Democrats' new budget proposal: why it's balanced ... but not balanced

Senate Democrats have put forward a new budget proposal that offers balanced deficit reduction (between cuts and new tax revenue), but doesn't balance the budget.

Senate Democrats put forward a budget whose broad outlines contrast sharply with a rival plan from House Republicans: It avoids controversial entitlement cuts but goes only a small way toward confronting the long-term challenge of a rising national debt.

Rep. Paul Ryan (R) of Wisconsin, chairman of the House Budget Committee, pledged to balance the budget in 10 years.

Sen. Patty Murray (D) of Washington, chairwoman of the Senate Budget Committee, used the word “balance” in a different context. Her plan blends some new tax revenue and some spending cuts to produce a more modest amount of deficit reduction – all while avoiding steep cuts to Democratic priorities.

“House Republicans would dismantle Medicare,” the summary of the Senate Budget Committee stated. “They would slash the investments in infrastructure, education, and innovation that we need to lay down a strong foundation for broad-based growth.”

What’s needed now is to reach out for potential common ground, senators of both parties said. Both sides agree on the need to replace the “sequester,” the automatic spending cuts that will remain in place for 10 years unless some alternative fiscal plan is reached.

Here’s a tour of the Democratic plan and how it contrasts with the House Republican plan put forward Tuesday by Representative Ryan.

Deficit reduction: $1.85 trillion

The plan envisions equal amounts tax revenue and spending cuts to reduce deficits by $1.85 trillion over the 10-year budget window. The cuts included in this tally would replace those of the sequester.

This, combined with spending cuts and tax hikes already enacted over the past two years, would amount to total deficit reduction of more than $4 trillion, a goal that President Obama has set. That would be enough to keep the national debt from rising as a share of gross domestic product (GDP) over the next decade.

But many budget experts say that, at about 73 percent of GDP, the public debt is already so high that it leaves little fiscal leeway to deal with unforeseen circumstances, such as another deep recession.

Moreover, stabilizing the debt through 2023 doesn’t mean it will remain stable thereafter. Rather, health care spending will likely push the debt persistently upward after that time, forecasters say.

The nonpartisan Committee for Responsible Federal Budget has called for $2.4 trillion in deficit reduction beyond the spending cuts and tax hikes enacted over the past two years.

The Ryan budget seeks some $5.7 trillion in additional deficit reduction.

New tax revenue: $975 million

Senate Democrats say deficit reduction should include $975 billion in new tax revenue, beyond the $600 billion or so that will be raised by the “fiscal cliff” deal in January. That agreement boosted tax rates on the highest earning Americans while keeping Bush-era rates in place for 98 percent of households.

The new revenue would come not from higher tax rates, but closing loopholes and limiting deductions that benefit “the wealthiest Americans and biggest corporations,” the summary of the plan says.

The House Republicans seek to hold the line against further tax hikes, which would leave federal revenue at 19 percent of GDP. That makes it hard to bring the national debt down without a sweeping overhaul of entitlements including Medicare and Medicaid.

New stimulus spending: $100 billion

Democrats, with an eye on the still-high unemployment rate, allocate $100 billion to “start creating new jobs quickly, begin repairing the worst of our crumbling roads and bridges, and help train our workers to fill 21st century jobs.”

They call it a “targeted recovery protection plan” rather than stimulus, the traditional economic term for such an effort.

Defense spending: $6 trillion

Like the Republican plan in the House, the Senate Democrats back away from most of the sequester’s cuts to projected military spending. The Democratic plan slows the projected rate of defense spending, but only by a bit more than the Republican plan does. Both sides show total outlays for the decade through 2023 at $6 trillion, or close to that amount.

Medicare and Medicaid spending: $13.4 trillion

The Democrats in the Senate pledge to keep federal promises to older Americans and the poor, notably on Medicare and Medicaid. But those promises look costly to keep.

The Democratic budget would spend $13.4 trillion over 10 years on Medicare and other health programs. The plan crafted by Senator Murray pledges to keep in place the expansion of Medicaid coverage to more Americans under Mr. Obama's health-care reform law.

By comparison, House Republicans would spend $10 trillion on Medicare, Medicaid, and other health programs.

The House Republican plan contains Ryan’s proposal to shift Medicare toward a “premium support” model, which critics say turns a guarantee into a “voucher” that shifts the burden of rising costs from the government to families. That idea is a nonstarter with Democrats.

The Senate plan seeks to pare back Medicare costs over the next decade (the plan claims $275 billion in “health savings") without cutting promised benefits. Republicans on the Senate Budget Committee voiced doubts about whether those adjustments would provide a lasting fix.

A key question ahead is whether the two sides can find a middle ground.

Sen. Ron Johnson (R) of Wisconsin said Wednesday that Obama has acknowledged, in private meetings with lawmakers, the central role that health-care entitlements play in America’s fiscal challenge. He said the president cited a statistic that Republicans are also focused on: the government is only taking in about $1 in Medicare payroll taxes for every $3 that will be spent on the typical beneficiary.

Total spending: $46 trillion

Murray's plan would see federal spending total $46 trillion over the next 10 years, compared with the roughly $41.5 trillion in Ryan's plan. In both plans, federal revenue would be near its historical average, at about 19 percent of GDP. Where the Ryan plan aims to bring spending down to that same level by 2023, spending in the Murray plan would be 21.7 percent of GDP for the period, above its long-term average.