US house backs big spending cuts

With the 2012 presidential election campaign already under way, President Obama and his Democrats are locked in an ideological confrontation with Republicans, especially a nearly 90-strong first-year class in the House of Representatives that is allied with the ultra-conservative Tea Party movement.

Their victory in November, under the flag of cutting government spending and intrusion into the lives of Americans, gave Republicans control of the House.

That set in place a divided government that has forced President Obama to accept compromises on spending and taxation that have angered the liberal wing of his Democratic Party deeply.

The US debt, in relation to the size of the American economy, has reached alarming proportions. Republicans in particular are pounding the issue, which they say endangers the country’s domestic well-being and its ability to influence world affairs. Most Democrats also accept the need to cut spending but cannot swallow what they see as the draconian Republican approach.

In an interview yesterday, President Obama said the Republican approach would mean “we would have a fundamentally different society than we have now”.

Beyond that, he said: “Literally, we couldn’t afford to fix the roads in the country under their budget.”

The House approved the Ryan plan just a day after Congress adopted legislation that cut 38.5 billion dollars (£23.6bn) out of the national budget for the remaining four and a half months of 2011. That money was cut from spending for US government agencies and amounts to only about 12% of total government outlays.

The Republican spending outline for the next fiscal year, beginning on October 1, calls for cuts of 5.8 trillion dollars (£3.5tn) over 10 years. It would reduce tax rates for corporations and the wealthy, and eliminate various tax loopholes.

The measure, a non-binding blueprint that sets a theoretical framework for future legislation, would also dramatically cut Medicaid, the medical insurance programme for the poor and disabled, and transform it into a grant programme run by the states. It does not touch Social Security, the national pension system, or immediately cut Medicare.

It does, however, call for transforming Medicare into a system under which the government provides future retirees with vouchers to buy private insurance plans. People now 55 and over would stay in the current system, but younger people would receive the insurance subsidies. Economists say those vouchers would lose value over time because they would not keep pace with fast-rising medical costs.

President Obama’s plan, outlined earlier this week, calls for cutting the federal deficit by four trillion dollars (£2.4tn) over 12 years by eliminating healthcare fraud, raising taxes on the wealthy and paring defence spending.

He said Mr Ryan’s proposal would slash healthcare coverage to 50 million Americans, including grandparents needing nursing home care, children with autism and children “with disabilities so severe that they require 24-hour care. These are the Americans we’d be telling to fend for themselves”.

Medicare, Medicaid, Social Security and defence spending account for about 80% of the American federal budget.

Another huge spending fight awaits this summer after the US Treasury hit its $14.3trn borrowing cap on May 16. That upper limit on borrowing has been increased with little fanfare 10 times in the past decade. But House Republicans, under heavy Tea Party pressure, are now threatening to vote ’No’ unless the debt limit increases also include further and deep spending cuts.

The Treasury Department has warned that failure to raise it by midsummer would drive up the cost of borrowing and destroy the economic recovery. Some economists predict even a limited US default on its debt could produce global economic chaos.

In the current year, the US is forecast to incur a $1.5trn. deficit, raising total national debt to nearly $15trn.