March 24 (Bloomberg) -- The Senate adopted a proposal yesterday that would modestly reduce the U.S. debt through higher taxes for top earners as part of the first budget plan the Democratic-controlled body has passed in four years.
The $3.7 trillion budget proposal, which won’t take effect, highlights differences between Democrats and Republicans over taxes, spending and the size of government. The vote clears the way for the next phase in Washington’s budget battle, which will probably revolve around the need to raise the U.S. debt limit. Federal borrowing authority is scheduled to expire May 19.
“The Senate passed a budget plan that will create jobs and cut the deficit in a balanced way,” the White House said in a statement. “Like the president’s plan, the Senate budget cuts wasteful spending, makes tough choices to strengthen entitlements, and eliminates special tax breaks and loopholes for the wealthiest Americans to reduce the deficit.”
The Senate plan mostly uses the savings to finance the repeal of $1.2 trillion in automatic spending cuts known as sequestration, leaving little for additional deficit reduction. It differs markedly from the measure adopted by House Republicans earlier last week, which proposes to balance the budget within a decade through steep cuts to a number of politically sensitive programs.
The two chambers probably won’t agree on a single plan, with Senate Majority Leader Harry Reid, a Nevada Democrat, saying he sees little reason to bother with a conference committee, in which lawmakers are supposed to work out their differences.
“Budgets are about far more than numbers on a page -- they are about the values and priorities of the American people,” said Senate Budget Committee Chairman Patty Murray, a Washington Democrat and the plan’s chief sponsor.
Senators voted 50-49 to endorse a fiscal 2014 measure that proposes to raise $1 trillion by clamping down on tax breaks for the wealthy while paring spending on defense, farm subsidies and other programs. The vote capped a session lasting into early morning to consider scores of amendments.
Four Democratic senators voted against the final version: Max Baucus of Montana, Mark Begich of Alaska, Kay Hagan of North Carolina and Mark Pryor of Arkansas. All are up for re-election in 2014.
Baucus, the Senate Finance Committee chairman, voted against the Senate plan because it raises taxes too much and opposes the House plan because it cuts entitlement spending too much, according to The Hill newspaper, which cited an aide. Pryor issued a statement saying “this budget fails to strike the right balance between cutting our spending and setting up a path for future job creation and economic growth,” the Hill reported.
“Honest people can disagree on policy, but there really cannot be disagreement on the need to change our nation’s budget course,” said Alabama Senator Jeff Sessions, the top Republican on the chamber’s Budget Committee.
Action was completed at 4:56 a.m. New York time, after 13 hours of a rapid-fire series of votes in a chamber where what comes before lawmakers usually is determined by extensive negotiations. Under special rules, senators were allowed to seek an unlimited number of amendments to the fiscal blueprint.
It became a voting marathon with lawmakers trying to pin down their colleagues on issues as diverse as a carbon tax, the Keystone XL oil pipeline, genetically modified fish and the estate tax -- with many of the votes probably ending up as fodder for campaign commercials next year.
The votes are mostly symbolic because they come in the form of amendments to the budget, which isn’t a bill and can’t be signed into law. It’s an internal agreement among lawmakers establishing the boundaries of their tax-and-spending debate for the coming fiscal year. Congress would have to pass separate legislation making any of the policy changes endorsed in the measure.
Still, the amendment-vote tallies can provide a barometer of support among lawmakers for a specific proposal, which can either help to generate -- or to kill -- political momentum behind the idea.
Seventeen Democrats joined every Republican in support of an amendment endorsing the construction of TransCanada Corp.’s Keystone XL oil pipeline, which the Obama administration has yet to approve. It passed 62-37.
A call to allow states to apply sales taxes to online purchases made from out-of-state retailers won broad, bipartisan support, with 75 in favor and 24 opposed. Lawmakers adopted, 79-20, a bid to repeal a medical-device tax created to help finance Democratic President Barack Obama’s 2010 health-care overhaul.
Democrats forced Republicans to say whether they support the fiscal plans of House Budget Committee Chairman Paul Ryan of Wisconsin; five didn’t. Republicans put almost every Democrat on the record in opposition to repealing the estate tax with an amendment that failed 46-53.
The Democrats’ underlying budget calls for reducing the deficit to $566 billion in 2023, which is about $400 billion less than what the nonpartisan Congressional Budget Office anticipates it would otherwise be.
Financial markets have largely shrugged off concern that U.S. budget deficits have pushed U.S. debt to record levels. Yields on 10-year Treasuries were 1.93 percent at 5 p.m. March 22, compared with an average of almost 5 percent over the past 20 years. The Standard & Poor’s 500 Index of equities has gained 9.2 percent this year, closing March 22 at 1,556.89.
The Senate Democrats’ proposal calls for $265 billion in cuts over the next decade to Medicare, the health program for the elderly and disabled, with an additional $10 billion in savings from Medicaid, the joint federal-state health plan for the poor. That’s less than what Obama has endorsed, and a fraction of the almost $800 billion in Medicaid cuts House Republicans want.
Democrats would cut defense spending by $240 billion beginning in 2015, while taking $76 billion from non-health-related mandatory spending. Their plan would offset some of those savings by spending an additional $100 billion in economic stimulus.
The result would be to stabilize the debt at 70.4 percent of the nation’s gross domestic product in 2023, which would be high by historical standards.
The debt has topped 60 percent of GDP only a handful of times in the past 60 years -- in 2010, 2011, 2012 and, budget forecasters predict, in 2013. It’s projected this year to reach 76 percent. The plan offered by Ryan would cut the debt over the next decade to 54.8 percent of GDP.
The Senate budget resolution is S. Con. Res. 8; the House version is H. Con. Res. 25.
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