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Despite Spending Deal, US Budget Battle Continues

The "National Debt Clock" in New York City (file photo)
The "National Debt Clock" in New York City (file photo)

Only days after Democrats and Republicans struck a last-minute deal to fund the U.S. government and avert a federal shutdown, a new budget battle is underway that will have far-reaching consequences for the nation’s finances.

Federal workers and those who rely on government services breathed a sigh of relief late Friday, when legislators hammered out a deal to fund the government through September. The agreement, which cuts tens of billions of dollars from current spending levels, came about an hour before a midnight deadline that would have triggered a shutdown of most non-security government operations.

But the budget battle is far from over. In fact, it has barely begun. Having deadlocked for weeks over short-term spending cuts in the billions of dollars, legislators and the Obama administration now face the ominous task of addressing America’s long-term fiscal imbalance, which runs in the trillions of dollars.

Last week, a leading House Republican unveiled a multi-year budget blueprint that would reduce federal deficits by dramatically slashing domestic spending on everything from education to programs that benefit retirees and the poor. The plan would make small cuts to U.S. defense spending and preserve existing tax rates for all income brackets, including the wealthy.

The White House says President Barack Obama will unveil his own budget proposal later this week. White House advisor David Plouffe spoke on ABC’s This Week program.

"The president’s commitment to spending cuts and deficit reduction is absolutely firm. But while we do that, we have got to make sure that we are not hurting the ability of our people to get the education they need to compete with people in Beijing and Bangalore, that we are investing in research and development, that we are investing in infrastructure."

Republicans say they hope the president’s proposal goes further than the budget plan he submitted to Congress earlier this year. That plan would have frozen spending levels rather than cutting them, and did not address looming revenue shortfalls for so-called entitlement programs that provide income and health care for the elderly. Republican Senator Jeff Sessions of Alabama spoke on CBS’ Face the Nation program.

"This budget that the president submitted a few weeks ago is the most irresponsible budget ever submitted to the American people. We are in a financial crisis. It did nothing to change the trajectory we are on."

The budget battle is continuing along familiar partisan lines. Republicans want to force spending cuts primarily in social programs, while leaving income-tax rates unchanged and actually reducing corporate tax rates. Democrats want to preserve most social spending and increase taxes on top earners.

Both parties claim their competing blueprints will cut the deficit, while spurring long term economic growth and job creation - essential ingredients for improving America’s fiscal outlook.

For now, legislators face a critical decision: whether to authorize the federal government to borrow the money needed to finance America’s $1.5 trillion current-year deficit. Weeks from now, the government will bump up against a congressionally-imposed debt ceiling. Unless the limit is raised, the United States could default on trillions of dollars of debt, much of it owed to foreign governments.

Many Republicans say they will only vote to raise the debt ceiling if they are satisfied that budget talks are yielding real deficit reduction. Democrats say any attempt to use the debt ceiling as a negotiation tool is grossly irresponsible.