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Republicans to Unveil Budget Plan With Sweeping Changes

Republicans are set to propose a budget plan calling for fundamental changes in the U.S. government’s tax and spending policies, including overhauling the Medicare health-insurance program for the elderly.

House Budget Committee Chairman Paul Ryan is scheduled today to release a plan that would cut more than $6 trillion from President Barack Obama’s budget over 10 years, phase out traditional Medicare and call for a revamp of the tax code.

“This is a serious proposal,” Representative Tom Cole, an Oklahoma Republican, said in an interview. “We’re headed towards a big debate.”

The plan carries political risk for Republicans because Democrats are sure to use proposals to cut some of the most popular federal programs as a cudgel before next year’s elections.

“We are giving them a political weapon,” Ryan, a Wisconsin Republican, acknowledged on “Fox News Sunday.”

The plan coincides with a separate fight over spending levels for the rest of this fiscal year. A partial government shutdown looms if lawmakers don’t agree on a plan by April 8.

Public opinion polls show Americans want Congress to bring down the federal deficit, though without harming entitlements such as Medicare and Social Security or many discretionary spending programs. Yet it’s the expanding entitlement programs that pose the biggest threat to the government’s long-term fiscal standing, according to the Congressional Budget Office.

Phasing Out Medicare

Ryan’s proposal to end traditional Medicare calls for new beneficiaries, starting in 2022, to instead be provided subsidies to buy private health insurance.

It would cap spending on Medicaid, the health-insurance plan for the poor, and give states more discretion over how to run the joint federal-state program. Ryan’s plan would also roll back so-called discretionary spending to below 2008 levels and freeze it there for five years.

Even as Democrats denounce the changes, some of Ryan’s Republican colleagues want even bigger savings.

Representative Mick Mulvaney said he wants Ryan’s budget to cut the annual deficit from $1.4 trillion this year to less than $1 trillion in 2012, which would mean finding more than $400 billion in savings in a single year.

“That’s important for us to send a strong message that we have a dramatic reduction off of this year’s deficit,” the South Carolina lawmaker said in an interview. “We have pushed Chairman Ryan harder than he’s ever been pushed before.”

‘Pledge to America’

Many Republicans, pointing to their 2010 campaign “Pledge to America” to put the government on a path to a balanced budget, want Ryan’s plan to erase the deficit within 10 years.

Debt-cutting proposals last year by the leaders of Obama’s deficit commission and by a group of independent budget experts would take more than 25 years to balance the federal budget. Obama’s budget request, announced in February, would reduce the deficit to $750 billion in 2015 though it would rise again after that, according to CBO.

None of that is ambitious enough for Representative Joe Walsh, a freshman Republican from Illinois who said he will have a “real hard time” voting for Ryan’s budget if it doesn’t erase the deficit.

“It would be hard to go back home and take to my people back home a plan that will balance the budget in 20 or 25 years,” Walsh said. “I couldn’t do that with a straight face. I think a lot of us couldn’t.”

‘Ideological Agenda’

He said the Republican Study Committee, a bloc of fiscal conservatives in the House, will produce an alternative budget plan that achieves balance in the next decade.

Ryan hasn’t said how quickly his plan would bring down the deficit, whether it would balance the budget at some point or where he intends to find his savings.

He won’t be able to depend on Democratic votes to pass his budget, as Republicans did last month with the stopgap measure currently funding the government.

Ryan’s plan “is the same old ideological agenda, except this time on steroids,” Representative Chris Van Hollen of Maryland, the ranking Democrat on the Budget Committee, said in an interview on Bloomberg Television.

Ryan’s budget began in a big hole because of his party’s unwillingness to raise taxes. Obama’s budget proposal would reduce the deficit in part by relying on more than $1 trillion in tax increases, including by allowing President George W. Bush’s tax cuts for households earning more than $250,000 to expire at the end of 2012. Republicans will have to replace that with equivalent spending cuts to show the same amount of deficit reduction. Ryan’s budget proposes to set the top individual and corporate income tax rates at 25 percent.

Reshaping Medicare

Ryan’s plan to convert Medicare into what he calls a “premium support” program wouldn’t take effect until 2022 to allow current beneficiaries and those nearing retirement to remain in the current system. That means it won’t yield big savings any time soon.

The Pentagon’s $700 billion budget, one of the government’s single-biggest expenses, has grown by 75 percent over the past decade, not including war costs. Yet Defense Secretary Robert Gates has signaled his opposition to cuts larger than Obama proposed.

“I don’t intend to be a lot to the left of a Democratic president on defense,” said Cole of Oklahoma.

A Bloomberg National Poll conducted March 4-7 showed that Americans consider the widening deficit and debt second only to unemployment as the most pressing issues confronting the U.S. On Medicare, just 22 percent of respondents said benefits should be reduced. The poll also showed the public doesn’t support the Republicans’ deep cuts to social and scientific programs.

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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