By Lori Montgomery
Washington Post Staff Writer
Wednesday, March 25, 2009
Key Democratic leaders were performing major surgery yesterday on President Obama's first budget plan in an effort to bring skyrocketing annual deficits under control, while preserving the option of enacting some of the president's most significant and costly domestic priorities.
In the budget blueprints they are scheduled to formally unveil today, Democrats in the House and Senate said they plan to cut hundreds of billions of dollars from Obama's spending request over the next five years. They also are scrapping Obama's plan to devote more cash to the financial sector bailout. And they are restoring some of the money-saving budget gimmicks the president said he eliminated last month when he unveiled his $3.6 trillion request for the fiscal year that begins in October.
The moves come as Republicans are pounding Obama for proposing a rapid increase in government spending and taxpayers are voicing anxiety and outrage about the gargantuan sums that Washington is already pouring into the economy and banking system.
In the Senate, the result is a leaner package that would drive the annual deficit to $1.2 trillion next year, compared with $1.4 trillion under Obama's policies. By 2014, the deficit would plummet to just more than $500 billion under the Senate's plan, requiring the nation to borrow $3.8 trillion over the next five years, compared with about $4.4 trillion under Obama's proposal.
To meet those goals, Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, said he would leave out new spending for Obama's proposed expansion of health care coverage, a program likely to cost in excess of $1 trillion over the next 10 years, as well as the president's proposal to make permanent an $800 tax credit for working families.
Lawmakers would be free to adopt those policies as long as they did not increase the deficit, Conrad said. That means health care reform would have to be accompanied by tax increases or spending cuts equal to its entire cost, not just the $634 billion down payment Obama had proposed. And the president's tax credit, dubbed the Making Work Pay credit, would have to be scrapped unless it were paired with a money-raising initiative of equal value.
White House budget director Peter Orszag reacted favorably to the Senate blueprint, saying it would "fulfill the president's objectives" on health care, education, clean energy and deficit reduction. Orszag acknowledged that the Making Work Pay credit may be lost, but said the administration has "two years to figure this out" before the temporary version of the credit -- established in the recent economic stimulus package -- expires.
In the meantime, Orszag said, Obama is launching a comprehensive review of the federal tax system that aims to simplify the tax code, unify myriad individual credits, reexamine the corporate tax structure and identify ways to collect the billions of dollars that chronically go unpaid by individual and corporate tax dodgers. A special panel of economic advisers headed by former Federal Reserve Board chairman Paul A. Volcker will lead that effort, Orszag said, and report back to Obama by December.
"The only constraints are no tax increases for families earning below $250,000 a year and no tax increases in 2009 and 2010," when the economy is likely to be weak or emerging from the recession, Orszag said.
Congressional budget leaders were forced to make major revisions to Obama's spending plan in the wake of an analysis by the nonpartisan Congressional Budget Office that found his proposal would force the nation to borrow nearly $9.3 trillion over the next decade -- $2.3 trillion more than his administration had previously estimated using more optimistic economic forecasts. Republicans pounced, accusing Obama of proposing a budget that spends, taxes and borrows too much.
In a nationally televised news conference, Obama last night defended his budget plan, saying "the best way to bring our deficit down in the long run is not with a budget that continues the very same policies that have led to a narrow prosperity and massive debt. It's with a budget that leads to broad economic growth by moving from an era of borrow and spend to one where we save and invest."
Obama is expected to deliver a similar message today when he goes to Capitol Hill to sell his budget blueprint to Senate Democrats, a dozen of whom sent a letter to Conrad this week, complaining that "the deficits projected by CBO are simply not acceptable."
Conrad's adjustments to the president's proposal, presented to Senate Democrats at a luncheon yesterday, won early approval from some signatories. "It's improving," said Sen. Mary Landrieu (D-La.).
To bring down deficits, Conrad proposes slashing $160 billion from Obama's request for nondefense programs over the next five years, including a reduction of $15 billion in fiscal 2010 that targets international programs, among others. Conrad also would jettison the $250 billion Obama included in his budget for the Treasury Department's bailout of the financial system, a move that lowers the deficit projection but would not prevent Obama from requesting the funds.
Conrad also pressed some Bush-era budget maneuvers eliminated by Obama back into service: Instead of a 10-year budget that shows deficits steadily accumulating, for example, Conrad is proposing a five-year spending plan. And Conrad assumes that the alternative minimum tax will strike millions of middle-class families, generating billions of additional dollars in 2013 and 2014, though Congress has acted repeatedly to prevent that.
House budget leaders declined to provide similar details about their budget blueprint, which is scheduled to be unveiled today. Rep. John M. Spratt Jr. (D-S.C.), chairman of the House Budget Committee, said he was headed in the same direction as the Senate on many issues, but that the House plan would include a procedural shortcut that would permit Democrats to push an overhaul of the health care system through the Senate without Republican votes.
Conrad adamantly opposes the move, known as reconciliation, as does Senate Finance Committee chairman Max Baucus (D-Mont.). A final decision about whether to use the maneuver will be made when the two chambers reconcile their differences in conference committee later this spring.