Senate panel adopts Democratic budget plan putting off hard choices

Thursday, April 22, 2010

Senate panel adopts Democratic budget plan

WASHINGTON — A Democratic-dominated Senate panel Thursday approved an election-year budget plan that cuts just a few billion dollars from President Obama’s budget for next year and puts off hard decisions on rapidly growing benefit programs.

With Democrats facing potentially ruinous losses in the midterm elections, the nonbinding Senate Budget Committee measure punts politically dangerous decisions on federal retirement programs like Social Security and Medicare to a bipartisan deficit commission that’s holding its first meeting next week.

The panel approved the measure by a 12-10 mostly party-line vote Thursday afternoon.

To bring the deficit down from last year’s $1.4 trillion record to $545 billion in 2015, panel chair Kent Conrad, D-N.D., counts on Congress finding unrealistically large sources of tax revenues or else about 30 million taxpayers would be hit with tax bills averaging $3,700 because of the alternative minimum tax.

It also says Obama’s signature “Making Work Pay” tax credit of $800 for most couples will expire at the end of this year.

The House has yet to act on a companion measure, despite an April 15 deadline. And there’s no guarantee that it will, since passing a budget projecting big deficits and generating almost $5 trillion in debt over the coming five fiscal years is a bad vote, especially for moderate Democrats in GOP-leaning districts.

Under the arcane congressional budget process, the annual budget resolution is a nonbinding resolution — not a law requiring the president’s signature — that sketches out a fiscal blueprint for the country. Actual changes to spending or tax policy, however, require follow-up legislation.

As a practical matter, this year’s budget outline is pretty much a stand-pat measure. It would impose an almost $10 billion cut from Obama’s budget for the annual operating budgets for domestic agencies and from foreign aid. It also would create an opportunity for Democrats to pass a filibuster-proof measure that could include provisions to create jobs or boost energy efficiency.

But the true drivers of the deficit are Medicare and Social Security, as well as the Medicaid health care program for the poor and disabled, and the Democratic proposal does nothing to rein them in even as their costs are exploding with the retirement of the Baby Boom generation.

“The bottom line is this: we are on an unsustainable path,” said Judd Gregg of New Hampshire, the panel’s top Republican. “We’re on a course to have a junk bond government. And this budget doesn’t do anything to significantly adjust that.”

Also responsible for the nation’s intractable deficit — projected by independent budget analysts to stay at or above $1 trillion for the foreseeable future under current policies — are tax cuts passed in 2001 and 2003 under President George W. Bush. Extending most of the Bush tax cuts, along with relief from the alternative minimum tax, would cost $3 trillion over the upcoming decade, according to the Joint Committee on Taxation.

The Bush tax cuts expire at the end of this year. Obama promises to fully extend them except for individuals earning more than $200,000 a year and couple making $250,000 a year. They include lower income tax rates, a $1,000 per-child tax credit, and tax breaks for investments and reductions in the estate tax.

As a result, Obama’s budget would produce a deficit of almost $800 billion in 2015, according to the Congressional Budget Office.

The Senate Democratic plan manages to do significantly better and generate a deficit of $545 billion in five years, but relies on unspecified tax increases starting in two years that were rejected by Obama.

Specifically, the Senate measure assumes Congress will generate almost $400 billion in revenue increases over 2012-15 to protect middle- and upper-income taxpayers from the alternative minimum tax, or AMT. Almost $100 billion more over the same four-year period would be required to extend estate tax relief at 2009 levels exempting estates of up to $7 million from inheritance taxes.

Many people who closely follow Congress believe that when confronted with having to pay for extending the AMT and estate tax as required by a new pay-as-you-go law, lawmakers will simply add the costs to the exploding national debt.

The AMT was enacted in 1969 to make sure wealthy people couldn’t avoid taxes altogether. But it wasn’t indexed for inflation in people’s incomes, which means it would hit more than four in 10 taxpayers earning between $75,000-$100,000 a year if not “patched” every year or so in order to prevent people from being surprised by multi-thousand-dollar tax bills at tax time.

During Thursday’s debate, the panel adopted by a 15-8 vote an amendment by Russ Feingold, D-Wis., aimed at requiring Congress to pay for future costs of the wars in Iraq and Afghanistan, estimated at $159 billion next year. The proposal would permit war costs to be repaid over a 10-year window.

will not be displayed