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House Republicans Unveil Budget Plan With $6 Trillion of Cuts Over Decade

U.S. House Republicans today unveiled a plan to overhaul the federal budget and slash the deficit in coming years by about three-quarters, with a $6 trillion cut in spending and 25 percent cap on tax rates.

The Republicans’ first comprehensive budget plan since the November elections would cut the deficit next year to $995 billion from about $1.4 trillion now, though it wouldn’t balance the government’s books until 2040.

House Budget Committee Chairman Paul Ryan’s plan relies on spending cuts to reduce the red ink, slicing more than $6 trillion over the next decade out of Medicare, Medicaid, food stamps and scores of other programs. At the same time, his proposal calls for cutting taxes, with the top corporate and individual tax rates set at 25 percent.

“We believe that we have the moral responsibility to step in and provide the leadership that the president has not been providing,” Ryan, a Wisconsin Republican, told reporters today in Washington. “He punted on debt reduction. We’re not going to do that.”

The plan escalates Washington’s budget wars, where lawmakers for months have been debating funding levels for the remainder of the current fiscal year. Ryan’s proposal presents substantial political risk for congressional Republicans and their prospective presidential candidates because Democrats are sure to pounce on proposed cuts to popular government programs in next year’s elections.

‘Honest Debate’

“We owe it to the country to give them an honest debate,” Ryan said. “We cannot keep going down the path of fearing what the other political party will do to us if we try to solve a problem.”

While public opinion polls show that Americans want Congress to bring down the deficit, they want it done without harming entitlements such as Medicare and Social Security or many discretionary spending programs. Yet it’s the soaring cost of entitlements that represents the biggest threat to the government’s long-term financial standing, according to the nonpartisan Congressional Budget Office.

Senate Finance Committee Chairman Max Baucus, whose committee has jurisdiction over tax and entitlement programs, denounced Ryan’s budget, saying it would “end Medicare as we know it.”

No More Guarantees

“Seniors’ coverage would be cut drastically, benefits would no longer be guaranteed and seniors’ costs would skyrocket,” said Baucus, a Montana Democrat. “We can’t allow the House to balance the budget on the backs of seniors, and we won’t.”

Ryan’s budget would set the top individual and corporate tax rates at 25 percent, the same level that House Ways and Means Committee Chairman Dave Camp is seeking. Both rates are now 35 percent, and the top individual rate is scheduled to rise to 39.6 percent in 2013, when tax cuts enacted in 2001 and 2003 expire.

The lawmakers’ annual budget lays out their agenda for the year, though it wouldn’t make any changes in tax and spending laws. That would require subsequent legislation, which could end up different from the plan outlined by Ryan.

His proposal calls for phasing out the traditional Medicare program and replacing it with a plan to provide individuals with subsidies to buy private health insurance. Payments would be offered on a sliding scale, with the poor and sick getting more and the wealthy getting less. It would only apply to those now under age 55 to spare current beneficiaries as well as those approaching retirement.

Medicaid

The plan would reduce the Medicaid health-insurance program for the poor by more than $700 billion over the next 10 years by capping the open-ended program and allowing states more discretion over how to run it. Most seniors would pay more for their health care under the Ryan plan, according to a CBO analysis that also said it may force states to cut their Medicaid rolls.

Food stamps, farm subsidies, Pell grants for college tuition and other mandatory programs would be cut by $1.8 trillion.

“What he has are tax cuts for the wealthiest among us financed by draconian cuts for those who rely on Medicare and Medicaid,” said Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat. White House spokesman Jay Carney said the administration “strongly” disagrees with the Ryan plan.

Larger Cuts

The domestic discretionary programs lawmakers are debating would face even bigger cuts. Ryan proposes to reduce spending on them below 2008 levels and to freeze it for five years.

The plan also calls for rescinding the authority Congress gave regulators in last year’s Wall Street regulation overhaul to resolve large, systematically risky financial institutions. Republicans, who opposed the law, say such authority makes those institutions “too big to fail.”

The plan doesn’t propose specific cuts to Social Security, because Ryan said Republicans want to leave room for a possible compromise with Democrats.

“Social Security is the area in which I hope we still have room for bipartisan agreement,” he said.

The plan wouldn’t cut the Pentagon, the government’s second-biggest program, beyond what Defense Secretary Robert Gates has already proposed. “We think Secretary Gates is doing a good job in going through the Pentagon budget looking for a bunch of waste and a lot of inefficiencies,” Ryan said.

A Party Divided

Ryan’s proposal has divided Republicans over how quickly to reduce the deficit as well as how. Representative Jim Jordan of Ohio, who heads the Republican Study Committee, a bloc of fiscally conservative lawmakers, said he was unsure whether to support the plan because it takes so long to erase the deficit.

“We just think you got to get there faster,” Jordan said. He said the RSC would introduce an alternative budget plan this week.

Another Ohio Republican, Steve LaTourette, a self-described moderate, said he supports Ryan’s deficit-reduction goals, though not necessarily the specific policy ideas, which he called “a lot of flowery language.”

“I don’t get all excited about the Ryan proposal on Medicare or the Ryan proposal on Medicaid, but I do get all excited about his goal and his targets,” he said. “Nobody should construe a positive vote in favor of the Ryan budget as an endorsement of any specific proposal.”

The administration’s debt commission last year offered a plan that wouldn’t show a balanced budget for more than 25 years, while a group of independent budget experts gave up trying to show a plausible path toward balancing the budget. President Barack Obama’s budget got the deficit down to $750 billion in 2015, though it would begin growing again in subsequent years.

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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