Budget Talks Head to Brink

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The Wall Street Journal
By: Naftali Bendavid, Jonathan Weisman & Carol E. Lee
April 6, 2011

Parties Far Apart on 2012 Spending, Long-Term Vision as Friday Deadline Nears.

Republicans and Democrats stumbled one day closer to a government shutdown on Friday, as the two parties escalated what has become a broader battle over Washington's role in the U.S. economy.

The two fights--one over funding the government for the next six months, the other over a sweeping plan to reshape the government for decades to come--showed how far apart the two parties are on basic fiscal issues ahead of the 2012 elections.

A Tuesday White House meeting called by President Barack Obama featured a series of frustrated exchanges between Senate Majority Leader Harry Reid (D., Nev.) and House Speaker John Boehner (R., Ohio), who upped his demand for spending cuts this year to $40 billion, according to people familiar with the session.

Congress has a way of reaching deals at the last second, but a failure to do so would trigger a partial government shutdown at midnight Friday night.

The battle was broadened Tuesday with the formal unveiling of the House Republican budget plan for the fiscal year that starts on Oct. 1.

As a political document, the blueprint from House Budget Committee Chairman Paul Ryan (R., Wis.) has the potential to reshape the current fight over fiscal policy and also the battle for control of Washington in 2012.

It suggested the government should stop being a provider of services and instead become a limited entity that collects taxes and passes them to state governments or private enterprises to administer.

It reduces Washington's role in providing health care and sharply cuts taxes.

Earlier this week, it seemed that this 2012 proposal--which calls for spending about $6 trillion less over 10 years than Mr. Obama proposes--would give Republicans cover to compromise on the still unresolved 2011 spending levels, where the disagreements are small by comparison.

So far, the opposite has held true, with Democrats using Mr. Ryan's proposal to attack the GOP, even as negotiations to avert a shutdown stumble.

The collision of the two budget debates is happening because Congress last year failed to pass a spending plan for 2011, and the government is being funded by short-term measures. Discussion of the 2012 budget is now in full swing.

For the first time in days, few expressed optimism Tuesday that a short-term package could be completed. The administration and Congress instructed workers to make logistical arrangements for a possible closure beginning Friday.

"We're not going to allow the Senate, nor the White House, to put us in a box where we have to make a choice between two bad options--cutting a bad deal this week in order to keep the government open, or allowing the government to shut down due to Senate inaction," Mr. Boehner said.

Mr. Reid was equally defiant. "I'm not optimistic. No I'm not," Mr. Reid said after the White House meeting. "We have been willing to do what is fair in ratcheting down very, very hard on [domestic spending]...We can't go any more."

Mr. Obama, who has deliberately remained largely behind the scenes, said the White House is "prepared to meet for as long as possible" until an agreement is reached. "If they can't sort it out, then I want them back here tomorrow," Mr. Obama said.

Staffers from both sides had been working on a deal that would fund the government until the end of the fiscal year on Sept. 30 by cutting $33 billion from current spending levels.

By raising his target to $40 billion at the White House meeting, Mr. Boehner apparently was trying to show his restive caucus that he was working to achieve every concession possible.

Polls suggest voters would blame both parties if the government shuts down. But leaders of both sides are boxed in.

Mr. Boehner must contend with a crop of 87 new GOP House members elected last November on a surge of voter concern about government spending.

Democrats initially insisted on no cuts and face pressures to go no further than $33 billion.

Mr. Obama, who announced on Monday that he will run for re-election in 2012, has sought to position himself above the nitty-gritty haggling going on in Congress, which has limited his influence on the process.

Among the biggest sticking points is that Democrats want more of the cuts to come from "mandatory programs," whose spending is set by a pre-existing law or formula, like crime-victims' assistance programs. That would enable them to avoid some cuts in other areas they value, like environmental protection.

Republicans view these cuts as gimmicks because they are one-time trims that don't cut future government spending.

House Republicans are offering a one-week extension in government funding that would cut $12 billion from this year's spending. There is little chance Senate Democrats would consider such a measure.

Mr. Obama took Mr. Reid aside after the White House meeting, aides said, and told him that there should be no more short-term funding extension. One exception would be an extension of a few days if a late agreement is reached.

During the last government shutdowns in 1995 and early 1996, which totaled almost four weeks, new patients weren't accepted into clinical research at the National Institutes of Health. Toxic waste clean-up came to a halt at 609 sites. National monuments and museums shut down, and 368 National Park Service sites closed, turning away about seven million visitors. About 200,000 passport applications went unprocessed.

After the 2011 budget is settled, the debate will shift immediately to 2012. Mr. Ryan's plan seeks to revamp popular yet increasingly expensive government programs lawmakers have been reluctant to tackle.

Beginning in 2022, Medicare would no longer exist as a government-run health-insurance program for those born starting in 1957. Instead, these retirees would choose from a menu of private insurance plans funded by the government, while older retirees would continue under the existing Medicare system.

The federal portion of Medicaid, the health-care program for the poor, would be converted to a block grant to states, which would shrink over time, saving $771 billion over the next 10 years from projected costs.

The Ryan plan aims to keep tax revenues at or near historic norms of about 18% to 19% of gross domestic product. But it would make dramatic changes to current tax policies by lowering the top rate for individuals and corporations to 25% from the Bush-era 35% levels as a way to boost growth.

Mr. Ryan would cut taxes by about $1.8 trillion between 2012 and 2021 compared to Mr. Obama's budget proposal, according to a GOP summary. Mr. Obama proposed allowing Bush-era tax rates to expire for high earners after 2012, and also called for a range of business tax increases.

Among the other areas targeted for cuts or revamps are education grants, environmental projects, food stamps, transportation spending and government salaries.

"While we agree on...Congressman Ryan's goal, we strongly disagree with his approach, because any plan to reduce our deficit substantially must reflect American values of fairness and shared sacrifice," White House press secretary Jay Carney said. By contrast, Rep. Tom Price (R., Ga.), a leader of House conservatives, said it would "move our nation from an era of debt and doubt and despair to a stable and secure future."

The architects of the 2012 plan conceded it could open Republicans up to political attack. Asked what he says to Republicans who make such a charge, Mr. Ryan said Tuesday: "None of them say that--just kidding."

--Damian Paletta and John D. McKinnon contributed to this article.
Write to Naftali Bendavid at naftali.bendavid@wsj.com and Jonathan Weisman at jonathan.weisman@wsj.com

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This page contains a single entry by CFED published on April 6, 2011 3:58 PM.

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