WASHINGTON — Democrats gave final approval Thursday to a 2009 budget blueprint that rewards domestic agencies and the Pentagon with generous increases while leaving wrenching decisions about curbing Medicare costs and increasing taxes to the next president.
The House approved the $3.1 trillion budget plan by a 214-210 vote; the Senate had passed the measure Wednesday. The nonbinding measure does not go to President Bush but instead sets guidelines for future action by Congress.
The House-Senate compromise relies on questionable assumptions to predict a small budget surplus by 2012 — for the first time since the 2001 budget year. It would achieve the surplus goal only by allowing many of Bush’s signature tax cuts to expire on schedule in 2 1/2 years and by predicting that the wars in Iraq and Afghanistan will not cost a dime after next year.
Budget on autopilot
The nation’s fiscal condition significantly deteriorated during Bush’s tenure, and his successor is likely to inherit a budget deficit exceeding $400 billion. The Democratic plan essentially leaves the budget on autopilot for a year until the next president can propose a budget.
The budget’s prediction of a $340 billion deficit for next year is far from reality. The projection omits the full cost of the war in Iraq as well as the approximately $60 billion cost of ensuring that more than 20 million middle-class taxpayers are not hit by the alternative minimum tax.
Republicans lamented the lost opportunity to tackle the biggest budget challenge: the rapidly spiraling cost of Medicare, Social Security and the Medicaid health care program for the poor. The Democratic plan would not impose any cost-cutting on them.
Congress avoids such painful steps in election years. Next year promises to be active as policymakers grapple with what to do about the expiration of the Bush tax cuts and the rising cost of federal entitlement programs.
Democrats are generous, however, in the near term with the annual spending bills passed by Congress. Over the five years of the Democratic plan, appropriated spending would rise $241 billion.
In line for large increases are education, energy and public works.
Deficit closure or surplus
The fiscal challenge facing the nation in coming years is difficult to overstate. The question in the short term is whether to try to close the deficit or seek a budget surplus. To do so would require difficult trade-offs between demand for Democratic-sought spending and renewal of the Bush tax cuts.
In the long term, the growth of federal retirement programs will force policymakers to cut back the growth of Medicare and Social Security or else put the government on an unsustainable deficit path.
The compromise budget plan assumes the renewal of tax cuts aimed at the middle class. That includes the $1,000 per child credit, relief from the so-called marriage penalty, estate tax cuts and the 10 percent tax rate on the first $7,825 of income for individuals.
But there is not enough money left to extend cuts on income-tax rates, capital gains and dividend income and still produce a surplus.
