GOP budget plan cuts deeply into domestic programs, reshapes Medicare, Medicaid

House Republicans laid down a bold but risky election-year marker Tuesday, unveiling a budget proposal that aims to tame the national debt by reshaping Medicare and cutting deeply into Medicaid, food stamps and other programs for the poor, while reshuffling the tax code to sharply lower rates.

Congressional Republicans plan to use the document to demonstrate their willingness to tackle the nation’s difficult fiscal problems head-on. They argue that restraining future borrowing is a moral imperative and that entitlement programs for the elderly and the poor must be redrawn both to reduce red ink and to ensure that federal benefits continue to be available.

But the document — which pairs deep spending cuts with a reduction in the top tax rate paid by the wealthy — quickly provided new fodder for Democrats, who argued that Republicans would slash the social safety net while protecting the rich.

The proposal, authored by Budget Chairman Rep. Paul Ryan (R-Wis.), calls for spending cuts and tax changes that would put the nation on course to wipe out deficits and balance the budget by 2040. The national debt would continue to rise but would shrink to the historic norm as a percentage of an expanding economy.

But because Ryan and other Republicans reject higher taxes in any form, that path would require significant reductions in a host of popular federal programs.

Ryan calls for turning over to the states responsibility for the major federal programs for the poor, including Medicaid and food stamps, and giving recipients a deadline to find work and get off the government dole — much as welfare reform did to cash benefits in the late 1990s.

Federal education and job training programs would be consolidated and “modernized,” the plan says. And spending on Pell grants for college students would be reduced and retargeted toward low-income students most in need of assistance.

All told, Ryan proposes to slash federal spending by $5.3 trillion over the next decade compared with President Obama’s latest budget blueprint, with the biggest savings taken from health programs — including the repeal of Obama’s initiative to expand health coverage to the uninsured — and entitlements for the poor.

But it might not be enough for many tea party conservatives, who are demanding that Republicans balance the budget within the next 10 years. In an op-ed published Tuesday in the Wall Street Journal, Ryan argued that the plan offers “real spending discipline.”

“It does this not through indiscriminate cuts that endanger our military, but by ending the epidemic of crony politics and government overreach that has weakened confidence in the nation’s institutions and its economy. And it strengthens the safety net by returning power to the states, which are in the best position to tailor assistance to their specific populations,” he writes.

Ryan says he will stage a vote on the plan in the House Budget Committee on Wednesday, and that he has the necessary support to move it to the House floor. Even if it were to win approval, the blueprint would be rejected by the Democratic-controlled Senate. But Ryan said it would provide a foundation for the GOP’s election-year push for a radically smaller federal government.

“We owe the country an alternative path if we don’t like the path the president is taking us on. Whoever our nominee is going to be owes the country that choice of two futures. We’re helping them put this together,” Ryan said, adding that he has spoken with the major GOP candidates, who have all told him he is “on the right track.”

“Each of these people running for president have all given their various ideas and reforms that perfectly jive with and are consistent with what we’re proposing,” Ryan said.

Reaction from the White House was immediate and sharp.

“The House budget once again fails the test of balance, fairness, and shared responsibility,” White House Communications Director Dan Pfeiffer said in a statement. “It would shower the wealthiest few Americans with an average tax cut of at least $150,000, while preserving taxpayer giveaways to oil companies and breaks for Wall Street hedge fund managers. What’s worse is that all of these tax breaks would be paid for by undermining Medicare.”

On Medicare — a key flashpoint in a debate over Ryan’s budget a year ago — Ryan once again proposes to cap spending on future retirees, offering them a set amount with which to purchase private health insurance on newly created federal insurance exchanges.

In reaction to Democratic criticism that the plan “ends Medicare,” Ryan has tweaked that proposal: He now aims to preserve traditional Medicare as an option, though seniors could be required to pay significantly more for Medicare coverage if the program proved to be more expensive than the private plans.

Ryan said “this kind of Medicare reform is the most humane, the most common-sense and bipartisan way to save this vital program.” But though Ryan crafted the new variation with Democratic Sen. Ron Wyden (Ore.), Democrats have made clear that the veneer of bipartisanship will not inoculate him from a fresh round of political attack.

“The Republican proposal would end the Medicare guarantee, shift costs to seniors, and let Medicare wither on the vine, while providing billions in tax breaks for Big Oil and special interests, and destroying American jobs,” House Minority Leader Nancy Pelosi (D-Calif.) said in a statement.

On taxes, Ryan offers a bit more detail than he did last year about how Republicans would reshape the tax code. The proposal calls for replacing the current tax structure’s six brackets with just two: a 10 percent rate for lower-income earners and a 25 percent rate for upper-income earners.

That would be a reduction from the current top rate of 35 percent. Ryan also wants to wipe out the alternative minimum tax. And he calls for lowering the 35 percent tax on corporate profits to 25 percent and granting U.S. corporations a blanket exemption on profits earned overseas.

To pay for those changes, Ryan proposes to wipe out a vast array of deductions, credits and other tax breaks benefiting people and companies at virtually every income level. Neither he nor House Ways and Means Committee Chairman Dave Camp (R-Mich.) on Tuesday spelled out specifics, but tax experts said their proposal would almost certainly have to take a whack at expensive tax breaks such as those for home mortgage interest, employer-provided health insurance and retirement savings.

Republicans have been urging an overhaul that would make the tax code simpler and easier to understand while lowering rates, which they believe will spur economic growth and prove a politically potent election-year message. Ryan’s proposal is similar to ones offered by the GOP presidential candidates, former Massachusetts governor Mitt Romney and former senator Rick Santorum of Pennsylvania, though the candidates’ plans would dramatically reduce federal tax collections while Ryan’s would maintain them at current levels.

Although Ryan’s far-reaching blueprint presents many areas of ideological conflict with Democrats, the most pressing battle is likely to be fought offer a relatively small point: agency budgets for the fiscal year that begins in October.

Ryan proposes $1.028 trillion in total agency spending — $19 billion less than the cap set during last summer’s bitter showdown over raising the legal limit on government borrowing, known as the debt ceiling. Ryan also proposes to instruct six House committees to come up with proposals by May for generating additional savings and averting across-the-board cuts set to hit in January.

Sen. Patty Murray (D-Wash.), the Democratic leader of a bipartisan congressional “supercommittee” that tried and failed to produce such a plan last fall, called the move “outrageous and deeply disappointing.”

“By desperately attempting to appease their extreme conservative base, House Republicans are reneging on a deal their own speaker shook on less than eight months ago,” she said. “They have shown that a deal with them isn’t worth the paper it’s printed on and they are threatening families across America yet again with the prospect of a government shutdown.”

House Speaker John A. Boehner (R-Ohio) countered that the $1.047 trillion cap represents an upper limit, not an agreement.

“People have limits on credit cards. That doesn’t mean that you’re required to spend up to the limit, it just says you can’t spend anymore than that,” Boehner told reporters. “We all know that we’ve got a real fiscal problem here in Washington. And, frankly, we think we can do better.

Lori Montgomery covers U.S. economic policy and the federal budget, focusing on efforts to tame the national debt.
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