Democrats put their stamp on US budget

Before leaving town last week, the House and Senate passed plans to spend nearly $3 trillion in the next fiscal year.

That news was nearly lost in a week that included dramatic testimony on the firing of eight federal prosecutors and war- funding bills that aim to force an end to the US combat role in Iraq.

While not as compelling a narrative, these budget resolutions give a first look at how the new Democratic majority on Capitol Hill plans to rework the fiscal priorities – and legacy – of the Bush White House.

House Speaker Nancy Pelosi says the budget, which cleared the House with a 216-210 vote on Thursday, is fiscally responsible and "takes America in a new direction."

At the heart of the new budget documents is commitment by both the House and Senate to get back to pay-as-you-go rules, which require lawmakers to find offsets for new spending or new tax cuts.

GOP says: It's the largest tax hike

That means that, for now, Congress is not proposing extending key Bush tax cuts set to expire on Dec. 31, 2010. If current law plays out, that means that income tax rates increase in all tax brackets, as well as for capital gains and dividends; the child tax credit drops from $1,000 to $500; and the estate tax, set to phase out in 2010, returns in 2011. Republicans are calling it the largest tax hike in US history: more than $700 billion over the next five years.

"Democrats had the chance to pass a budget that restrains spending, prevents tax increases, and addresses entitlement reform; instead, they chose to hike discretionary spending by almost $150 billion and pass the looming entitlement crisis to another Congress," said Senate Republican Conference Chairman Jon Kyl (R) of Arizona.

Democrats say that they are simply following current law – not repealing tax cuts, as many members of their caucus had proposed. "The '01 and '03 tax cuts remain in place for '07, '08 '09, and '10. When we get to December 31, 2010, we have a big decision to make. But we can approach that bridge when we come to it," says Rep. John Spratt (D) of South Carolina, who chairs the House Budget Committee.

Education, veterans priorities

On the spending side, both the House and Senate budget plans breach Mr. Bush's proposed $929.8 billion discretionary spending cap for the fiscal year beginning Oct. 1. Democrats propose more spending on education, veterans' healthcare, and other domestic priorities, such as home-heating assistance and support for an expansion of the Children's Health Insurance Program (CHIP).

While the president's budget adds $1 billion to Title 1, the federal program to help low-income students, it also cuts nearly that much out of other education programs. House Democrats propose $8 billion in new funding for education and $5.4 billion over the level of current services for veterans' healthcare.

The Senate's version of a fiscal year 2008 budget resolution passed on March 23 by a vote of 52 to 47. Two Maine Republicans, Sens. Olympia Snowe and Susan Collins, voted with Democrats to back the plan.

Once the House and Senate versions are reconciled, the budget resolution guides spending bills for fiscal year 2008. Programs included in this plan are also protected from a Senate filibuster, and therefore can pass the Congress by a simple majority, instead of the 60 votes often needed to send bills to the president's desk.

House Democrats say they have waited since the Clinton administration for "a seat at the table" in budget negotiations. "When we last, as Democrats, had a hand in really making the budget – and that was a year before President Bush came to office – we had surplus of $236 billion," said Representative Spratt.

"Our first objective was to put the budget back in balance," he said. The House Democrats' plan projects a $153 billion surplus in 2012. Senate Democrats say they will use that surplus in 2012 to help pay for extending some of the Bush tax cuts – a promise that is not binding on future Congresses.

Both Mr. Spratt and Sen. Kent Conrad (D) of North Dakota have long railed against deficit spending in the Bush years, and the failure of Congress to prepare for the retirement of the baby boomers. They say the Bush administration has dug the nation a big hole in deficit spending, and it will take five years to get the budget back into balance.

Budget watchdogs applaud Democrats

Budget watchdog groups applaud Democratic leaders for insisting on pay-as-you-go rules, but say they are putting off the tough budget decisions.

"The first tough decision they will have to make later this summer is with the AMT [Alternative Minimum Tax]," says Chris Edwards, director of tax policy for the CATO Institute.

House Democrats say they plan to find an offset for one year of AMT tax relief; Senate Democrats propose two years of relief. But neither has yet identified an offset to pay for it. "One-year relief is a $50 billion proposition, and I can't see Congress finding $50 billion in cuts," he adds.

Still, if Democrats can agree on a budget resolution this year, as expected, it will be an improvement over two of the past four years, when the GOP-controlled Congress failed to pass a budget.

"On the surface, these are very moderate budgets," says Richard Kogan, a budget analyst for the Center on Budget and Policy Priorities in Washington. In fact, if the trends in the Democratic budget plans continue, domestic discretionary spending would fall to its lowest level as a share of GDP in the past 50 years, he adds.

Since 1962, discretionary spending – all that isn't entitlement spending and interest on what is now nearly $9 trillion in national debt – has fallen from 68 percent to 38 percent of the federal budget.