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Legislative Report - 3.16.2013 - House Republicans FY 2014 Budget Proposal

House Budget Chair Paul Ryan (R-WI) unveiled his chamber’s Fiscal Year 2014 budget proposal entitled "The Path to Prosperity: A Blueprint for American Renewal” that cuts spending by $5.7 trillion, reduces the top tax rate to 25 percent, balances the budget within 10 years and moves to a fair value accounting system to show the true costs of the federal loan programs.  
According to a fact sheet, the proposal would:

  • Cut wasteful spending;
  • Protect and strengthen important priorities like Medicare and national security;
  • Reform welfare programs like Medicaid so they can deliver on their promise;
  • Simplify the tax code by consolidating the current seven individual-income-tax brackets into two brackets with a first bracket of 10 percent;
  • Repeal the Alternative Minimum Tax; and
  • Reform the budget process, among other proposals.

Regarding the budget, the plan calls for $4.6 trillion in spending reductions over the next ten years by "protecting key priorities while eliminating waste” to help balance the budget in 10 years. It recommends holding revenue and spending at 19.1 percent of GDP. Overall, the plan calls for $41 trillion in spending over the next ten years compared with the current $46 trillion projected level.  
Concerning higher education and student financial aid, the budget plan points out that current federal aid structures are exacerbating the crisis of tuition inflation, and forcing students and their families into debt. The plan calls for putting Pell Grants on a sustainable path and focusing the grant aid on truly needy students. The budget recommends maintaining the Pell Grant maximum award for the 2012–2013 award year of $5,645 in each year of the budget window, to be fully funded through discretionary spending. The budget also calls for reforming the Credit Reform Act to reflect the true cost of the federal student loan programs through fair value accounting. It states that the current law makes risky loans out to be profit makers, thus encouraging loan expansion and leading to tuition inflation. The plan notes that such a method would more fully account for the cost of the risk to the taxpayer of the direct-loan program. Other proposals would re-examine the data available to students in making postsecondary decisions, and eliminate regulatory barriers that restrict flexibility and innovation.   
House lawmakers are expected to consider the plan in the near future.  The Senate proposal is below.

Senate Democrats FY 2014 Budget Proposal

Senate Budget Committee Chairman Patty Murray (D-WA) released her Chairman's Mark for the FY 2014 Budget on Wednesday evening, "Restoring the Promise of American Opportunity,” which includes an equal mix of spending cuts and revenue increases through reductions in in tax loopholes.
Chairman Murray’s plan contains:

  • $1.85 trillion in net deficit reduction over ten years compared to the current policy baseline which assumes the sequester is repealed.  This would reduce the national deficit from a projected 76.6 percent of GDP in 2014 to an estimated 70.4 percent of GDP by 2023.
  • A mix of spending and revenue provisions:  $975 billion in additional revenues compared to current policy, and $875 billion in spending reductions net of stimulus.
  • The plan would put the national debt on a modest downward trajectory as a share of the economy, although it does not reduce the amount of debt held by the public by as much as the House proposed Ryan Budget.
  • Generates $975 billion in new revenues by reducing current tax expenditures and closing loopholes on higher earners (specifically, the top two percent of income earners) and corporations.
  • The specifics regarding the elimination of tax expenditures for high income earners will be left to the Finance Committee to determine.  However, several approaches are favored by the Murray plan such as: an across-the-board limit on tax expenditures claimed by high-income taxpayers which could take the form of a limit on the tax rate at which itemized deductions and certain other tax preferences can reduce one’s tax liability, a specific dollar cap on the amount of allowable deductions, or a limit on the value of tax preferences based on a certain percentage of a taxpayer’s income.
  • The plan also indicates support for the Simpson–Bowles tax reform plan which proposed to convert certain itemized deductions into limited tax credits.
  • Supports continued middle class tax relief legislated in the American Taxpayer Relief Act of 2012, a permanent extension of the American Opportunity Tax Credit to help make higher education more affordable, as well as temporary enhancements to the Earned Income Tax Credit and Child Tax Credit, all of which are set to expire after 2017.
  • Provides $975 billion in deficit reduction though spending cuts made across the federal budget:  $493 billion saved on domestic spending ($275 billion of which is from health savings, mostly from providers within Medicare), $240 billion saved on defense spending aligned with the drawdown in funding for the wars overseas, and $242 billion saved in reduced interest payments.
  • Adds an additional $100 billion in new stimulus spending for a targeted jobs infrastructure package.
  • Pertaining to post-secondary education, the Murray plan focuses on four primary areas:
  • Post-secondary education and training: states a commitment to maintaining superiority of American colleges and universities and helping students afford tuition, with an emphasis on the growing need for post-baccalaureate degrees and skilled credentials in demand in a dynamic economy.
  • Bringing down the cost of higher education:  Congress intends to enact a proposal that will ask colleges and states to assist in reducing college costs while increasing access and completion.
  • Securing Pell grants: commits to ensuring funding and long-term viability of the Pell grant program and protecting the inflation adjustments.
  • Keeping student loans affordable: eliminates the student loan fee increase from sequestration, retains subsidized loans and repayment programs, and facilitates passage of legislation to ensure student loan interest rates remain affordable.

This is the first budget proposal from the Senate since 2009. This proposal will be used in negotiations with the House in developing a Congressional Budget Resolution for federal FY14 which begins October 1st.