3 Budget Proposals – and Still One Giant Impasse
Business + Economy

3 Budget Proposals – and Still One Giant Impasse

A comparison of three plans: President Obama's, the House GOP's, and the Senate Democrats'

REUTERS/Yuri Gripas

This year’s battle over the budget and taxes was fully joined Wednesday morning when President Obama unveiled his $3.77 trillion spending and tax blueprint for fiscal 2014 and beyond.

If there was any shred of hope the president would try somehow to bridge the differences between his approach and the competing plans passed by Senate Democrats and House Republicans, those hopes were quickly dashed. Instead, the White House offered an approach to taming the deficit, spurring economic growth and reining in long-term entitlement spending that’s very different from the ones approved by the two chambers.

And while the president insisted in a White House Rose Garden speech that he had already met the Republicans more than halfway in addressing the long-term deficit, the gulf may be too wide to reconcile the differences this year. The country may have to muddle through a budgetary impasse as it has for the past two years.

Senate Democrats have prioritized protecting social safety net programs such as Social Security, Medicare, and Medicaid from the brunt of deficit reduction, while pushing for $100 billion in new economic stimulus spending.

House Republicans claim that achieving a balanced budget matters most – and have passed a plan that whittles away expenditures for Medicaid, food stamps, and a host of other discretionary programs.

Obama thinks the choice doesn’t have to be an either-or situation. “For years, the debate in this town has raged between reducing our deficits at all costs and making the investments necessary to grow our economy,” he said today. “This budget answers that argument because we can do both: We can grow our economy and shrink our deficits. In fact, as we saw in the 1990s, nothing shrinks deficits faster than a growing economy…. That should be our goal going forward.”

But his budget exposes the breadth of the partisan divide, rather than fixing it. His plan does not balance the budget in the ten-year window, a must-have for the GOP. “It doesn’t break new ground; it goes over old ground,” said House Budget Committee Chairman Paul Ryan, R-Wis. “It takes more from families to spend more in Washington. And the White House says they never balance the budget.”

Nor do Obama’s reassurances impress Democrats who worry that it will reduce the quality-of-life for older Americans who depend on Medicare and Social Security – which would have smaller cost-of-living adjustments.

Rep. Chris Van Hollen of Maryland, the ranking Democrat on the House Budget Committee, signaled today he has “concerns with aspects of this budget.” Still, he added, it was “an effort to meet the GOP halfway in order to end the budget gridlock.”

The Fiscal Times outlines the details and differences in each of the proposals:

White House Budget Plan
* Starts with $3.77 trillion in overall spending in fiscal 2014 – resulting in a $744 billion deficit or 4.4 percent of GDP. This tacks on roughly $160 billion more in spending (and to the deficit) than the baseline projections from the Congressional Budget Office.

* Features $1.8 trillion of additional deficit reduction over the coming decade through a combination of tax increases and spending cuts. Obama won’t balance the budget, but he claims to change its trajectory. CBO projections have the deficit starting to climb – after years of reductions – in 2017, eventually reaching $978 billion in 2023. The White House plan steadily reduces the deficit to $439 billion by 2023.

* Generates $580 billion in new tax revenues by limiting itemized deductions – except for charitable contributions – for  families in the top tax brackets and imposing a minimum tax rate of 30 percent on households earning over $1 million a year.

* Trims spending by $1.2 trillion through limiting payments to higher-income Medicare beneficiaries and providers, and the adoption of a less generous Consumer Price Index formula for Social Security and other retirement benefits. This replaces the sequestration reductions.

* Provides a range of new spending initiatives to stimulate the economy and promote education, including aid to states to make free pre-kindergarten available nationwide.

House Republican Budget Plan

* Balances the budget in ten years with $4.6 trillion of spending cuts and savings, but no tax hikes, relative to the CBO baseline. The steep reductions also reduce the debt-to-Gross Domestic Product ratio to 54.8 percent in 2023, while the Democrats keep that ratio close to 70 percent.

* Repeals Obamacare – a highly unlikely development – that Republicans say would save $1.84 trillion over the coming decade (or 40 percent of their budget’s overall savings). The Supreme Court upheld Obama’s landmark plan to extend health coverage to 27 million uninsured Americans and voters tacitly endorsed it in November by returning Obama to the White House.

* But retains Obamacare’s $1 trillion in tax revenues, in addition to the more than $600 billion in revenues from the New Year’s Day fiscal deal’s rate hike on wealthier Americans. The budget calls for tax reform, but not a net reduction in revenues.
* Shifts the roughly $500 billion in future sequestration cuts from the Pentagon onto other domestic programs that pay for food safety, air traffic controllers, college student loans, and federal law enforcement. Those popular domestic programs other than most entitlements already are bearing half of the overall sequestration cuts.

* Maintains the current Medicare system for those currently 55 and older. Anyone younger would be placed in a voucher-style, premium support Medicare Exchange and must choose among private health care plans. This cuts Medicare spending by $129 billion over 10 years.

* Transforms the $432 billion-a-year Medicaid program for the poor from an open-ended entitlement into a block grant program for the states. This change would amount to a $756 billion cut over ten years.

* Turns the $80 billion-a-year food stamp program into a $25 billion program that states can customize to meet their needs.

Senate Democratic Budget Plan
* Reduces the budget deficit by $1.85 trillion over the next ten years. Senate Budget Committee Chairwoman Patty Murray (D-Wash.) pitched this  as a balanced approach, to use one of Obama’s favorite terms. During the floor debate before the budget passed 50 to 49, Senate Democrats in their remarks used variations on the word “balance” 230 times.

But the plan doesn’t actually bring federal finances into balance: The deficit is $459.7 billion in 2023. Instead, the Senate Dems spread the pain evenly. Their reduction includes $975 billion of cuts in domestic programs, health care and defense; $975 billion of new revenues by closing loopholes and changing the tax code, and $242 billion saved through reduced interest payments.

* Replaces the more than $1 trillion in sequestration cuts over the next nine years.

* Pumps $100 billion worth of stimulus into the economy with a program to create jobs by repairing infrastructure and schools.

* Preserves the basic Medicare program, but Senate Republicans say it ignores the so-called “doc fix” by not setting aside $167 billion to postpone the roughly 25 percent cut in Medicare reimbursements for physicians required by the Balanced Budget Act of 1997. Congress has routinely delayed the mandatory spending reduction.

* Inadvertently declares an end to the war on terrorism – saving $304 billion over the existing budget baseline by assuming any funding to stop non-state security threats will stop in 2015. This is essentially a bet that after U.S. troops leave Afghanistan, no other new threats materialize.