Lawmakers Gear Up for Election-Year Fight Over $1.33 Trillion U.S. Deficit

Republicans rejected President Barack Obama’s $3.8 trillion election-year budget plan before it arrived at the Capitol and said they will offer an alternative that relies on spending cuts to reduce the deficit.

“All we’re getting here is more spending, more borrowing, more debt,” said House Budget Committee Chairman Paul Ryan, a Wisconsin Republican. “This is not a fiscal plan to save America from a debt crisis and to grow the economy. It’s a political plan for the president’s re-election.”

House Republicans, eager to help their party regain the White House in November, said Obama’s plan was full of gimmicks and didn’t go far enough to reduce the federal budget deficit or boost economic growth.

The Republicans plan to unveil their budget framework next month. While Obama called yesterday for raising tax rates for the nation’s highest earners, congressional Republicans are demanding tax-cut extensions. Ryan and his fellow Republicans want deeper reductions in non-defense spending, an approach Obama said yesterday puts the economic recovery at risk.

“At a time when our economy is growing and creating jobs at a faster clip, we’ve got to do everything in our power to keep this recovery on track,” Obama said yesterday at Northern Virginia Community College in suburban Washington. “We can’t just cut our way into growth.”

The near-opposite approaches to trimming the deficit point to continued stalemate, one that probably won’t be broken until after the November election.

Deficit Math

The administration’s budget plan, for the fiscal year that begins Oct. 1, doesn’t follow up on Obama’s pledge to halve the budget deficit by the end of his first term. The budget projects this year’s shortfall at $1.33 trillion, down about 15 percent from $1.549 trillion in fiscal 2009 when Obama took office.

Obama’s plan for fiscal 2013 estimates that next fiscal year’s deficit would be $901 billion under his policies. The shortfall would narrow to $575 billion by 2018, the budget projects. Publicly held debt would continue to grow, to $18.7 trillion by 2022, which would be 77 percent of the nation’s gross domestic product.

The budget proposes reining in the debt primarily by raising a number of taxes for high earners, including allowing the expiration of the 2001 and 2003 tax cuts for those earning more than $250,000. Also for high earners, the plan would raise tax rates on dividends, reduce the value of their deduction and impose a 30 percent minimum tax on those earning more than $1 million annually.

Entitlement Programs

The budget proposal would cut spending on entitlement programs, though it wouldn’t go nearly as far as budget experts say will be necessary to narrow the deficit. Obama’s budget projects annual spending on Medicare and Medicaid will double over the next decade, even as federal payments to Medicare providers including hospitals would be cut by $268 billion. Social Security costs will climb by 75 percent during that time with the program’s annual budget reaching a projected $1.4 trillion by 2022.

Acting White House Budget Office Director Jeffrey Zients, who was criticized today by Republicans at a congressional hearing, acknowledged more would have to be done on entitlements.

“We view this budget as an important milestone, real progress -- at the end of the day more needs to be done,” Zients told the Senate Budget Committee. “Let’s get this chapter under our belt, let’s achieve this level of deficit reduction and we can look up and talk about more.”

$4 Trillion

Republicans rejected the administration’s claims that its plan would reduce the projected deficit by $4 trillion, saying the figure includes more than $1 trillion in savings that lawmakers already agreed to last year.

The budget plan includes $800 billion in savings from what Republicans call an accounting gimmick involving war funds. Obama’s budget presumes war costs would continue to grow each year, for the next decade, with inflation.

Because of the drawdown of troops in Iraq, actual costs are far below that, and the administration is claiming the difference as savings. Republicans say the money wouldn’t have been spent anyway so it shouldn’t be counted as savings.

Mitt Romney, the former Massachusetts governor and Republican presidential hopeful, has called for raising the Social Security retirement age and slowing the growth in benefits for wealthier retirees. He has endorsed a plan, similar to Ryan’s, that would give seniors the option of receiving federal subsidies to buy private health insurance instead of participating in Medicare.

‘Entitlement Crisis’

Romney said yesterday that Obama’s plan hadn’t “taken any meaningful steps towards solving our entitlement crisis.” He said in a statement, “We can save Social Security and Medicare with a few common-sense reforms and -- unlike President Obama -- I’m not afraid to put them on the table.”

Republican presidential candidate Rick Santorum said, “The American people have spoken loudly for the past three years, demanding fiscal responsibility from our leaders, and President Obama is either deaf or simply won’t listen.”

Under Obama’s plan, wealthier beneficiaries would begin paying higher premiums in 2017. Medicaid, the federal-state health-care program for the poor, would be pared by $51 billion.

Farm Subsidies

Obama also calls for a number of other changes to so-called mandatory programs, including paring farm subsidies, requiring federal employees to contribute more to their retirement plans and charging companies more for federal pension insurance.

The budget plan would increase spending for several programs and includes an additional $350 billion in short-term funds to boost the economy through infrastructure spending and aid to cash-strapped states. Both have been rejected by Congress in the past. The administration sees the economy growing this year by 2.7 percent, a forecast that’s more optimistic than those of private economists or Federal Reserve policy makers.

Some of the Republicans’ concerns were shared by non- partisan, anti-deficit advocacy groups.

“There are a number of good policies in this budget, but the use of this war gimmick is quite troubling,” said Maya MacGuineas, head of the Washington-based Committee for a Responsible Federal Budget.

‘Positive Changes’

“Obama’s budget calls for some positive changes in entitlement spending but they fall short of the sweeping reforms that will be needed,” said the Concord Coalition in a statement.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, acknowledged that “more has to be done” on deficit reduction and “we all know that this is the beginning.” He said, “To do more than what the president has proposed will require both sides to come together.”

Representative Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, said, “I’ve heard our Republican colleagues today bashing the president’s budget. I’m looking forward to theirs,” predicting it will “gut investments” and “shred the social safety net.”

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

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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