 billion in 2012 and $160 billion in 2013.

Specifically, tax rates would increase by 3 percentage points for each of the 25 percent, 28 percent and 33 percent brackets. At present, the 25 percent bracket begins at $31,850 for individuals and $63,700 for married couples. The 35 percent bracket on incomes over $349,700 would jump to 39.6 percent.

Congress' annual budget debate is guided by an arcane process in which a nonbinding budget resolution sets the stage for subsequent bills affecting taxes and benefit programs such as Medicare, as well as the annual appropriations bills. Unless such follow-up legislation is passed, the budget debate has little real effect and is mostly about making statements about party priorities. This is such a year.

In election years, Congress invariably leaves alone difficult budget issues such as the unsustainable growth in benefit programs such as Medicare and simply focuses on the 12 annual bills funding the budgets of Cabinet agencies such as Defense, Education and Agriculture.

The Democratic plans would provide generous, greater-than-inflation increases for Cabinet budgets. They both endorse Bush's even more generous $36 billion, or 7 percent, increase for the core Pentagon budget.

This year, the hard feelings between Democrats and Bush are such that even those spending bills are likely to be delayed, although the Defense and Homeland Security budgets may go forward. Decisions on the fate of the Bush tax cuts are expected to wait until after next year's presidential election.

A series of votes were expected, in both the House and the Senate, on Thursday.

The bills are H. Con. Res. 312 and S. Con. Res. 70.

On the Net:

House Budget Committee: http://budget.house.gov

Senate Budget Committee: http://budget.senate.gov