Congress is considering dueling fiscal plans for the upcoming year that illustrate the unappetizing budget choices facing the next president.
Democrats are backing a $3 trillion budget plan that would produce decent-sized surpluses in a few years and generous increases for many domestic programs, but only by assuming major tax increases when President Bush's tax cuts expire in about three years.
With the House ready to begin the budget debate on Wednesday, Republicans unveiled their alternative, a plan that preserves the Bush income tax rate cuts and tax breaks for marries couples, people with children, on investments, and for those inheriting multimillion-dollar estates. But the price for such generosity is harsh, unrealistic cuts in Medicare, housing, community development, and the Medicaid health care program for the poor and disabled.
The rival budget plans display the difficult trade-offs facing the next president, who must weigh tax cuts that expire at the end of 2010 with popular spending programs like education, highway construction and Medicare. Simply put, it's politically impossible, under current estimates, to have it all: a balanced budget, Bush's tax cuts, and growth in spending that keeps up with inflation and population growth.
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. Unless such follow-up legislation is passed, the budget debate has little real effect and is mostly about making statements about party priorities. This is such a year.
In election years, Congress invariably leaves alone difficult budget issues such as the unsustainable growth in benefit programs such as Medicare and simply focuses on the 12 annual bills funding the budgets of Cabinet agencies such as Defense, Education and Agriculture. This year, the hard feelings between Democrats and Bush are such that even those spending bills are likely to be delayed, although the defense and homeland security budgets may go forward. Decisions on the fate of the Bush tax cuts are expected to wait until after next year's presidential election.
In Senate debate Tuesday, Democrats promised renewal of the 10 percent tax bracket on the first $7,825 of income for individuals, the $1,000 per child tax credit and estate tax relief. But income tax rates would bounce back to pre-Bush levels, as would taxes on dividends and capital gains on stock and real estate sales to generate small surpluses in 2012 and 2013.
"They're going to raise those rates up," said Sen. Judd Gregg, R-N.H. "They are going to double the capital gains rate essentially. ... The deduction for qualified education expenses is not extended. Small business taxes are not extended."
Republicans countered with an amendment extending income tax cuts and current rates on investments, but the move would mean the budget would stay in the red.
Votes aren't expected, in both the House and the Senate, until Thursday.