Here Are the 5 Key Changes in the GOP Budget

Here Are the 5 Key Changes in the GOP Budget

REUTERS/Gary Cameron

Nearly three months behind schedule and wracked by often bitter dissension within its ranks, the Republican controlled House Budget Committee finally hammered out a new fiscal 2018 budget resolution Wednesday night vital to the GOP’s prospects of salvaging its tarnished legislative agenda this year.

In the wake of the collapse of the GOP’s efforts to repeal and replace the Affordable Care Act this week, adopting a new budget resolution is a vital first step by the Republicans in enacting major individual and corporate tax cuts that President Trump and Republican leaders promised voters last year.

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The new budget blueprint for the fiscal year that begins Oct. 1 is also a show case for a panoply of other GOP campaign pledges to significantly bolster defense spending and build a wall along the southern border with Mexico, reform and slash entitlement programs, repeal Obama era financial regulations and ultimately balance the budget. 

But House and Senate Republicans are deeply divided over many of the details of the emerging budget document, which will complicate matters enormously when they try to race the clock this fall in passing individual appropriations bills or an “omnibus package” of spending to prevent a government shutdown or a first-ever default on U.S. debt. 

What’s more, Democrats in the House and Senate are raising strong objections to the Republicans’ spending priorities, especially the decision to take a jack hammer to entitlements and other domestic programs while breaching a legal spending cap to increase defense spending in the years to come substantially.

Here are five of the most important provisions of the GOP House Budget Committee resolution:

Tax Cuts

Let’s get one thing straight from the start: For all the talk about spending and entitlement reforms, long term balanced budgets and “Building a Better America,” the fiscal 2018 budget resolution is primarily the vehicle the Republicans need to deliver on a pledge of major individual and corporate tax cuts.

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Just as the Republicans used budget reconciliation rules to try – but fail – to repeal and replace the Affordable Care Act without Democratic votes, congressional Republicans are ginning up a new fiscal 2018 budget resolution to push through the Trump administration’s proposed tax cuts later this fall.

The plan in the House GOP blue print would consolidate tax brackets and cut rates, repeal the Alternative Minimum Tax, and adopt a territorial tax system that would only tax the domestic income of multi-national corporations. While Republicans argue that major tax cuts would be an elixir for the economy and drive up revenues, the Congressional Budget Office (CBO) has largely treated Trump’s more than $7 trillion of proposed tax cuts for business and individuals as a work in progress.

Defense Spending

Trump took office determined to transform the U.S.’s silver-plated military to a platinum status, saying that former President Barack Obama had allowed the Army, Navy, Marines, Air Force and Coast Guard to lose their luster and undermine readiness. Trump called for lifting the legal caps on defense and boosting spending by 10 percent or more beginning in fiscal 2018.

Under the House GOP budget blue print, the cap would be scrapped, and defense spending would increase steadily for the coming decade. The budget calls for a defense base budget of $621.5 billion next year for personnel, contracting and general operations, and $75 billion more for military action in Iraq, Afghanistan, Syria and other Middle Eastern hot spots.

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The proposed new defense spending level is actually more than the White House had requested – a signal that defense hawks are alive and well on Capitol Hill. But it is still below the $668 billion that the conservative House Republican Study Committee had sought.

Domestic Spending and Entitlements

While defense spending would soar, domestic discretionary spending vital to federal programs and assistance operating federal agencies would be reduced by roughly 24 percent, from $554 billion this year to $424 billion in fiscal 2018. That would keep domestic spending well below the legal limit set by the 2011 Budget Control Act. 

The House budget resolution assumes that the House-passed Obamacare bill, with its $800 billion of Medicaid cuts over the coming decade, will become law and can be counted in the overall Medicaid savings. But that now seems a pipe dream in the wake of the collapse of the Republican repeal and replace effort in the Senate this week.

Trump once promised to leave Medicaid and Medicare unscathed in pursuing savings, but he long ago reneged on that pledge. Medicaid -- especially Medicaid expansion that allowed single, able-bodied people to benefit from the program that now enrolls 73 million poor and disabled Americans -- was a prime target for cuts in the House and Senate GOP versions of measures to repeal and replace the Affordable Care Act.

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Still, the House budget resolution is optimistically counting on $1.5 trillion of Medicaid savings and $487 billion of Medicare cuts over the next 10 years, the latter when the baby boom generation is in full need of those services. Medicare savings would come from converting part of the program to a premium support model, in which seniors are given a flat amount to pay for medical services.

Good luck with that.

Balancing the Budget

Trump and congressional Republicans harbor a dream of balancing the budget within ten years as a show of fiscal piety and forcing the government to curtail entitlement spending like Medicare and Medicaid, which are drivers of the long-term federal debt and deficits.

The CBO has warned that without a significant change in current policy, deficits will continue to rise over the coming decade and top $1.4 trillion by 2027. By that time, net interest will be the third largest expenditure in the federal budget, running well ahead of all other federal spending programs except Social Security and Medicare. Over the next 30 years, deficits as a percentage of GDP will rise from 2.9 percent in 2017 to 9.8 percent in 2047, according to CBO.

House Budget Committee conservatives want to put the government on a “sustainable spending path” – first by linking the proposed tax cuts to $203 billion of cuts in Medicaid and other social safety-net programs over 10 years. The budget resolution also is counting on major long term savings by cracking down on government waste and overpayments by entitlement programs including the Earned Income Tax Credit for working poor families and  Medicaid.

In the unlikely situation that the House budget plan is enacted, it would lead to $6.5 trillion of cumulative deficit reduction over the coming decade.

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Financial and Regulatory Reform

Republicans have berated the Obama administration for its heavy reliance on federal regulations in the aftermath of the financial crisis. They have promised to spur economic growth even more by unshackling banks and corporations from excessive government red tape.

For openers, the House budget plan calls for the repeal of portions of the 2010 Dodd-Frank Act that fostered government regulations after the last recession. “Resulting policies restricted lending for small business and maintain the ‘too big to fail’ ethos that almost brought down the American financial sector,” the budget statement asserts.

The GOP budget plan touts the House-passed Financial CHOICE Act, including the bill’s guiding principles that taxpayer bailouts of financial institutions must end, both Wall Street and Washington must be held accountable for wrongdoing and excesses, simplicity in legislation must replace complexity, and economic growth must be revitalized through “competitive, transparent, and innovative capital markets.”

A CBO analysis earlier this year projected that enactment of the CHOICE Act would produce about $24 billion of deficit reduction over the coming decade.