Health Spending is Key in U.S. Budget Impasse

The biggest difference between President Barack Obama and Republicans on spending over the next decade or so is in healthcare, although smaller, but significant spending differences remain in other categories.

The U.S. debt, currently at $14.3 billion will grow by trillions of dollars under budget plans from both sides.

Obama presented his plan this week for addressing the nation's deficits and long-term debt. Republicans, led by House Committee Budget Chairman Paul Ryan, presented their plan last week.

The battle over healthcare, which consumed a large part of Obama's first two years in office, is continuing in the budget proposal unveiled by Republicans.

Republican proposals for change come in the two major federal health programs - Medicare and Medicaid which made up a combined 22.6 percent of the federal budget, according to the 2010 fiscal year budget, which was the last time passed a year-long budget.

Obama wants to keep the programs' structures untouched, but is open to seeking more efficiency. Republicans are proposing that the federal government limit its participation in Medicaid to 'block grants.' For Medicare, Republicans want to subsidize seniors by providing them with funds to choose from among various full coverage plans, applying the changes only to younger beneficiaries and keeping the structure in place for those at or near retirement.

Social Security, Defense, and other Spending

Both Republicans and Democrats want discussions, but there is disagreement on what actions to take about Social Security, which is 20 percent of the budget.

Defense spending, which is 19 percent of the budget, will continue to grow under both Republicans and Democrats. Obama's defense secretary has proposed to slow the rate of growth of defense spending by $178 billion over the next ten years. Republicans are in line with that proposal. However Obama has proposed a new review to identify possible additional spending cuts.

In the non-defense discretionary spending category, which is also 19 percent of the budget, Obama wants to keep spending levels steady going forward, having recently agreed to some cuts. Republicans want to keep the spending cuts coming, rolling them back to levels before 2008.

In the non-defense mandatory spending category, which is 12.4 percent of the budget, Obama has not proposed changes. Republicans want to change the rules in Congress so that it is easier to review spending on those programs annually, instead of the longer-term protection they now enjoy.

Spending Cuts, Tax Debate

Spending

Obama proposed $2 trillion in spending cuts over the next two years, while a proposal by Ryan foresees $5.8 trillion in spending cuts from current levels.

Taxes

Both sides favor eliminating tax loopholes and reducing the tax rate at the corporate and individual levels to a maximum of 25 percent. However Obama favors discarding certain tax breaks for those earning over $250,000 while Republicans want to extend those cuts permanently.

Projected Deficits, Debt and Interest

Deficit reductions

Obama's plan would cut deficits by $4 trillion over 12 years, while Republicans are seeking $4.4 trillion in deficit reductions over 10 years.

Debt

The debt held by the public will continue to grow under both plans. It will grow by $7.1 trillion by 2021 under an Obama plan presented in February. The debt under Republicans will grow by $4.65 trillion by 2021.

Debt held by the public under the Obama plan will grow from $11.881 trillion in 2012 to $18.967 trillion in 2021. The deficit as a share of the nation's economy (Gross Domestic Product) will decrease from 7.0 percent in 2012 to 3.1 percent by 2021.

Debt held by the public under the Republican plan, will grow from $11.418 trillion in 2012 to $16.068 trillion in 2021. The deficit as a share of the nation's GDP will decrease from 6.3 percent in 2012 to 1.6 percent in 2021.

Interest

Interest spending under Obama's plan will grow from $240 billion in 2012 to $928 billion in 2021. Under Republicans, interest spending will grow from $256 billion in 2012 to $735 billion in 2021.

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The following is a breakdown of spending by category and a brief description of plans to address the issues by Obama and Ryan's plans.

Social Security (20 percent) - $701 billion

Obama - 'Strengthen' It

Ryan - 'Head off a Crisis'

Obama said this week both parties should work together to strengthen Social Security for future generations.

Ryan said his plan would force the President and Congress to take action to head off a crisis to ensure solvency of the program.

National Defense (19 percent) - $692 billion

Obama - 'Fundamental Review'

Ryan - 'Greater efficiency and accountability'

- 26.3 Percent - Obama's Secretary of Defense Robert Gates has proposed $178 billion in savings to reduce the growth of military spending. Ryan's budget agrees with the proposed plan. Additionally, Obama said he will conduct a new fundamental review and make specific decisions after it's complete. Ryan's plan says going forward, defense spending 'should be executed with greater efficiency and accountability.

Medicare (14.8 percent) - $519 billion

Obama - 'Reduce unnecessary spending'

Ryan - 'Fixing this flawed structure'

Obama's plan would be to establish an independent commission of doctors, nurses, medical experts and consumers to look at ways to reduce unnecessary spending.

And we will slow the growth of Medicare costs by strengthening an independent commission of doctors, nurses, medical experts and consumers who will look at all the evidence and recommend the best ways to reduce unnecessary spending while protecting access to the services that seniors need, Obama said.

Ryan wants to change the program so that the government subsidies the cost of health care plans.

This budget saves Medicare by fixing this flawed structure so

that the program will be there for future generations, Ryan's plan states.

Younger workers would choose from a list of guaranteed coverage options. It would offer increased assistance to lower income beneficiaries and those with greater health risks.

Medicaid (7.8 percent) - $273 billion

Obama - 'Build' on health care law reforms for more 'efficiency and accountability'

Ryan - Repeal health law, give specific Medicaid 'block grants' to states

- 10.7 Percent - Obama said he would work with state governors to make the program more efficient and accountable. The systems would change by adding new incentives for doctors and hospitals to prevent injuries and improve results. Ryan's plan would convert the federal share of the program to block grants.

Secure the Medicaid benefit by converting the federal share of Medicaid spending into a block grant tailored to meet each state's needs, indexed for inflation and population growth, Ryan's plan states.

Non-Defense Discretionary (19 percent) $666 billion

Obama said recently passed legislation will cut non-defense discretionary spending by $750 billion over 12 years.

We will make tough cuts necessary to achieve these savings, including in programs that I care deeply about, but I will not sacrifice the core investments that we need to grow and create jobs, Obama said.

Ryan's plan brings spending levels in this category below 2008 levels. It brings non-security discretionary spending to below pre-stimulus, pre-bailout levels.

Non-Defense Mandatory (12.4 percent) $433 billion

Obama - No changes

Ryan - 'Take mandatory spending off of autopilot by requiring regular congressional review of mandatory spending programs, and outline path to allow Congress to make mandatory spending subject to the appropriations process.'

Interest (5.8 percent) - $202 billion