How it become smaller: slash government spending by $4.6tn over a decade and balance the budget within 10 years, with spending and revenues each worth 19.1 per cent of the economy.
“Other mandatory” spending cuts, such as food stamps, amount to $962bn over a decade. Social security, the large government pension scheme, is left untouched. But discretionary spending for federal agencies is reduced by $249bn over a decade – even below levels set in motion by $1.2tn in automatic cuts, known as sequestration, that took effect this month.
Republicans unveil $4.6tn of cuts
By James Politi in Washington
Republicans in the US House of Representatives have unveiled a staunchly conservative fiscal package that would slash government spending by $4.6tn over a decade and balance the budget within 10 years, with spending and revenues each worth 19.1 per cent of the economy.
On Tuesday, Paul Ryan, chairman of the House budget committee and former Republican vice-presidential nominee, presented for the third consecutive year a budget that cuts deeply into US social programmes, while sparing defence and not raising any new revenue beyond tax rises on the wealthiest Americans agreed in January.
President Barack Obama and congressional Democrats are likely to dismiss the House Republican budget as an extreme document that guts spending for the poor and the elderly – as well as domestic investments in research and infrastructure – in order to spare further tax increases on upper-income families and corporations.“This budget provides an exit ramp from the current mess – and an entry ramp to a better future,” Mr Ryan wrote in the introduction to his proposal. “It’s our duty to leave the next generation a better country than the one we inherited. We know what the problem is: we have to fix our entitlements and to grow our economy.”
Senate Democrats will on Wednesday for the first time in four years release their own competing budget, which is expected to include a mix of spending reductions and tax rises. Mr Obama will follow with his own fiscal blueprint later this month or in April.
Mr Ryan’s previous two budgets were especially controversial because they proposed a massive overhaul of Medicare, the health plan for the elderly, transforming it into a “premium support” system in which recipients would essentially receive a voucher to pay for their coverage from either a private plan or the government scheme.
After a big internal debate, Republicans agreed that this reform should only kick in after 10 years, protecting Americans aged 55 and older. Some had argued that the changes needed to take effect sooner.
Despite all the focus on Medicare, however, its cuts in Mr Ryan’s budget are relatively small – worth $129bn over a decade.
Instead, much bigger savings are achieved through repealing parts of Mr Obama’s 2010 health reform, worth $1.84tn, as well as revamping Medicaid, the health plan for the poor which is administered by the states. The Medicaid cuts are worth $756bn.
“Other mandatory” spending cuts, such as food stamps, amount to $962bn over a decade. Social security, the large government pension scheme, is left untouched. But discretionary spending for federal agencies is reduced by $249bn over a decade – even below levels set in motion by $1.2tn in automatic cuts, known as sequestration, that took effect this month.
In 2011 and 2012, Mr Ryan’s plans were unable to reach balance over a decade, drawing some rightwing ire. However, this year it was possible because of the additional revenues generated in the January deal to avert the fiscal cliff as well as a slowdown in healthcare spending projections, both of which helped America’s long-term budgetary outlook.
Achieving balance at about 19.1 per cent of gross domestic product – just above the long-term post-second world war average but above the average in recent decades – has long been a goal of Republican lawmakers and activists seeking to limit the size and scope of government.
According to the Congressional Budget Office, federal spending in 2013 is expected to be about 22.2 per cent of the economy, while revenues are 16.9 per cent of output. In a decade, revenues are forecast to grow to 19.1 per cent of the economy, but spending is expected to increase to 22.9 per cent of GDP, according to the CBO.
The 2010 bipartisan fiscal commission, co-chaired by former Republican senator Alan Simpson and former Democratic White House official Erskine Bowles, eventually balanced its books at about 21 per cent of GDP.
Neither the forthcoming budget from Senate Democrats nor that of Mr Obama is expected to come close to balance, highlighting the wide rift on fiscal policy afflicting Washington.
Under ordinary circumstances, the House Republican and Senate Democratic budgets would be reconciled into one compromise document, but that seems unlikely. Instead, the two main political parties are expected to keep careening from one fiscal crisis to another, the current one being sequestration.
In recent days there have been efforts by Mr Obama to reach out more aggressively to congressional Republicans – including Mr Ryan – in search of a way out of the impasse, but no immediate breakthrough is expected.
Mr Ryan’s budget would also implement a sweeping reform of the US tax code, cutting the top income tax rate for individuals from 39.6 per cent to 25 per cent, and the corporate tax rate from 35 per cent to 25 per cent. He says this could be done without adding to US deficits by cutting back on tax breaks, deductions, and loopholes, but does not specify which ones.
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