(Reuters) - Republicans in the House of Representatives will unveil a budget plan on Tuesday that will call for sweeping changes to government health programs and slash tax burdens for corporations and individuals.
The proposal by House Budget Committee Chairman Paul Ryan will serve as a blueprint for the coming fiscal year and set up yet another clash over spending with President Barack Obama’s Democrats while the two sides are still fighting to complete a long-overdue budget for the current fiscal year.
It is not likely to get far in the Democratic-controlled Senate, where budget leaders have said that increased tax revenues will have to be part of the solution if Washington is going to reduce budget deficits that have hovered around 10 percent of gross domestic product in recent years.
Ryan has said the plan will cut more than $4 trillion in spending over the coming decade. It will not balance the budget for 20 years at the earliest, according to other Republicans who have been briefed on the proposal.
Here are the likely elements of the proposal:
Ryan’s plan would likely cut corporate taxes to a top rate of 25 percent, down from 35 percent now, according to an industry source. It is also likely to lower personal tax rates to a top rate of 25 percent, which Ryan endorsed in an earlier proposal.
A top 25 percent rate for both individuals and companies is the goal of Representative Dave Camp, the Republican who chairs the tax-writing Ways and Means Committee. Ryan has said he will defer to Camp on major tax issues.
Ryan said both plans would “broaden the base” by reducing exemptions that riddle both the corporate and personal tax codes, but he has declined to provide details.
Ryan may also propose an extension of the current estate tax rate of 35 percent above a $5 million threshold for individuals, a deal struck between Obama and Republicans in December, according to industry lobbyists. Many Republicans want to scrap the tax on inherited assets altogether.
The plan would impose a hard cap on government spending relative to the size of the economy, a ratio that jumped to 25 percent in fiscal 2009 as the government fought the deepest recession since the 1930s. Obama’s budget proposal foresees caps of around 23 percent in coming years.
Ryan said he would set his cap at “historical levels,” which have been around 20 percent of gross domestic product in recent decades.
He also would mandate a firm cap in dollars on the discretionary spending that is set by Congress each year. Automatic cuts would take effect if Congress exceeded those caps.
Ryan’s plan is likely to replace the existing health program for retirees with a voucher system that would give recipients a fixed amount of money to buy private insurance plans. Poor and sick recipients would get more help.
The current system would remain unchanged for people over 55 years old who are nearing retirement.
Ryan said his proposal would help keep costs under control by encouraging competition in the marketplace.
The nonpartisan Congressional Budget Office said that a similar proposal he unveiled last year would likely lead to weaker benefits and steeper premiums for recipients. The CBO also said it would cut $280 billion from the deficit over a decade.
Medicare now accounts for 17 percent of the federal budget, according to the CBO.
Ryan said his plan will convert the current Medicaid program, which provides healthcare for the poor, into a block grant system that gives state governors wide discretion in handling the money. Medicaid’s rolls have expanded during the recession, pressuring state budgets already under strain. Critics say block grants would allow governors to cut benefits for the neediest.
Obama’s healthcare overhaul would expand Medicaid in coming years.
Medicaid makes up percent of the federal budget, according to the CBO.
Ryan on Sunday said Medicare and Medicaid spending would continue to grow, but at lower rates.
The plan is expected to address the Social Security program as well, but details have been scarce. One industry source said the plan is likely to steer clear of details, but tell other lawmakers to come up with a plan to shore up the politically popular program, which has begun to pay out more than it takes in.
Ryan last year proposed personal savings accounts for workers under 55, who would be able to deduct some of their Social Security taxes toward investment accounts. This idea was proposed by former President George W. Bush but made little headway in Congress.
Ryan is unlikely to propose such sweeping changes to Social Security, lobbyists said.
Social Security is now 22 percent of the federal budget, according to the CBO.
Ryan is unlikely to go beyond cuts already proposed by Obama and Defense Secretary Robert Gates, several Republican lawmakers said. Obama has proposed cutting $78 billion in defense spending over five years.
Defense spending is now 23 percent of the federal budget.
Reporting by Kim Dixon, Andy Sullivan and Donna Smith; Editing by Eric Walsh