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Yesterday, House Republicans offered Americans their vision for the nation’s fiscal future, releasing a budget proposal that attempts to bring runaway deficits and the national debt under control. In a Wall Street Journal editorial, budget author Rep. Paul Ryan (R-WI) explained the that difference between Republicans and Democrats “revolves around the fundamental nature of American democracy and the social contract,” further noting that “no two documents illustrate this choice of two futures better than the president’s budget and the one put forward by House Republicans.”
Mr. Ryan is correct. In February, President Barack Obama released his budget for FY2013, a $3.8 trillion compendium of higher taxes and more spending that did nothing to address America’s ballooning national debt. The CBO’s latest analysis noted that deficits added to the national debt between the years 2013 and 2022 would come to $6.4 trillion, if the budget were adopted. Yet they also revealed that if there were no changes to the current law, the national debt would only increase by $2.9 trillion. Republicans were quick to play up the $3.5 trillion difference, saying the CBO analysis shows that the president’s budget “achieves virtually no real net deficit reduction and leaves unchanged our dangerously unsustainable debt path,” according to the Republican staff of the Senate Banking Committee.
It’s moot point. Mr. Obama’s budget is one hundred billion dollars higher than the one he sent to the Senate last year. Senate Minority Leader Mitch McConnell (R-KY) forced his colleagues to vote on the president’s 2012 budget as it was presented. It was defeated by a vote of 97-0. This year, Senate Majority Leader Harry Reid (D-NV) is not about to let history repeat itself. On February 3rd, he announced that the Senate will not vote on a budget at all this year. “We do not need to bring a budget to the floor this year–it’s done, we don’t need to do it,” Reid told reporters, contending the agreement reached by the Congressional Super Committee on August 2nd, as a result of the debt ceiling imbroglio, obviated the need for further legislation.
That argument is specious at best. It says essentially says that the $1.2 trillion in cuts over ten years–cuts that resulted from the Super Committee’s failure to reach an agreement–is the same as crafting a budget. Furthermore, it attempts to obscure some inconvenient facts. First, the Democratically-controlled Senate didn’t passed a budget at all in each of the two years prior to the agreement reached in August. Second, the “budget” passed on August 2nd was done to avoid a national default engendered by broaching the limit of the debt ceiling. That’s the same debt ceiling Democrats sought to keep completely separate from the budget issue, insisting they were only interested in passing “clean” budget bills. And finally, the Super Committee’s handiwork was so “well-received” by the financial ratings agencies, America’s credit rating was downgraded for the first time in the nation’s history.
Mr. Ryan is attempting to offer the nation a stark contrast to such recklessness. The big picture is straightforward. It calls for a combination of spending cuts and tax reform aimed at wiping out deficits, and balancing the budget by the year 2040. The national debt would continue to rise, but an expanding economy would put it on track to return to 18 percent of GDP, a long-term historic average abandoned by an Obama administration that has averaged more than 24 percent of GDP in its first three years. Ryan’s budget also aims to slash federal spending by $5.3 trillion more over the next decade than the president’s proposal. If that number sounds familiar, it’s because president Obama will have added almost $5 trillion to the nation’s deficit by the time he finishes his first term in office.
Like any budget however, the devil is in the details. Right out of the gate, Ryan grabs the revenue stream being generated by taxes over the next ten years to pay for the healthcare bill. Ergo, the bill must be repealed in order to get the money. The Congressional Joint Committee on Taxation estimated that amount would come to $409.2 billion, and Republicans plan to retain the healthcare law’s higher revenue stream. Yet Ryan insisted that his budget would not increase taxes, but generate the same amount of revenue by overhauling the tax system. Toward that end he proposes two individual tax brackets, 10 percent and 25 percent, and a repeal of the alternative minimum tax. The corporate tax rate would also be reduced to 25 percent from 35 percent, and he would shift to what he calls a “territorial” tax system allowing businesses to invest profits earned abroad back into America without getting hit by an extra tax bite for doing so.
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