By Lori Montgomery
Washington Post Staff Writer
Wednesday, January 27, 2010; A08
The Senate on Tuesday rejected a plan to create a bipartisan commission to tackle the nation's budget problems, but advocates vowed to keep pushing the idea, citing new projections showing that the improving economy has yet to stem the tide of red ink.
The commission, which won the backing of President Obama, would have been given broad authority to recommend tax increases and cuts in entitlement programs such as Social Security and Medicare, and its proposals would have been guaranteed a vote in Congress by the end of this year. A bipartisan coalition of 53 senators voted for the plan, but 60 votes were required under a consent agreement.
The vote came hours after the nonpartisan Congressional Budget Office released its latest budget projections, forecasting that continued spending to combat last year's recession combined with a muted recovery would drive this year's deficit to $1.35 trillion. That would be a slight improvement over previous projections but still one of the deepest budget holes since the end of World War II.
With the deficit projected to exceed $1 trillion for a second straight year, the Treasury Department will have to continue borrowing heavily to cover the government's bills. Borrowing from private investors is projected to climb to $8.8 trillion by year's end, or 60 percent of the overall economy, the largest burden since the 1950s, the CBO said. Within a few years, the debt load would grow substantially heavier, the CBO said, if Obama extends tax breaks for the middle class and blocks a scheduled pay cut for doctors who treat Medicare patients.
"We are headed for the danger zone," said Senate Budget Committee Chairman Kent Conrad (D-N.D.). Tuesday's vote "shows there is a growing and now majority support for taking on the debt," he said. "But time is running out."
In recent weeks, Obama and congressional Democrats have placed fresh emphasis on reining in deficits swollen to record levels by emergency spending on the economy and faltering tax revenue. On Monday, the White House said Obama would propose in Wednesday's State of the Union address a three-year freeze on discretionary spending unrelated to national security, a move that would save only about $15 billion next year but as much as $250 billion over the next decade.
Some lawmakers, eager to demonstrate fiscal restraint before facing voters in November, enthusiastically embraced the idea. Republican Sen. John McCain (Ariz.) joined Democratic Sen. Evan Bayh (Ind.) in announcing a similar plan that would freeze non-security spending until deficits are eliminated. Another bipartisan team, Sens. Jeff Sessions (R-Ala.) and Claire McCaskill (D-Mo.), rallied support for another proposal that could come before the Senate later this week to cap increases in military and non-security spending at 1.5 percent a year.
"We've been spending too much money for a long time," Sessions said. "We've come to a bipartisan agreement on that."
But he voted against creating a task force to confront the larger deficit problem, saying he feared it would create "a mechanism for a sizable increase in taxes." Senate Minority Leader Mitch McConnell (R-Ky.) also voted no, telling reporters that a "spending reduction commission" would be "a better way to go."
"We've been on this binge for a whole year, and we've got to . . . focus like a laser on the spending problem," McConnell said. "To me, that's the best way out."
Conrad argued that solving the budget problem would require both tax increases and spending cuts, noting that tax collections are at their lowest level -- 15 percent of the economy -- in 60 years. Government spending is also at a six-decade high, Conrad said, driven largely by government efforts to stimulate economic activity, safety-net programs for the unemployed and emergency spending to avert the collapse of global financial markets.
The CBO said Tuesday that the bank bailout, originally pegged at $700 billion, is now projected to cost taxpayers only about $100 billion. But the stimulus package Obama pushed through Congress early last year has proved to be significantly more expensive than projected, the CBO said, and its price tag could approach $862 billion over the next decade.
The nation is emerging slowly from the recession that ended last year, the CBO said. Director Douglas Elmendorf said the agency expects the unemployment rate to hover around 10 percent through 2010 and to drift slowly back toward 5 percent over the next four years.
"Thus more of the pain of unemployment from this downturn lies ahead of us than behind us," Elmendorf said. Democrats are considering a new package of measures to create jobs and bring down unemployment, but such a move would serve to worsen the deficit in the short term, he said.
If the Senate fails to create a task force to address the nation's budget woes, Obama has pledged to create one by executive order. Such a panel would lack the legal authority to force action in Congress, however, and key Republicans have said they would refuse to participate.
Meanwhile, Conrad and other conservative Democrats are threatening to vote against a plan to increase the nation's legal debt limit by $1.9 trillion unless a powerful budget commission is created. Senate leaders hope to stage a vote on the debt limit this week.