U.S. News

U.S. House Passes Budget -- Surplus in 5 Years; Bush Tax Cuts To Expire


The House narrowly passed a $2.9 trillion Democratic budget blueprint predicting a big surplus in five years but relying on the expiration of tax cuts to do so.

The 216-210 vote sets up negotiations with the Senate, which last week passed a budget blueprint with similarly large spending increases for education, defense, homeland security and veterans programs.

The measure comes in response to Democratic complaints that Bush has shortchanged domestic programs funded each year by appropriations bills -- including education, health research and grants to local governments -- while awarding deficit-boosting tax cuts tilted toward the affluent.

Democrats said the $2.9 trillion plan for next year would point the way to a surplus after years of red ink under Bush and a GOP-controlled Congress. Republicans said that $153 billion surplus in 2012 would appear only if tax cuts passed in 2001 and 2003 expire in four years -- amounting to the "largest tax increase in American history."

The future of the Bush tax cuts will likely be decided after the 2008 presidential election. While in the majority, congressional Republicans never held votes to make all of them permanent, despite Bush's annual calls to do so.

Bush huddled with House Republicans at the White House, saying afterward: "We spent time talking today about our strong belief that we've got to keep taxes low."

The Democratic budget received brickbats from Republicans because it would produce a $153 billion surplus in 2012 only by assuming tax cuts enacted during Bush's first term expire. Those tax cuts include lowered rates on income, investments and large estates, as well as breaks for married couples and people with children.

At the same time, the plan awards domestic agencies, on average, budget increases of 6% over current levels, far the less than the less than 1% increases recommended by Bush.

Congress' annual debate on the budget is guided by an arcane process in which a nonbinding budget resolution sets the stage for subsequent bills affecting taxes and benefit programs such as Medicare, as well as the annual appropriations bills.

In most years, Congress leaves alone difficult budget issues such as the unsustainable growth in benefit programs such as Medicare and simply focuses on the 12 annual bills funding the budgets of Cabinet agencies such as Defense, Education and Agriculture.

This year is likely to be such a stand-pat year. Decisions on the fate of the Bush tax cuts are expected to wait until after next year's presidential election.

Extending the 2001 and 2003 tax cuts would cost about $250 billion in 2012 alone, which would balloon to $389 billion after accounting for extending other tax cuts and adjusting the alternative minimum tax so that it does not ensnare more than 20 million additional middle class taxpayers.

Democratic leaders view passing a congressional budget plan as a key test of their ability to govern. The GOP-controlled Congress failed to pass a budget last year, which fouled up passage of the annual spending bills lawmakers pass each year.

The Democratic budget blueprint calls for a nearly $25 billion increase next year for domestic programs popular with lawmakers in both parties, approving Bush's record $50 billion budget increase for the Pentagon's non-war budget and $145 billion for operations in Iraq and Afghanistan next year.

Those spending boosts would cause the deficit to rise from $209 billion this year to $241 billion in 2009 before increased revenues from the expiration of the 2001 and 2003 tax cuts rapidly generate a surplus.

The rival Senate plan contains would fail to generate surpluses since it dedicates $180 billion to extending several of the most popular tax cuts due to expire at the end of 2010.

One of the most important features of the Democratic budget plan is to require lawmakers seeking to cut taxes or boost benefit programs _ such as Medicare, children's health care or farm subsidies _ to "pay for" the changes with tax increases or offsetting spending cuts.

That rule would greatly complicate efforts later this year to boost funding for a popular health insurance program for poor children.

Democrats opted to put off politically painful decisions on shoring up the finances of Medicare and Social Security.

Republicans countered with an alternative plan cutting $279 billion from federal benefit programs such as Medicare and Medicaid over the next five years -- far greater cuts than proposed by Bush in February.

The plan, authored by Paul Ryan of Wisconsin, top Republican on the budget panel, would fully extend the 2001 and 2003 rounds of tax cuts, at a cost of about $450 billion. But Ryan's plan lost by a sweeping 160-268 vote.

Ryan warned his colleagues that the looming retirement of the Baby Boom generation threatens to swamp the budget because of the spiraling costs of Medicare and Social Security.

"If we don't get a handle on our fiscal situation, if we don't recognize the fact that if all we do is raise taxes to balance the budget in 2012, you're going to go right back into deficits soon thereafter if we don't control spending, if we don't reform government," Ryan said.