–Senate Budget Panel Approves Democratic Budget On Party Line Vote
–Senate Budget Chairman: Plan Would Cut Deficits To 3% of GDP in 2015
–But Leading Republican On Panel Says Dem Plan ‘Doesn’t Do Much’
–New Fiscal Paper Says American Fiscal Crisis Is Becoming More Likely

By John Shaw

WASHINGTON (MNI) – During the same week that the Senate Budget
Committee approved a five year fiscal outline slightly more ambitious
than the budget of President Obama, a respected budget watchdog group
released a new report that argues the U.S. is headed toward a fiscal
crisis that would prove wrenching.

The Senate Budget Committee voted Thursday to approve the fiscal
year 2011 budget resolution drafted by the Democratic chairman of the
panel, Sen. Kent Conrad.

The Senate Budget Committee approved the Conrad budget on a mostly
party line vote, 12 to 10. One Democrat, Sen. Russ Feingold, voted
against Conrad’s plan.

Conrad’s five year fiscal plan would ratchet budget deficits down
from $1.4 trillion in fiscal year 2010 to $545 billion in FY’15. A
deficit of $545 billion in FY’15 would represent about 3% of GDP, Conrad
said.

Conrad said his budget would allow freeze non-discretionary
spending for three years and would cut taxes by about $780 billion over
five years. He said the tax cuts should be crafted to renew the 2001 and
2003 tax cuts for middle and low income taxpayers that are set to
expire.

Conrad’s budget allocates $1.122 trillion for discretionary
programs in FY’11. This is $4 billion below Obama’s request.

During the two day mark-up, Conrad and Sen. Judd Gregg, the ranking
Republican on the Budget panel, differed sharply on the merits of
Conrad’s new budget proposal, but agreed the U.S.’s long-term fiscal
outlook is dark.

“More must be done over the longer-term,” Conrad said, adding that
he is eager to review the findings of a presidential deficit reduction
commission that is due to be released in December.

Even if his budget is passed, Conrad said, the U.S. “remains on an
unsustainable course that must be addressed.” Conrad said it’s
“absolutely imperative” to address long-term fiscal challenges.

Gregg said Conrad’s budget “kicks the can down the road,” but
avoids making critical decisions to control soaring spending and
staggering debt levels.

“It really doesn’t do a lot,” he said. “I wish it were more
aggressive on the debt, especially outyear debt,” Gregg said.

“We are on an unsustainable path … . We are on course to have a
junk bond government,” Gregg said.

It is unclear when — or even if — the full Senate will take up
Conrad’s plan. The Senate is set to begin debating financial regulatory
reform next week and that debate is expected to extend for several
weeks.

House Democratic leaders have said that they are not certain they
can pass a budget resolution this year.

Budget resolutions are non-binding congressional blueprints that
set spending and revenue goals and made budget deficit predictions.

On the same day that the Senate Budget Committee began its
deliberations, the Committee for a Responsible Federal Budget released a
sobering policy paper that outlined various fiscal crisis scenarios in
the U.S.

“The large and growing debt puts the United States in a perilous
position where if we do not act to change the budgetary course, a fiscal
crisis in one form or another will surely ensue,” the report says.

“That said, it is not at all clear how exactly such a crisis would
unfold — what would prompt it or how it would play out. A crisis could
occur as soon as this year, or decades from now. It could begin inside
or outside the country. The crisis could be dramatic or gradual. It
could come from an economic or another financial shock, or even a
political surprise,” the report argues.

The budget group said a fiscal crisis could unfold in a variety of
ways — a gradual erosion of American economic strength, a burst of
inflation, serious pressure on the dollar, or a possible default after a
crushing rise in interest rates.

The budget group said it is very worried that American policymakers
are more inclined to wait for a crisis to erupt than to begin making the
political compromises needed to begin fixing the nation’s fiscal woes.

“A dangerous mindset already appears to have set in with some
policymakers that it would be better to experience a fiscal crisis to
force action, than to take tough political preventative measures,” the
report says.

“History is full of example of how adjustment is tougher and more
costly under crisis conditions. While there are many questions about how
exactly a crisis would unfold, there is no question that we should not
wait to find out,” it concludes.

** Market News International Washington Bureau: (202) 371-2121 **

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