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Tax, Spending Cuts Packaged

Congressional Panels Offer Budget Blueprints Today

By Shailagh Murray and Jonathan Weisman
Washington Post Staff Writers
Wednesday, March 9, 2005; Page A08

The House and Senate Budget committees will unveil fiscal blueprints today that pave the way for additional tax reductions while seeking billions in spending cuts that target Medicaid, farm assistance, major weapons systems and just about every other domestic program.

Offsetting tax breaks mostly for the affluent with spending cuts that could hurt the poor could be politically risky, particularly in the Senate, where moderate Republicans have already warned that the juxtaposition may be untenable.

Sen. Susan Collins (R-Maine) says further tax cuts could be a hard sell. (File Photo)

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Last year, Congress failed to produce a budget over a similar tax fight. Four Republican senators -- Olympia J. Snowe and Susan Collins of Maine, John McCain (Ariz.), and Lincoln D. Chafee (R.I.) -- joined Democrats to insist that further tax breaks be paid for through revenue increases or spending cuts. House Republicans and the White House refused to go along.

Collins said this week that including tax cuts in the budget for the fiscal year that begins Oct. 1 could prove to be an even tougher sell, "given all the sacrifices that we're asking of some very important programs." Snowe said her position on the budget and tax cuts is unchanged from last year.

Concerns about Republican opposition led Senate Budget Committee Chairman Judd Gregg (R-N.H.) to initially consider omitting tax cuts from the 2006 plan.

But Senate leaders wanted tax cuts included, in large part because House Republicans will insist on it. When Gregg unveils his budget blueprint today, he is expected to include about $70 billion in tax cuts.

That should be enough to extend the 2003 tax cuts on dividends and capital gains, which expire in 2008. Senate tax writers also hope to extend a deduction for college tuition, stretch out expanded tax breaks for small-business investment and lengthen a one-year provision to slow the alternative minimum tax, which is designed to tax the rich but is increasingly ensnaring the middle class.

"I think we've reached a very reasonable approach," Gregg said.

House budget writers are likely to push for a larger tax package of roughly $100 billion, enough to accommodate all the tax cuts President Bush is seeking. House Republicans will also push to extend a provision, secured last year but expiring this year, that allows residents of states with no income tax to deduct state and local sales taxes from their federal income taxes.

Without a new congressional budget resolution, the process of negotiating the appropriations bills for the coming fiscal year could be thrown into chaos. Moreover, a budget would provide parliamentary language that would make it far easier for Bush to secure cuts he is seeking in entitlement programs, such as Medicaid, agriculture subsidies and student loan programs. Such language would allow entitlement cuts to pass the Senate with a simple majority of 51 votes. Without a budget, advocates would have to muster 60 votes to break a filibuster.

Those cuts are vital in the effort to control rising budget deficits, especially with tax increases politically off-limits. The Congressional Budget Office estimated last week that even if Congress gave Bush all of his budget cuts, the deficit under the president's budget proposals would still stand at $229 billion in 2010. By 2015, the deficit would rise to $256 billion.

Republican leaders acknowledged their task will be difficult. "The whole budget is going to be a challenge -- it's going to be very close," said Senate Majority Leader Bill Frist (R-Tenn.).

Finance Committee Chairman Charles E. Grassley (R-Iowa) said that while including tax cuts is risky, "you're not going to get a budget through the House without them."

Republicans this week sought to portray the tax cuts they are seeking as modest, while painting the spending cuts as similarly restrained. The Senate budget, for instance, will instruct the Finance Committee to find $14 billion in savings in programs under its jurisdiction, mainly from Medicaid.

Even with such cuts, the primary health insurance program for the poor would still grow 7.3 percent next year, down only modestly from the 7.6 percent growth now anticipated, House Budget Committee aides said.

Opponents do not buy that argument. The number of Medicaid recipients has grown 40 percent over the past five years as employers cut back health insurance coverage and push their low-income workers into the government program, said Raymond C. Scheppach, executive director of the National Governors Association. Any cut in the growth of Medicaid spending will force state governments to curtail benefits, throw people off their Medicaid rolls or shift spending to health care from other programs, such as education.

"The governors have said all along, 'We don't want arbitrary budget numbers driving policy. We want good, reasoned policy driving the budget numbers,' " Scheppach said.

A growing coalition of urban interests is mobilizing to stop planned cuts to housing and community development programs. And members of both political parties have vowed to stop Bush's proposed cuts to cotton subsidies.

The push for more tax cuts will only complicate those spending fights, conceded a senior Senate GOP leadership aide, who spoke on the condition of anonymity because the budget has not yet been unveiled. There is growing skepticism, on Capitol Hill and among lobbyists, that a budget can be achieved.

"We just don't know where the votes are, but the first step is to get it out of the committee and get it to the floor," the aide said. "It's kind of the Wild West out there, and I just don't know how it's going to come out."

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