House Democrats pushed their budget blueprint to passage Thursday, promising a big surplus in five years by allowing tax cuts passed in President Bush's first term to expire.
The plan would award spending increases next year to both the Pentagon and domestic programs, but defers difficult decisions about unsustainable growth in federal benefit programs such as Medicare.
The 216-210 vote sets up negotiations with the Senate, which last week passed a budget blueprint with spending increases similar to the House plan. The Senate plan would not generate surpluses since it assumes lawmakers will renew the most popular of the tax cuts due to expire at the end of 2010.
Twelve Democrats, mostly from GOP-leaning states such as Indiana, opposed the budget plan.
Tax cut factor
Democrats said the $2.9 trillion plan for next year would point the way to a surplus after years of red ink under Bush and a GOP-controlled Congress. Republicans countered that a $153 billion surplus in 2012 would appear only if tax cuts passed in 2001 and 2003 expire in four years - amounting to the "largest tax increase in American history."
The measure reflects a choice by Democrats to increase spending on domestic programs funded each year by appropriations bills - including education, health research, environmental protection and grants to local governments - while forestalling binding decisions on what to do when tax cuts expire.
As a practical matter, the future of the Bush tax cuts will likely be decided after the 2008 presidential election, with their fate depending on the balance of power after the election and on the fiscal outlook at that time. Republicans said increased spending now would put renewal of the tax cuts at a disadvantage when they are considered.
Republicans had hoped for permanent tax cuts when originally fashioning them in 2001, but an obscure Senate rule prevented that. They never held subsequent votes to make all of them permanent, despite Bush's annual calls to do so.
The 2001 and 2003 tax cut laws lowered rates on income, investments and large estates, and contained tax breaks for married couples and people with children, among others.
'A stand-pat year'
Congress' annual debate on the budget is guided by an arcane process in which a nonbinding budget resolution sets the stage for subsequent bills affecting taxes and benefit programs such as Medicare, as well as the annual appropriations bills.
In most years, Congress leaves alone difficult budget issues and simply focuses on the 12 annual bills funding the budgets of Cabinet agencies such as Defense, Education and Agriculture.
This year is likely to be such a stand-pat year.
The House plan would award domestic agencies, on average, budget increases of 6 percent over current levels, far more than the roughly 1 percent increases Bush recommended. Increases under the companion Senate measure are about 4 percent.
Extending the 2001 and 2003 tax cuts would cost about $250 billion in 2012 alone, which would balloon to $389 billion after accounting for extending other tax cuts and adjusting the alternative minimum tax so it does not ensnare over 20 million more middle class taxpayers.
The politics of budgets
Democratic leaders view passing a congressional budget plan as a key test of their ability to govern. The GOP-controlled Congress failed to pass a budget last year, which fouled up passage of the annual spending bills lawmakers need to pass each year.
"This is a balanced budget with balanced priorities," said Budget Committee Chairman John Spratt Jr., D-S.C. "It shows that Democrats are fiscally responsible, and can budget, and that we are charting a new course for America."
The measure also approves Bush's record $50 billion budget increase for the Pentagon's non-war budget and $145 billion for operations in Iraq and Afghanistan next year.
Those spending boosts, combined with $25 billion more for nondefense programs, would cause the deficit to rise from $209 billion this year to $241 billion in 2009 before increased revenues from the expiration of tax cuts generate a surplus.
Paying for changes
One of the most important features of the Democratic budget plan is to require lawmakers seeking to cut taxes or boost benefit programs - such as Medicare, children's health care or farm subsidies - to "pay for" the changes with tax increases or offsetting spending cuts.
That rule would greatly complicate efforts later this year to boost funding for a popular health insurance program for poor children.
Republicans countered with an alternative plan cutting $279 billion from federal benefit programs such as Medicare and Medicaid over the next five years - far greater cuts than Bush proposed in February.
That plan, authored by Paul Ryan of Wisconsin, top Republican on the budget panel, would fully extend the 2001 and 2003 rounds of tax cuts at a cost of about $450 billion. But Ryan's plan lost by a sweeping 160-268 vote, with many moderate Republicans voting in opposition.
Ryan warned his colleagues that the looming retirement of the Baby Boom generation threatens to swamp the budget because of the spiraling costs of Medicare and Social Security.
"If we don't get a handle on our fiscal situation, if we don't recognize the fact that if all we do is raise taxes to balance the budget in 2012, you're going to go right back into deficits soon thereafter if we don't control spending, if we don't reform government," Ryan said.