May 11, 2011 / 10:40 PM / in 8 years

Republicans unveil cuts as Democrats eye tax hike

WASHINGTON (Reuters) - Republicans planned sharp cuts to foreign aid and education on Wednesday, while Democrats weighed a tax hike on millionaires, highlighting the yawning divide between the two parties in the budget debate.

The National Debt Clock hangs from a building near Times Square in New York February 14, 2011. REUTERS/Joshua Lott

With a struggle over raising the debt limit expected to last through the summer, Republicans in the House of Representatives forged ahead with a spending plan for the coming fiscal year that points to another bruising struggle in the fall.

Republicans have pressed for deep spending cuts to get the country’s rapidly rising debt under control. They won the largest domestic spending cut in history last month in a battle that took the government to the brink of a shutdown.

An outline released by the House Appropriations Committee indicated they will press for further cuts in the coming fiscal year, which starts on Oct 1.

Domestic programs would see their budgets shrink by 22 percent from the 2010 fiscal year, when Democrats controlled both the House and the Senate. The Defense Department’s budget would see a 3 percent increase from last year.

Democrats who control the Senate are considering a budget plan of their own that would impose a surtax of 3 percent on millionaires, according to a congressional source. They aim to keep domestic spending roughly at current levels — $47 billion higher than the Republican plan.

Democrats say tax increases are needed to help keep the U.S. debt at a sustainable level, and more than half of Americans agree with them, according to a Reuters survey.

Republicans say tax hikes are off the table in negotiations on cutting stubborn budget deficits, which have hovered around 10 percent of gross domestic product in recent years.

Even as the United States struggles to emerge from the deepest recession since the 1930s, the discussion in Washington has shifted from stimulus to austerity. The country is due on Monday to hit the congressionally set $14.3 trillion limit on how much it can borrow.

The Treasury Department says Congress must act by August 2 to avoid a default that would cause turmoil in markets and economies across the globe.

Republicans and many Democrats say they will not back an increase in the country’s borrowing authority unless it is paired with steps to ensure the debt does not rise to an unsustainable level relative to the economy.


The White House’s top economist, Austan Goolsbee, called that approach “insane” in a speech in Chicago.

Nevertheless, the White House has launched a charm offensive aimed at reaching common ground. President Barack Obama met with Senate Democrats on Wednesday, and further meetings with other lawmakers are on the agenda.

“The president was very clear in saying we can work something out,” Senate Democratic Leader Harry Reid said after the meeting.

Vice President Joe Biden has separately been meeting with a smaller group of top lawmakers to see if a deal is possible.

Meanwhile, lawmakers must begin work on the 12 spending bills that keep the government running — the subject of last month’s bruising budget battle.

The House Appropriations Committee’s outline sets overall spending caps for those bills but does not indicate how individual programs would fare.

Nevertheless it shows sharp differences with Obama, who released his budget proposal back in February.

The Education Department, Labor Department and Health and Human Services Department would get 23 percent less than Obama requested. Those agencies handle Democratic priorities like birth-control funding and college-tuition grants, which Republicans have previously targeted for reduction or elimination.

Foreign aid, the State Department and other foreign operations would get 22 percent less than Obama requested, though the blow would be eased by war-related funding in a separate account.

These funding levels are not final, but they indicate Washington could see a replay of last year’s ugly budget battle, which kept government agencies in limbo for six months before a deal was reached in April.

Additional reporting by Jeff Mason and Steve Holland; Editing by Todd Eastham

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