Short Budget Extensions Could Harm Financial Markets, Senator Warner Says

Democratic Senator Mark Warner said House Republicans’ plans for two-week stopgap budget extensions could harm financial markets, even as prospects grow for a longer-term measure to curb U.S. debt.

“If we keep kind of loping along on two-week extensions, I think that could have an effect on the markets, absolutely,” Warner said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend.

Any longer-term measure to address the U.S. debt must include tax increases in addition to spending cuts, said Warner, a first-term senator and former governor of Virginia and a lead negotiator in budget talks between Democrats and Republicans.

The stock market has had a good week as Congress passed and President Barack Obama signed a two-week plan to avert a government shutdown while paring $4 billion in spending this year, the senator said.

Warner said the budget battle in Washington is helping by him andRepublican Senator Saxby Chambliss of Georgia to forge a broader bipartisan deal to curb annual deficits and the long- term debt. Budget cuts under consideration affect only discretionary programs that make up about 12 percent of the budget, and the fight is highlighting the need to look much further, he said.

“The odds were pretty low at the beginning of the year” of enacting a long-term budget-cutting plan, Warner said. “I think they’re going up” as more people recognize that to reach a solution “you’ve got to put entitlements, you’ve got to put defense, you’ve got to have a frame for tax reform.”

Social Security

Warner praised House Speaker John Boehner of Ohio and other Republican House leaders who say they will take the tough step of proposing cuts to entitlement programs, such as Social Security, in a budget for next fiscal year. He said, though, that they also must be ready to consider tax increases.

He said it was “constructive” that “they’re going to go ahead and say, ‘let’s go to where the money is,’ which is around some of the entitlement programs.”

Still, he said, “doing this simply on the spending side, without looking at the revenue side” is “just spending by any other name.”

The federal debt is approaching its current limit of $14.3 trillion. A vote in the next few months to raise the ceiling -- which Republicans say they won’t support without steps to bring down the deficit -- may offer a vehicle for enacting any plan Warner and other senators are discussing.

Debt Commission

Obama’s deficit-cutting commission rejected a $3.8 trillion budget-cutting plan in December as members from both parties opposed its mix of tax increases and spending cuts in programs such as Social Security and Medicare. Even so, the commission’s plan is seen as a starting point in talks on debt-reduction legislation.

Warner said he can’t support a proposal by House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, to convert the Medicare health program for the elderly to a voucher program. It would be better, the senator said, to curb health- care costs through an overhaul of Medicare’s payment systems to cut duplication and paperwork.

“I don’t think a voucher program makes a lot of sense around the Medicare issue,” Warner said. “It’s strangely reminiscent of some of the earlier attempts to privatize Social Security. I’m not sure that’s where we ought to be headed.”

Warner, 56, reiterated his support for boosting the Social Security retirement age by two years, as proposed by leaders of the debt commission. Their plan would gradually increase the retirement age from 67 to 68 by 2050 and 69 by 2075.

Social Security Taxes

The cap on income subject to Social Security taxes should be increased, and the wealthy should eventually see smaller benefit increases, the senator said.

A deficit-cutting plan should include an overhaul of the corporate tax code, including an end to deductions, credits and other writeoffs that allow some companies to reduce their tax liability significantly below 35 percent, he said.

“There’s a lot of companies out there paying mid-20s, some paying single digits,” he said.

Turning to politics, Warner said he sees an increased chance that Democratic National Committee Chairman Tim Kaine will run for the seat of Senator Jim Webb, a Virginia Democrat who said last month he won’t seek re-election in 2012. Many are urging Kaine -- like Warner a former governor of the state -- to run.

“I think he would be our strongest candidate, and I think he’s somebody that would be a great voice in the Senate,” Warner said.

To contact the reporter on this story: Laura Litvan in Washington at  llitvan@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.