Tax hike, defense cuts in House Democrats’ budget

* Democratic budget plan to be unveiled Wednesday

* No chance of passage, but fuel for political fight

By Andy Sullivan

WASHINGTON, April 12 (Reuters) – Taxes on the wealthy would
rise, defense spending would fall and the U.S. budget deficit
would shrink to a sustainable level by 2018 under a budget
proposal outlined by the Democrats’ top budget official in the
House of Representatives on Tuesday.

The measure has virtually no chance of passing the
Republican-controlled House, but it will give Democrats a
chance to outline their own vision and deflect charges that
they are not fully engaged in a fight over spending and
taxation that is likely to shape the 2012 elections.

Representative Chris Van Hollen said he will release the
plan on Wednesday, the same day President Barack Obama is
scheduled to unveil a deficit-reduction plan of his own.

“We must implement a plan to support small business, grow
the economy and ensure shared prosperity,” Van Hollen, the top
Democrat on the House Budget Committee, said at the Center for
American Progress, a liberal think tank.

Republicans, who have pushed for deep domestic spending
cuts since winning control of the House last fall, have accused
Obama and his fellow Democrats of failing to take the country’s
fiscal woes seriously at a time when budget deficits hover
around 10 percent of GDP.

Deficits are expected to fall in the medium term as the
economy recovers before rising again as an aging population
pushes up healthcare and retirement costs.

Republicans managed to extract a record spending cut of
$38.5 billion in the current fiscal year in a fight that took
the government to the brink of a shutdown last week. They now
now have their eye on larger targets, such as government-run
health programs for retirees and the poor.

The House is expected to vote later this week on a
Republican budget plan for the coming fiscal year, which starts
Oct. 1, that would slash domestic spending further, lower top
tax rates and eventually cut benefits in the Medicare health
program for retirees and the Medicaid program for the poor.

The House is expected to pass the measure, but it will not
get far in the Democratic-controlled Senate, setting up another
showdown over spending.

Republicans say their budget blueprint — developed by
House Budget Committee Chairman Paul Ryan — would save nearly
$6 trillion over the coming decade and balance the budget by
2015, if interest payments on the debt are not included.

The Democratic plan for the coming fiscal year would reach
the same “primary balance” target in 2018, Van Hollen said,
even as it puts a priority on spending on education, scientific
research and transportation upgrades.

Unlike the Republican plan, it will include significant
cuts to military and security spending, he said. It would raise
the top income tax rate back to where it stood in the 1990s and
close loopholes in the tax code in order to raise revenue
levels.

Democrats also will target so-called mandatory spending —
benefit programs such as crop subsidies that normally lie
beyond the reach of the annual budget cycle.

Van Hollen declined to say whether Democrats will propose
their own changes to Medicare and Medicaid or outline further
cuts in domestic spending. He said he will confer with other
House Democrats before releasing more details of the plan on
Wednesday.
(Editing by Eric Beech)

Tax hike, defense cuts in House Democrats’ budget