Democrats look to new budget rules to tame deficit

[January 26, 2010]  WASHINGTON (AP) -- Democrats are trying to toughen budget rules to make it more difficult to run up the deficit with new tax cuts or federal benefit programs, a move Republicans say is a recipe for tax increases.

The proposal by Senate Majority Leader Harry Reid, D-Nev., would make it harder to extend permanently some tax cuts that expire at the end of this year, renew health care subsidies for laid-off workers that expire next month, or offer more help to states for Medicaid for the poor.

Some middle-class tax cuts would not be affected, and extended unemployment benefits for the long-term jobless may also be exempt.

The move to stiffen budget rules is aimed at softening opposition among moderates to letting the government extend itself another $1.9 trillion into debt. President Barack Obama is expected to crack down on domestic agency budgets when submitting his budget next week, but tougher steps like raising taxes and cutting benefit programs are longshots in an election year.

Reid's "pay-as-you-go" plan would attempt to curb Congress' free-spending ways, which are turning voters away from Obama and lawmakers in both parties. The plan would require spending cuts or revenue increases to pay for new spending initiatives or tax cuts. Passing it would take 60 votes in the Senate, a tall order since all but a handful of Republicans are likely to oppose it.

For example, the billions of dollars it takes to subsidize health insurance for the jobless under the so-call COBRA program would likely have to be "paid for" with a tax increase or cuts to other benefit programs. That could kill the effort, as well as plans to help states struggling with ballooning Medicaid costs because of the recession.

Initiatives announced Monday by the White House, such as doubling of the child care tax credit for families earning less than $85,000, would similarly have to live within the rules.

Congress already has similar budget rules but routinely waives them. The new rules would carry the force of law and would be enforced by the threat of across-the-board spending cuts if they are violated.

Lawmakers could still get around the rules through waivers and by making exceptions for emergencies, such as continuing jobless benefits for the long-term unemployed. Republicans, for example, waived the rules in 2001 to pass President George W. Bush's tax cuts.

With a $1.4 trillion budget deficit in 2009 and a deficit as large expected this year, the government will run up against the $12.4 trillion ceiling on its debt by late next month.

After Republican Scott Brown took the late Edward M. Kennedy's Senate seat from Democrats in Massachusetts' special election last week, Republicans were poised to make the escalating debt a core issue in November's midterm elections. With a $1.9 trillion increase in the debt ceiling, Democrats could escape having to vote on it again until early 2011.

A major force behind the tougher budget rules are moderate "Blue Dog" House Democrats, some of them in danger of losing their seats next fall. They've vowed to kill such a huge increase in allowable federal debt if it's not accompanied by a strict, enforceable way to rein in deficit spending.

While arcane even in the Byzantine world of Washington, the rules could have a dramatic effect on policy. Similar rules in the 1990s imposed discipline on both Congress and the White House that advocates say produced budget surpluses from 1998 through 2001l. But those pay-as-you-go rules expired in 2002 and the government has been piling up debt ever since then.

One difficult-to-negotiate issue for Reid has been the treatment of expiring policies involving Medicare payments to doctors, inheritance taxes and the alternative minimum tax.

An extension of middle-class tax cuts championed by Bush, including rate cuts and a larger child tax credit, would be exempt from the pay-as-you-go rules. Others would get only a short-term reprieve under an agreement between House and Senate Democrats.

Inheritance taxes, for example, could revert to 55 percent on estates of more than $1 million in 2012. Physicians then could no longer expect bigger-than-inflation fee increases for treating Medicare patients if Congress didn't find money elsewhere to pay for them. Or, Congress could again waive its rules.

Efforts to keep millions of middle- to upper-income filers from being hit by the alternative minimum tax that averages at least $2,000 higher also would be exempt from the new budget rules for two years.

[Associated Press; By ANDREW TAYLOR]

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