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July 11, 2011

Competing US Deficit Reduction Proposals Debated

by Michael Bowman

The battle engulfing Washington over America's runaway national debt is exposing deep philosophical differences between Democrats and Republicans on the proper role of government, the sacrifices required to improve the nation's dire fiscal outlook, and on whom the burden of those sacrifices should fall. Illustrating the partisan divide are two legislative proposals, one Republican, the other Democratic, that seek to shave trillions of dollars in future U.S. indebtedness, but do so in very different ways.

Four trillion dollars over 10 years, that is the amount of deficit reduction sought in two competing budget blueprints.

Under House Budget Committee Chairman Paul Ryan’s plan, passed by the Republican-controlled chamber in April, federal spending would be slashed by $6.2 trillion. The plan would also lower tax rates paid by corporations and top earners, bringing projected savings down to the $4 trillion range.

Monday, Senate Budget Committee Chairman Kent Conrad unveiled a Democratic alternative that seeks the same deficit reduction through an even mix of spending cuts and increased tax revenue.

First, a closer look at the Ryan budget. It proposes deep cuts in non-defense spending. For example, federal expenditures to protect the environment would be slashed from $40 billion this year to $26 billion in 2021, with no adjustment for inflation. Energy-related expenditures would go from $20 billion to $1 billion. The plan eliminates or consolidates hundreds of federal programs Chairman Ryan deems antiquated or duplicative.

The Ryan budget also seeks savings in the Medicare program that pays a portion of retirees’ health care bills by transforming it into a limited federal subsidy for private health insurance. It would also repeal President Barack Obama’s signature health care reform law.

Without the new tax cuts in the Republican plan, the deficit reduction would be far greater or, alternatively, the spending cuts needed to reach $4 trillion would be less severe. But Congressman Ryan makes no apologies for including them in his plan. “If you tax something less, you get more of it. We do not want to tax jobs more. We do not want to tax investment more. We do not want to tax small businesses and entrepreneurs more. We want them to be taxed less so that we get more of them: more jobs, more growth," he said.

Senator Conrad’s blueprint arrives at a similar bottom line by different means. The Democratic proposal, which has yet to be voted on, would end tax breaks for favored corporate sectors and boost income taxes on families earning more than $1 million a year. Taxes on large estates and investment profits would rise.

The plan leaves Medicare and other so-called entitlement programs largely untouched. Instead, it would cut nearly $900 billion in defense spending and more than $300 billion from non-defense expenditures over 10 years. The Conrad proposal assumes lower projected interest payments from a reduction in the growth of America’s national debt.

Senator Conrad says a balanced approach of spending cuts and tax increases is required to put America’s fiscal house in order. “Spending is the highest is has been as a share of GDP [gross domestic product] in 60 years. Yes, we have a spending problem. But it is not exclusively a spending problem. Because revenue as a share of GDP is the lowest it has been in 60 years," he said.

Republicans blasted the Conrad plan as a ploy to force U.S. taxpayers to foot the bill for out-of-control spending by an ever-expanding federal government. Senate Minority Leader Mitch McConnell said, “We are not going to further enable that model of government by shaking down the American people for more money at a time when they can least afford it.”

For their part, Democrats accuse Republicans of shielding the wealthy from sacrifice so that the burden of deficit reduction falls soley on the middle class and the poor. New York Democratic  Senator Charles Schumer said, “A budget agreement cannot be considered bold or comprehensive unless it asks millionaires, billionaires and wealthy corporations to contribute to deficit reduction. They do not have to do the whole thing, but they have got to do their share.”

Neither the Ryan nor the Conrad plans are likely to become law. But analysts see the proposals as useful tools in the broader budget debate. Maya McGuineas heads the non-partisan Committee for a Responsible Federal Budget. “The Paul Ryan plan is much more conservative and it focuses all on spending cuts. The Conrad plan is much more progressive and very tax-heavy. And so now you have the two bookmarks or ending points on the [political] spectrum. And hopefully now we can move more towards how you compromise between those two kinds of plans," she said.

Compromise remains elusive, as successive meetings between President Obama and congressional leaders have demonstrated.