Senate’s Proposed Budget Will Put Pressure On Defense Budget

by: Matthew Potter
April 28, 2010

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The Senate Budget Committee released the overall plan for the 2011 Federal budget. This lays out the top level funding for the entire government. It meets the goal espoused by President Obama in his State of the Union speech of freezing non-defense discretionary spending. It also due to the need to pay for certain tax cuts and expansion of college aid it also cuts planned spending for certain departments.

The budget will reduce the deficit but it will still be well over $1 trillion in 2011, falling to $545 billion in 2015 — a figure that is still higher then any deficit before 2009 in total dollars.

Because this plan continues to provide annual fixes to the Alternative Minimum Tax it reduces spending by the State Department and on other international programs beyond what was laid out by the Obama’s budget request. The AMT was created in the late 1960s to catch higher income people using a great deal of deductions. Because the income level was never indexed to inflation every year it affects more people. Congress has never fixed it permanently as the one time cost would be too high in terms of lost revenue. That means each year they pass a law that excludes certain income levels which does reduce revenue a little covering that with either borrowing or cuts. This budget plan continues that practice.

One cost that was not frozen is defense spending. This is the largest component of discretionary spending especially now with continued operations in Afghanistan and Iraq. Certainly if fighting ends or is reduced the defense budget could easily be seen as a place to cut and reduce the deficit. The funding for the U.S. military is at an all time high but it still makes up less then half of the deficits posted in 2009 and 2010. This would continue in 2011.

The Senate plan keeps some of the Bush-era tax cuts,continues to patch the AMT problem, and tries to reduce selected government spending. The only way to balance the budget realistically is a combination of revenue increases and reduction in spending and this does try to do that. At the same time the Congress has been loathe to try and pay for additional spending with matching cuts. Twice the Republicans in the Senate have made this point by holding up spending on unemployment benefits extension because they were paid for with borrowed money.

While the Republican tactic focused thought on the problem for a few days they still in the end allowed the spending to go forward. There are also plans for even more spending in 2010 with another “stimulus” bill to allow states to keep teachers working. This was expected as one of the criticisms of last year’s bill was that it allowed states to balance their budgets for 2009 using stimulus money. Now that this is gone they are turning to the Federal government once again.

The problem the Senate will face with their reductions and even the freeze is that each part of the budget has its own constituencies and they will fight to protect their money. It is easy to make cuts at the beginning of the year. Much harder when the final vote is taken as the different committees and individual legislators may add the money back in. The final budget for 2011 will look quite different from this general plan as presented. Without some will in Congress to reduce overall spending the deficits will continue and be bigger then expected. It usually happens this way.

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