Republicans Face Crucial Test in Balancing Budget Amid Tax Cut Plans

Strategic Insights -

The Republican Party's reputation for balancing the budget is on the line as they unveil their budget plan in the Senate, a promise made during the "Contract with America" campaign. Despite the failure to enact the balanced budget proposal, the party's leaders now aim to put their words into action, setting a target to balance the budget by 2002. However, the challenge lies in reconciling tax cuts with reducing the $200 billion deficit, a discrepancy that could compromise their credibility.

Key Takeaways:

  • The Republicans' budget plan aims to balance the budget by 2002, with a target to cut $1,100 billion in spending over seven years, or $1,300 billion if tax cuts are included, such as a $500 tax credit for each child in a married household.
  • The largest budget items, social security ($355 billion) and interest on the national debt ($257 billion), are untouchable for practical political purposes.
  • The Republicans plan to cut the traditionally "untouchable" item of healthcare spending ($302 billion), with a focus on restraining Medicare growth to 5% annually.
  • Senator Bob Packwood describes the delicate balance between balancing the budget and tackling a benefit vital to the elderly, Medicare.
  • Other areas of spending, including education, transportation, science, space, environment, energy, justice, agriculture, veterans, and international affairs, are relatively modest and would require just $228 billion in cuts to balance the budget.
  • The Republicans plan to cut at least $50 billion from various sectors, including unemployment benefit, job training, welfare, food stamps, housing, and mother and child subsidies.

Statistics:

  • The federal government will take in $1,400 billion in revenues this year.
  • President Clinton's 1996 budget calls for $1,600 billion in spending.
  • The Republican target is $1,100 billion in cuts over seven years (or $1,300 billion with tax cuts).
  • The Medicare budget is growing at 10% annually, and the Republicans seek to restrain it to 5% annually.
  • The budget areas that will take significant cuts include unemployment benefit, job training, welfare, food stamps, housing, and mother and child subsidies ($233 billion), and the Republicans are aiming to save another $50 billion here.

Sources:

  • "The Wall Street Journal"
  • Newt Gingrich's "Contract with America"

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