Despite entitlement reform proposals intended to serve as a bargaining chip with Republicans, President Obama's 2014 budget is dead on arrival in the House, with GOP lawmakers complaining at several congressional hearings Thursday that it would raise tax revenues, increase spending, and do little to advance real tax reform.
"I'm disappointed by the President's proposal — because it's a status quo budget," House Budget Committee chairman Rep. Paul Ryan, R-Wis., told Jeffrey Zients, deputy director of the Office of Management and Budget at a hearing on Obama's budget. "It doesn't break any new ground; it just goes over old ground. It raises taxes by $1.1 trillion. It increases spending by nearly $1 trillion. And it adds $8.2 trillion to our debt. In short, it takes more from families to spend more in Washington."
"America's tax code is broken and I'm committed to working with anyone — Republican or Democrat — to fix it. That's why I was encouraged that the President put forward a plan to tackle a few of the challenges facing our tax code" House Ways and Means Committee chairman Dave Camp, R-Mich. told Treasury Secretary Jacob Lew at that committee's hearing on the plan. "But the simple truth is that the President's proposal isn't the real reform we need."
Ryan said the president deserves credit for challenging his own party on reforming Social Security and Medicare. But it still isn't enough to move the needle for him and other Republicans who remain steadfast against new revenues as part of any budget deal. Ryan isn't convinced that the president's budget contains real entitlement reform.
At a Senate Finance Committee hearing with Lew later in the day, ranking member Sen. Orrin Hatch, R-Utah., said the president's budget takes "baby steps" towards reforming entitlement programs.
"While one may conclude that this is a step in the right direction, it is only a small step. In fact, in the grand scheme of things, it barely registers," Hatch said. "Put simply, that means, despite many claims to the contrary, this budget contains no substantive changes to Social Security."
Lew maintained an upbeat attitude and defended the president's proposals saying that they are in fact enormous amounts of movement. "I think to treat this as a small step is actually something that would jeopardize our ability to find an agreement," Lew said.
The president's $3.78 trillion budget, which contains several muni bond-related provisions, calls for $580 million of additional tax revenue by placing a 28% cap on municipal bond interest and other tax expenditures for the top 2% of families. The budget also implements the so-called Buffett Rule or "Fair Share Tax," requiring households with incomes over $1 million to pay at least 30% of their income, after charitable giving, in taxes.
Muni market participants have said that while the Buffett Rule should in theory benefit municipal bonds, the 28% cap would have devastating consequences for the muni market, raising state and local government borrowing costs, hurting infrastructure projects, and making investors wary.
In contrast, Ryan put forth a budget in March that would eliminate the federal deficit by 2023 by slashing spending by $4.6 trillion over 10 years without raising taxes. It has been viewed by Senate Democrats, who also proposed their version of a budget blueprint, as a nonstarter.
Lew told the House Ways and Means committee that he is optimistic a budget deal between the administration and Congress is "within reach" and it is possible both parties can come together to achieve both fiscal goals and long-term priorities.
Both Lew and Zients spent the day on Capitol Hill defending the president's budget during separate congressional hearings.
"It is important to note that this framework does not represent the starting point for negotiations," Lew told lawmakers. "It represents a fair balance between tough entitlement savings and additional revenues from those with the greatest incomes. The two cannot be separated, and were not separated last December when we were close to a bipartisan agreement."
Lew emphasized that the president's plan targets growth and opportunity by increasing investment in innovation and infrastructure to help improve job creation while the economic recovery still remains fragile. Such infrastructure initiatives include an independent National Infrastructure Bank and the America Fast Forward direct-pay bond program.
Several Republicans grilled Lew on why the president's budget did not balance over 10 years, like Ryan's did. Lew said that the president's budget would balance in 2050.
Rep. Richard Neal, D-Mass., noted that Republicans are "always in favor of balancing a budget when our president is a Democrat" but didn't push for a balanced budget in the eight years when George W. Bush was president.
Some Democrats were hesitant to wholeheartedly embrace the president's plan, especially with regard to his entitlement reform proposals. Senate Finance Committee chairman Sen. Max Baucus, D-Mont., said the president's budget calls for Medicare cuts well above the Senate passed budget and it puts a firewall around Social Security.
"I'm disappointed by the president's proposal to change how cost of living adjustments are calculated for seniors and military retirees," Baucus said. "Any reform of Social Security should be for the solvency of the program, not deficit reduction."
At the same time, Baucus also reiterated his commitment to comprehensive tax reform and said he is looking for a "middle ground" like the president to close loopholes and simplify the tax code.
"Some of this revenue should be used to cut taxes for America's families and help our businesses create jobs, and some of the revenue raised in tax reform should also be used to reduce the deficit," Baucus said, who has been working together on rewriting the tax code.