Congress is faced with the dual challenges of finalizing a 2012
budget and deciding whether to increase the federal debt ceiling.
Several alternative budget plans have been released or are under
consideration:
President Obama released his fiscal year 2012 budget on February
14, 2011. The President's budget claims to reduce the federal
deficit by approximately $1.1 trillion over the next decade. Nearly
two-thirds of the reduction comes from spending cuts, including a
five-year freeze on non-security discretionary spending and a $78
billion reduction in the spending requested by the Pentagon over
the next five years. The President's budget also limits certain
tax deductions as well as proposes to improve America's
international competitiveness by reducing the corporate tax rate
and eliminating special interest tax "loopholes."
The House Republican Plan, known as the "Ryan Plan" after
House Budget Committee Chairman Paul Ryan (R-WI), is the most
aggressive in terms of cost cutting. Ryan proposes to reduce
government spending by $6.2 trillion over ten years and reduce the
federal deficit by $4.4 trillion over the next decade. Over $1
trillion of the proposed spending reduction comes from the
assumption that the health care law passed in 2010 will be
repealed. The plan reduces approximately $389 billion from
Medicare, $735 billion from Medicaid and $923 billion in
discretionary spending over the next decade. The Ryan Plan passed
the House on April 15 on a largely party line vote of 235-193. Like
the President's plan, the Ryan Plan reduces the U.S. corporate
tax rate and proposes the elimination of "special
interest" tax breaks. Along these lines, Chairman Ryan (along
with Speaker of the House, John Boehner), recently raised the
possibility of reducing certain tax benefits for oil
companies.
The so-called "Gang of Six" may also release a budget
proposal in the near future.. Comprised of six members of the U.S.
Senate – three Democrats and three Republicans
– the Gang of Six budget is expected to closely track the
recommendations from the National Commission on Fiscal
Responsibility and Reform (the Bowles-Simpson Commission). Many
expect the plan will, like the Ryan Plan, reduce the federal
deficit by approximately $4 trillion over the next 10 years.
However, whereas the Ryan Plan achieves its deficit reduction
almost exclusively through spending cuts, the "Gang of
Six" proposal is expected to include approximately $3 trillion
in spending cuts and $1 trillion in revenue increases over ten
years. The "Gang of Six" proposal may be in jeopardy,
however, as Senator Colburn recently left negotiations, saying that
the group was at an impasse.
Finally, President Obama recently established a bipartisan,
bicameral working group, headed by Vice President Biden, that seeks
to find a long-term solution to America's budget deficit. The
group has had several meetings, and the participants have described
the discussions as generally positive although no formal proposals
have been advanced yet.
Finding common ground between the House, Senate and White House
will not be easy. Many believe that the Gang of Six budget, if they
are able to come together and produce one, would represent the best
opportunity to reach a compromise amongst the various parties.
However, it is not clear any budget which contains tax increases
will be able to pass the House. Likewise, it is not clear that a
majority of the Democrat-controlled Senate will pass any budget
that negatively impacts the major entitlement programs –
Medicare, Medicaid and/or social security – without some
sort of tax increase on "high income" earners –
however that is ultimately defined.
Of course, we will be watching developments very closely.
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