Ryan Predicts No Break in Fiscal Impasse Until Election

U.S. House Budget Committee Chairman Paul Ryan said November’s election may determine whether Congress is able to break a partisan stalemate over taxes and spending.

“We have an impasse on economics, and it seems to me that it might take the election to break this impasse,” the Wisconsin Republican said in an interview on Bloomberg Television’s “Political Capital With Al Hunt” airing this weekend.

Lawmakers are facing a fiscal collision at the end of this year when tax cuts enacted under President George W. Bush expire and $1.2 trillion in automatic spending cuts triggered by last year’s debt ceiling agreement will begin to take effect.

“A lot of this will depend on who wins the election,” Ryan said. “The president is dead set against, you know, letting these taxes stay where they are.”

Ryan is the most influential congressional Republican on budget matters, and this probably will increase pressure for a short, temporary postponement of the automatic spending reductions and expiration of the tax cuts. A new Congress and a re-elected or new president would address the issues then.

As soon as this month, Ryan said, the Republican-controlled House will consider legislation freezing the current tax code for a year and setting up a fast-track framework for a comprehensive tax overhaul.

“What we’re going to do is keep all taxes where they are for a year because we still think this tax code needs reforming,” Ryan said.

Senate Democrats

That legislation probably won’t advance in the Democratic- controlled Senate; nor will a House-passed budget blueprint and a separate proposal to replace scheduled cuts in defense spending with cuts to food stamps, federal workers’ benefits and other domestic programs.

The House-passed budget blueprint would reduce the top tax rates for individual and corporate income to 25 percent from 35 percent and eliminate the alternative minimum tax. It would compress the number of individual income-tax brackets to two from six, with the bottom rate set at 10 percent.

That proposal would reduce federal revenue by $4.5 trillion over 10 years, compared with what the tax code is raising with today’s rates, according to the nonpartisan Tax Policy Center. To offset that change, Ryan proposes to eliminate or curtail tax breaks.

Revenue Neutral

Ryan wouldn’t specify which tax breaks he would eliminate to offset the revenue losses. To make the plan revenue neutral, which he said it would be, would require curtailment of popular tax deductions, such as the home mortgage interest write-off, which would prove politically perilous in an election year.

“What we don’t want to do is cut some back-room deal and then tell the country what we’re going to do,” Ryan said. He said he preferred that decisions about which tax breaks to eliminate come from public hearings by the Ways and Means Committee, of which he is also a member.

Ryan said the discussion probably would have to include tax benefits with the potential to yield the most revenue, such as the one letting homeowners write off mortgage interest.

“We should look at who gets” tax benefits, Ryan said. “Should we, in exchange for lower tax rates, give higher-income individuals these kinds of tax shelters?”

Ryan said he wants to focus reductions of tax write-offs on upper-income taxpayers. The fiscal and political difficulty of the Ryan plan is underscored by a comparison: he would reduce individual taxes by about $3.4 trillion over a decade.

Mortgage Interest

Broadening the tax base to offset that amount would require eliminating all or most of the deductions for home mortgage interest, charitable contributions and state and local taxes, as well as the exclusion of health-care benefits from taxable income. Reducing those benefits only for higher-income taxpayers would raise less revenue.

President Barack Obama has proposed limiting those and other tax breaks to 28 percent for people who would otherwise benefit from them in the 36 percent or 39.6 percent tax brackets the president wants to restore. That proposal, which hasn’t advanced in Congress because of bipartisan opposition, would generate $584.2 billion over 10 years, according to the administration.

On the spending side, Ryan said the multi-year cap on discretionary spending enacted in last year’s debt-ceiling law “pales in comparison” with the projected growth in spending on entitlement programs, which he said must be slowed.

Medicaid Spending

Ryan’s budget would reduce Medicaid spending by $800 billion over the next decade and give states more flexibility to determine who gets what benefits.

“In exchange for that slower growth rate of Medicaid spending, we give the states the freedom to customize their Medicaid benefit to meet the unique needs of their states,” Ryan said. “New York is different than Wisconsin, which is different than Mississippi.”

Ryan said he didn’t believe his Medicaid proposal would harm people with disabilities, as Democratic opponents say it would.

While Ryan didn’t rule out accepting a spot as Republican presidential candidate Mitt Romney’s running mate, he said he was focused on his job as chairman of the Budget Committee.

“It’s not something I am seeking out,” he said of the vice presidential nomination. “If that bridge ever comes, I’ll decide.”

’Opportunity Society’

In the meantime, Ryan said he will work “to help save this country from a debt crisis, get back to an opportunity society.”

Ryan drew a contrast between Obama and former President Bill Clinton, who said June 5 that Congress may have to temporarily extend the expiring tax cuts to give lawmakers time to reach a deficit-reduction deal. Clinton is “a Democrat who did not look at Republicans as his enemies,” Ryan said.

“We don’t see anything close to that from this president,” he said. If Romney wins the presidency and Republicans make gains in Congress in November, they will reach out to moderate Democrats “who want to work with us to save this country,” the congressman said.

To contact the reporter on this story: Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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