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march 12, 2013 • 10:08 AM • last update 10:22 AM

Ryan spearheads new Republican plan to balance budget

U.S. Rep. Paul Ryan (R-WI) arrives for the Barack Obama second presidential inauguration on the West Front of the U.S. Capitol January 21, 2013 in Washington.
Foto: Win McNamee-POOL / Reuters
 

Republicans kicked off their latest deficit-reduction gambit on Tuesday with a 10-year balanced budget plan that could either be shelved within weeks or help kick-start negotiations with President Barack Obama toward a major deficit-reduction deal.

House Budget Committee Chairman Paul Ryan's $4.6 trillion deficit-reduction plan - his latest version of the "Path to Prosperity" plan that has been rejected by Democrats previously - likely will be approved this month by the Republican-controlled House of Representatives.

Whatever its long-term fate, the blueprint would give Republicans bragging rights that they have crafted a balanced budget plan, even if it is based on pie-in-the-sky assumptions, such as the repeal of Obama's 2010 healthcare overhaul.

With its cuts to social programs including Medicaid, which provides healthcare for the poor and some people with disabilities, the measure will stand in stark contrast to a competing 2014 budget outline that Senate Democrats will unveil this week. That measure will rely partially on tax increases to get control of a massive government debt.

Democrats will argue that the austerity of the Ryan budget will undercut economic growth and that their alternative will more effectively create jobs in the near-term.

Despite their severe differences, budget optimists hope that the two plans will be the opening salvos in a serious deficit-reduction effort this year.

Ryan, a Wisconsin congressman who was the Republican vice presidential nominee in 2012, relies again on major cutbacks to Medicaid by giving states more flexibility to run the program.

A total of $756 billion in savings would be achieved over 10 years on Medicaid, according to a summary of the House Republican budget outline.

Medicare, the federally-backed healthcare program for the elderly and disabled, would see savings of $129 billion over a decade. Eventually, the program would be converted into a voucher-like plan with senior citizens receiving subsidies to purchase private insurance or traditional Medicare.

Those Americans now aged 55 or older would maintain their current benefits, however.

Democrats have complained that Ryan's approach would cost senior citizens thousands of dollars a year in added healthcare costs while letting the rich keep tax breaks that cost the Treasury Department tens of billions of dollars.

Ironically, Ryan's drive to balance the budget in 10 years is aided by new tax revenues on the rich that Democrats won at the beginning of this year - the very ones that Republicans fought unsuccessfully to stop.

The Republican budget also would cut into other social services, such as nutrition programs for the poor.

But in lofty language introducing his fiscal plan, the House Republican budget claims that it "ends cronyism, eliminates waste, fraud, and abuse and returns the federal government to its proper sphere of activity."

REACHING FOR A BUDGET DEAL

Over the past four years, U.S. budget deficits have surpassed $1 trillion annually, contributing to a rapidly escalating national debt that now stands at nearly $16.7 trillion.

While it is certain to be a lightning rod for controversy, Ryan's budget proposal comes as Republicans and Democrats have been mulling the possibility of finding a long-term budget compromise following more than two years of bitter disputes.

Over the past week, Obama has met privately with Republican lawmakers to feel out their willingness to cut a deal. This week, the Democratic president is holding four separate meetings with members of Congress to explore possibilities.

Even so, some Republican lawmakers in recent days have noted "an impasse" over tax policy, as Democrats continue to insist on additional tax increases on the wealthy and some corporations.

And Ryan's budget does not shy away from new taunts at Obama as it proposes repealing the president's landmark healthcare law that is gradually being implemented after several failed attempts by Republicans to kill it and a U.S. Supreme Court ruling that rejected key challenges to the law.

Repealing "Obamacare," according to the House Republican plan, would save $1.8 trillion.

And so efforts toward a "grand deal" on the budget could falter once again if the two political parties cannot get beyond their partisan sniping.

The House Republican plan envisions budget deficits falling sharply to $528 billion next year, $125 billion in 2015 and $69 billion in 2016.

While the nation's finances would be strengthened through $4.6 trillion in lower deficits over 10 years, not all of the savings would come through spending cuts.

The Republican budget foresees $700 billion less in interest payments over the next decade, compared to current policy, because of the slowdown in government borrowing.

Debt held by the public would fall from 77.2 percent of GDP next year to 54.8 percent by the end of the 10-year budget window, according to the House Budget Committee.

Besides tackling spending, the Ryan budget calls for reforming the nation's outdated tax code and creating just two income tax brackets of 10 and 25 percent.

With Obama and lawmakers trying to reach a budget deal by late July or early August, there is widespread skepticism that a comprehensive rewrite of tax laws can be accomplished in such little time.

Reuters Terra Terra