The budget blueprint reported out of the House Budget Committee
last week and supported by Democratic leadership is a study in
fiscal irresponsibility. Coming on the heels of a campaign season
in which Democrats slammed Republicans' profligacy, the House
budget resolution boosts discretionary spending, does nothing to
tackle out-of-control entitlement spending, and, worst of all,
would impose the largest tax increase ever on the American people.
The shortcomings of this budget are thrown into relief by a
substitute proposal made this week by Representative Paul Ryan,
ranking member of the House Budget Committee, and House
Republicans. The Republican budget would freeze non-defense
discretionary spending while directing more money to priority
areas, take several steps toward entitlement reform, strengthen
budget enforcement, and extend the 2001 and 2003 tax cuts that have
done so much for the economy. The Republican budget sets a standard
that Congress should strive to meet.
The Democrats' Budget
The House budget resolution reported out of committee and
scheduled for a floor vote this week makes much of the claim that
it would balance the budget in just a few years. And it would
accomplish this goal on the backs of taxpayers. Even so, the
balanced budget would be temporary because the budget does not take
steps to rein in coming increases in Medicare, Medicaid, and Social
To begin with, the budget assumes tax increases of $900 billion
over five years, which would be accomplished in part by allowing
the 2001 and 2003 tax cuts to expire. These tax cuts have been
successful at promoting economic growth by reducing disincentives
to work and encouraging investment. Since their enactment, economic
growth has been robust, and the economy has added nearly 8 million
new jobs. Allowing these tax cuts to expire risks great damage to
the economy and would raise taxes on 4.7 million Americans. In addition,
the budget does not provide for an "AMT fix" that would prevent the
Alternative Minimum Tax's boom from sweeping in more Americans.
Further, the budget proposes large increases in spending on tax
compliance and assumes that the result will be additional revenues
squeezed out of taxpayers. But IRS officials are less optimistic,
predicting that the increased revenues would be minor-nowhere near
enough to pay for the budget's spending increases. Moreover, the
last time Congress acted to eke more funds out of the "tax gap," it
set the stage for widespread IRS abuses, eventually sparking a
taxpayer backlash. With the greater complexity of the tax code
today, it is likely that taxpayers would suffer even more.
The budget would use these increased revenues to pay for
increases in non-defense discretionary spending, boosting such
spending by $22.5 billion in FY 2008. Further, the budget assumes
that non-defense discretionary spending will rise faster than the
projected rate of inflation from FY 2009 through 2012.
At the same time, the budget's pay-as-you-go (PAYGO) provision
would allow for increases in entitlement spending if matched by
additional tax increases. The budget also includes an additional
$115 billion in "reserve fund" spending that would have to be
offset by cuts elsewhere or (more likely) still more tax
A Difference in Vision
The (PDF link) differs significantly
from the majority's proposal. While it would also balance the
budget, by 2012, it would accomplish this without raising taxes.
The key to the plan is freezing discretionary spending and starting
to reform the big entitlement programs.
On the tax side, the Republican budget would extend the 2001 and
2003 tax cuts, thus avoiding the largest tax increase in history
and addressing the risk of economic slowdown. Unlike the majority
budget, it assumes an extension of AMT relief, which is all but
certain. Finally, it would fix PAYGO so that it applies only to
spending increases, focusing, as is appropriate, on the size of
government and reducing the risk of entitlement expansions matched
with tax hikes.
The Republican budget also takes several important steps to rein
in out-of-control spending. First, it would implement a five-year
freeze in non-defense discretionary spending, limiting Congress's
ability to boost funds for pet projects and ineffective programs.
This freeze would also encourage Congress to prioritize its
spending, making the kinds of tradeoffs that families make when
they decide how to spend their money. Congress has fallen short in
this; non-defense discretionary spending grew 40 percent (21
percent after inflation) from 2001 through 2006. The Republican
budget, however, stresses the need for tradeoffs by accommodating
increases for important priorities, such as veterans' health
No less important, the Republican budget does not shortchange
defense. Rather, it meets the President's request for defense
funding in FY 2008 and 2009.
The other crucial step in the Republican budget is that it would
start down the road to reforming the big entitlement programs.
These programs grow on autopilot from year to year and are poised
to swamp the budget with the retirement of the baby boomers,
pushing the size of government to unprecedented heights and
threatening major tax increases. Instead of putting off dealing
with entitlements-and thus making it more difficult and expensive
to fix them later-the Republican proposal would enact several
reforms that would save a projected $279 billion over 5 years. This
is an important step toward addressing the nation's long-term
Finally, the Republican budget includes several measures to
prevent Congress from getting around its budget commitments and
using gimmicks to boost spending. First, the Republican budget
includes funds for emergency appropriations. Emergency funding
bills have become so routine, and so loaded with non-emergency
spending, that it is disingenuous to exclude them from any budget
proposal. Second, it includes a presidential line-item veto measure
that could have some success in trimming pork from the budget.
Finally, as mentioned, it includes a PAYGO provision that focuses
on the real problem-growth in spending.
Unlike the House Democrats' budget resolution, the Republican
budget substitute embodies a vision of fiscal restraint and
economic growth. It begins to address the difficult problem of
unrestrained growth in entitlement spending and maintains the tax
cuts that promote continued economic growth. Members of Congress
should give the measures of the Republican budget serious
consideration and use the proposal as a basis for responsibly
getting the budget under control.
Andrew M. Grossman is Senior Writer and Editor at The
Foertsch and Ralph A. Rector, Ph.D., "The 2001 and 2003 Bush Tax
Cuts: Economic Effects of Permanent Extension," Heritage Foundation
WebMemo No. 1361, February 15, 2007, at www.heritage.org/Research/Taxes/wm1361.cfm,
and James Sherk, "Jobs, Taxes, and the Goldilocks Economy,"
Heritage Foundation WebMemo No. 1336, February 1, 2007, at
 See William
W. Beach, "Increasing IRS Tax Collection Powers Threatens More IRS
Abuse: The New Congress Moves to Close the 'Tax Gap,'" Heritage
Foundation WebMemo No. 1373, February 27, 2007, at www.heritage.org/Research/Taxes/wm1373.cfm.
 See Richard
W. Rahn, "Tax Traps," The Washington Times, March 28, 2007,