WASHINGTON – The Senate Wednesday approved a $3.1 trillion election-year Democratic budget blueprint that leaves to the next president the task of sorting out a host of fiscal problems.
The House-Senate compromise, adopted by a narrow 48-45 margin, would allow large near-term increases in defense and domestic programs funded by Congress each year, but also stacks wrenching Medicare and other federal benefit decisions upon the shoulders of future policymakers.
It also manages to predict small budget surpluses by 2012, but only by permitting several of President Bush's tax cuts to expire as scheduled at the end of 2010 and by allowing more than 20 million middle-class taxpayers to be hit by the alternative minimum tax, or AMT, after next year.
The immediate impact of the nonbinding measure is to provide a $24 billion increase for domestic agency budgets for the budget year beginning Oct. 1, an almost 5 percent increase. It also endorses Bush's $36 billion increase for the Pentagon's core budget, more than 7 percent.
But it relies on a host of questionable assumptions to predict a $340 billion budget deficit for next year, achieving it only by understating likely war costs — even if an anti-war Democrat takes back the White House — and assumes that Congress will raise taxes to finance the $50 billion-plus cost of "patching" the AMT.
The same assumptions call into question Democrats' promises to produce small surpluses by 2012.
Congress' annual budget debate involves a nonbinding resolution that sets the stage for later bills affecting taxes, benefit programs such as Medicare and the annual appropriations bills. Unless such follow-up legislation is passed, however, the budget debate has little real effect and is mostly about making statements about party priorities.
In fact, Congress has a limited agenda this year on the budget: addressing the AMT, extending some expiring tax breaks for business, and preventing doctors from absorbing cuts in their Medicare payments. They also plan a major boost in the GI Bill for veterans college benefits at a cost of more than $50 billion over the upcoming decade.
Meanwhile, Democrats are slow-walking the 12 annual spending bills to avoid an election-season fight with Bush; they are unlikely to get passed into law until next year.
But the measure the Senate was considering Wednesday paints a bleak picture for the next president, who'll face tough decisions on cutting benefit programs to prepare for the retirement of the Baby Boom generation and whether it's possible to extend the full menu of Bush's tax cuts.
On taxes, the Democratic plan relies on a surge in tax revenues — averaging $129 billion a year — after 2010, to claim the budget to be in balance in four years.
Still, the next president is likely to inherit a budget deficit easily exceeding $400 billion.
"The record under this administration has been a record of debt and deficits as far as the eye can see," said Senate Budget Committee Chairman Kent Conrad, D-N.D. "This budget seeks to take the country in a different direction."
The compromise budget plan promises to renew tax cuts aimed at the middle class, including the $1,000 per child credit, relief from the marriage penalty, estate tax cuts and the 10 percent tax rate on the first $7,825 of income for individuals.
But there's not enough money to extend cuts on income tax rates, capital gains and dividend income and still produce a surplus under the Democratic plan, which rejects Bush's proposed cuts to domestic programs.
Conrad says those cuts can still be extended if lawmakers target tax shelters and if the Internal Revenue Service does a better job of collecting taxes owed to the Treasury.
Conrad, a former tax commissioner, says all it will take is to claim 15 percent of such lost revenues, but Republicans scoff at the claim. To close the "tax gap" would require burdensome record keeping requirements that businesses and other interest groups would lobby hard to reject.
Republicans slammed the measure for raising taxes and failing to tackle big budget problems.
"With rising gas prices and economic concerns, Congress needs to lower taxes on working Americans and job creators and rein in wasteful Washington spending," said Sen. Mitch McConnell, R-Ky., the minority leader. "Instead, a narrow majority in Washington has passed a budget that provides for the largest tax hike in U.S. history and sets a new spending record."
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