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Divisions Confront Budget Negotiations

April 1, 2005—Republicans are deeply divided over the tough trade-offs they must make among tax cuts, popular spending programs and deficit reduction as leaders begin trying this week to strike a bicameral budget deal. Conservatives view entitlement programs, such as Medicaid, as prime targets to help scale back government spending. However, when the Senate debated its budget blueprint (S Con Res 18) on the floor last month, senators voted to strike a chunk of the spending cuts the document called for, and also to dramatically increase its tax cut proposal.

Those two impulses—to avoid politically painful benefit reductions while also calling for more tax cuts—put the budget on a collision course with a faction of the Republican party deeply concerned about the deficit.

"Conservatives are split on whether the problem is big government or budget deficits," said Brian Riedl, a federal budget analyst at the conservative Heritage Foundation. "Both philosophies argue for spending cuts. But the deficit hawks see tax increases as an option as well, while those concerned with big government see spending cuts as the only real option."

The House fiscal 2006 budget resolution (H Con Res 95) called for $68.6 billion in cuts to mandatory spending programs over five years, a large number that is still not as aggressive as some conservatives would like.

But moderate Senate Republicans roundly rejected sizable spending cuts—and the politically risky reduction in services that would likely ensue. The Senate's budget blueprint hit the floor with $32 billion in proposed spending cuts. But senators voted to strike $15 billion in proposed cuts, most of which was expected to come from Medicaid, leaving only $17 billion in mandatory spending cuts.

If they are to resolve their differences in conference, Republicans will have to agree on how much they are willing to cut programs for the poor, while calling for tax cuts amid continuing deficits.

With expanded majorities in both chambers, President Bush in his second term and the next congressional election more than a year away, conservatives know that this may be their best chance to begin chipping away at entitlement programs. But those cuts depend upon adoption of a budget, which would provide protection from Senate filibusters, through the reconciliation process, for subsequent legislation to implement the cuts.

"The costs of not getting resolution are very high because that would kill reconciliation," said Riedl. Seven Republican senators joined all 44 Democrats and Sen. James M. Jeffords, I-Vt., in voting to cut instructions to the Senate Finance Committee to find $15 billion in savings through 2010, most of which would have come from Medicaid, the federal-state health insurance program for the poor and disabled.

Senators are under heavy pressure from governors of both parties to block any efforts to deeply cut the program.

Still, conservatives hope that senators like Gordon H. Smith, R-Ore., who sponsored the Senate amendment stripping Medicaid cuts from the budget proposal, will not oppose a budget conference report if some of the proposed cuts are restored.

Even after the Smith amendment was adopted, Senate GOP leaders were able to muster just 51 votes for final adoption of the budget on March 17. Advocates for Medicaid beneficiaries are pushing to keep the seven Republicans on their side.

"We are working hard in the states where senators voted for the Smith amendment, first to make sure that people in those states recognize and thank the senators for their vote, and secondly to urge them to . . . [tell] the leadership that it would be unacceptable to impose cuts in Medicaid," said Ron Pollack, executive director of Families USA.

For any proposed spending cut—including those cuts envisioned in Agriculture Committee programs, like the food stamp program—there is a clear constituency ready to battle in its defense. Further complicating efforts to cut spending are the recent enactment of a Medicare prescription drug law (PL 108-173) and the president's efforts to overhaul Social Security, which appear to have taken those enormous entitlement programs off the list of potential targets for savings.

Offsetting Tax Cuts
Last year, the budget process fell apart over Senate moderates' insistence on a pay-as-you-go requirement that tax cuts be offset, essentially a variation on the same rift that threatens this year's budget. After last year's failed efforts to reinstate the pay-as-you-go rules, GOP supporters of the rules appear disinclined to revive that debate. That means it probably will be easier for Republicans to strike a budget deal this year, said Allen Schick, a budget expert and a professor of public policy at the University of Maryland.

Reviving the pay-as-you-go rules is controversial within the party because it would have restrained lawmakers' ability to enact tax cuts for years to come. "A number is easier to resolve and on taxes they're not that far apart," Schick said. "I don't know that Republicans in the House will fall on their sword to insist on spending cuts. They haven't in recent years, so why would they this year?"

Still, conferees will have to carefully gauge how much deficit-conscious Republicans in the Senate will accept in tax cuts this year. The tax cut targets written into the budget's reconciliation instructions will shape the debate for tax writers for the rest of the year.

Efforts to smooth those differences could be complicated by the surprise adoption of an amendment by Sen. Jim Bunning, R-Ky., raising the amount of tax cuts that would be protected from a Senate filibuster this year by $63.9 billion.

That amendment left the Senate with a larger overall tax cut target—$129 billion—than the more conservative House, which called for $106 billion in tax cuts.
Some popular tax legislation, like an extension of modifications to the alternative minimum tax, could move outside of the reconciliation process.

Judd Gregg, R-N.H., chairman of the Senate Budget Committee, initially set his tax cut figure at $70 billion, which he said would take care of extending several tax provisions set to expire in the next five years, including the 15 percent rates on dividends and capital gains.

The chambers' differences on both mandatory spending levels and tax cuts should come into sharper focus when Gregg and his House counterpart, Jim Nussle, R-Iowa, begin their discussions.

"That's where I think they get down to brass tacks," said Nussle spokesman Sean Spicer.

Deadline Approaching
The statutory deadline for adoption of the budget—which is not signed by the president—is April 15. There is no penalty for failing to meet the deadline.

"That remains Chairman Gregg's goal—to complete the budget on time," said Gayle Osterberg, Gregg's spokeswoman. However, she acknowledged "that is a rare occurrence." Conferees have not yet been named.

Spicer declined to offer a timeline for an agreement.

"The hope is to get it done and get it done right," he said.

Efforts to cut mandatory spending could face a parliamentary problem in the Senate. Both chambers have called for increased pension premiums for the Pension Benefit Guaranty Corporation.

But the premium increases would affect both spending and revenues, perhaps creating parliamentary issues for Republican leaders.

At least in part, the desire to move separate reconciliation bills for tax and spending cuts reflect unease with cutting taxes and entitlement programs at the same time.

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