A proposed House Budget Resolution unveiled yesterday by House Budget Committee (HBC) chairman Rep. Paul Ryan (R-WI), would cut $5.3 trillion from federal budgets over the next 10 years. Ryan called his proposal a “plan of action for American renewal.”
The annual budget resolution, often referred to as a “congressional budget blueprint,” sets revenue and appropriations targets for the tax writing and appropriations committees, so they can begin work on the president’s budget request. This is an internal congressional procedure so the passed budget resolution is not sent to the president for approval.
In a wide-ranging plan, Chairman Ryan seeks to achieve lower deficits and jump start the economy by further reducing federal spending, reforming the tax code, decreasing federal regulation, restraining entitlement spending, repealing the health care act, while protecting defense. Many of the proposals in his FY2013 plan were included in the plan he proposed last year.
For FY2013, the proposed resolution would set the cap for total discretionary budgets to $1.028 trillion. This funding level is $19 billion lower than the $1.047 trillion set last year in the Budget Control Act (BCA) that ended the budget stalemate. However, even though the BCA passed the Congress, many House Republicans argued that the funding target should be lower and vowed to continue pressing for further reductions.
The House plan would increase the budget for national defense (DoD plus other defense-related spending such as the Department of Energy’s nuclear program) in FY2013 to $554 billion, according to the Ryan plan. The Appropriations Committee would be instructed to identify savings in nondefense budgets to achieve the lower overall budget total.
To reduce the cost of the federal workforce the resolution recommends: 1) extending the federal civilian pay freeze through FY2015, 2) cutting the federal workforce 10 percent by 2015, primarily through attrition, and 3) requiring federal employees to contribute more to their retirement benefit. Currently, federal employees contribute .8 percent while the government contributes 13.8 percent. President Obama’s FY2013 budget request would raise that amount to 2.5 percent, phased in over three years.
The Ryan plan seeks to protect DoD from the $500 billion across-the-board cuts to defense over the next nine years set to begin in January 2013. His proposal would direct congressional committees to come up with additional reductions to nondefense programs to preclude automatic cuts to defense.
Under the umbrella of tax reform, the plan would consolidate individual income tax brackets by replacing the current six tax brackets with two brackets: 10 percent and 25 percent. It would lower the corporate tax rate from the current 35 percent to 25 percent. The plan would eliminate the Alternative Minimum Tax (AMT) on individuals and nearly eliminate taxes on corporate profits earned abroad, but returned to the US.
To make up for lost revenue from these tax cuts, the Ryan plan recommends closing tax loopholes, but does not identify which ones. It would leave it up to the House Ways and Means Committee to determine which current tax breaks (such as mortgage interest deduction or corporate deduction for contributions to employee health plans) should be removed.
The proposed House plan would repeal major portions of the new health care law and would reduce Medicaid funding and convert the program into a block grant to states (indexed to inflation). Also under the proposal, beginning in 2023, eligible Medicare recipients would be able to select from a list of competitively-priced private health insurance plans. The proposal would also provide support to assist individuals in paying premiums. The report discusses the need to protect the future of Social Security, but makes no specific proposals.
Even though some House Republicans will call for even more cuts to discretionary spending and most Democrats will oppose it, the Republican-controlled House will likely adopt Ryan’s plan. However, the Democrat-controlled Senate would certainly reject such a plan. In fact the Senate leadership sees no reason to produce a budget resolution, citing the agreed-to funding levels set in the Budget Control Act.
As a result, it appears that Congress is already on a course of budget stalemate with yet another year of brinksmanship and government shutdown face-offs. Meanwhile, we march relentlessly toward the November election, another vote on an increase to the debt ceiling before the end of the year, and looming across-the-board cuts in early January.