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Washington’s 2011 Fiscal Wars: What They Mean to You

Lawmakers wrestle with huge budget deficits

En español | It’s an unprecedented confluence of federal financial storms that has preoccupied national lawmakers, consumed Washington’s chattering class, dominated news and talk shows this year while leaving most citizens befogged and bewildered.

See also: Obama's deficit plan.

Here's what's at stake:

  • a 2011 federal budget for the fiscal year ending Sept. 30;
  • the 2012 federal budget for the fiscal year beginning Oct. 1; and
  • a cap on the national debt that prevents the Treasury Department from borrowing any funds once the $14.2 trillion limit has been hit -- sometime between May and July.

The stakes are huge, from new taxes and cuts in weapons programs and overseas military operations to chaos in global financial markets. For Americans age 50 and older, the stakes are profound. Central to the budget-balancing conversations are the growing costs of older Americans as reflected in the growing costs of Social Security, Medicare and Medicaid. This timeline highlights key decision points in a crucial year for federal finances.

April: Spending Plans for 2011 and 2012

The 2011 Budget

Congress debates and votes on the funding bill for the remainder of the 2011 fiscal year. (On April 14, the House passed the bill, 260-167; the Senate passed it, 81-19.) This agreement was hammered out at the 11th hour last week, just in time to avert a government shutdown April 9. It calls for $38.5 billion in spending cuts through Sept. 30, representing the biggest single reduction in U.S. history. President Obama was able to protect some key programs from Republican knives, including medical research, but it's only the beginning of the battle over spending.

How It Affects You: The bill cut a wide swath, including bites out of food safety, transit grants and environmental protection. You probably won't feel pain immediately, but it's only the first step as Congress continues to debate even bigger spending cuts for next year.

The 2012 Budget

On April 15 the House passed, 235-193, the GOP budget plan for the 2012 fiscal year. The controversial proposal crafted by Rep. Paul Ryan, R-Wis., would privatize Medicare through a voucher system and install a new approach to limit funding for Medicaid, the health plan for low-income people that often includes nursing home care. The GOP plan would roll back spending to pre-2008 levels, and proposes spending cuts over the next decade of nearly $6 trillion from spending levels projected by Obama's budget proposal. The Senate has rejected four proposed budget resolutions, including the Ryan blueprint. The urgency has been eased somewhat by the results of an upstate New York special election where the Medicare proposal became a key campaign issue.

After a special election in which a Democrat was elected to a congressional seat held by Republicans since the Civil War, Democrats are in no hurry to shift the spotlight from Medicare back to the budget deficit. A fundraising email sent April 11 by the Democratic Congressional Campaign Committee warns Medicare recipients that Ryan's plan would end Medicare as we know it and force seniors to clip coupons if they need to see a doctor. ... Meanwhile, the wealthy would receive another tax cut. Senate Democrats are still crafting their budget plan, but may defer to the bipartisan effort being led by Vice President Joe Biden.

How It Affects You: This may be the start of a long and contentious debate about the future and the structure of Medicare. Should it be reformed into a partially privatized insurance program or can it be streamlined in a way that begins to minimize cost growth?

Obama's Defict Reduction Plan

Less than two months after he presented his first budget proposal for 2012, the president announced a second plan for leaner government, cutting the deficit and shrinking federal spending. His plan stressed the importance of making Medicare more efficient, not by cutting benefits. And he proposed raising taxes for those making more than $250,000 a year.

"We've had a lot of savings in health care, [but] we have to do more. So you're going to have to look at Medicare and Medicaid and see what kind of savings you can get," senior White House adviser David Plouffe says.

How It Affects You: Although Obama postponed proposals to restructure Social Security, Medicare and Medicaid, he raised the specter of closing down popular tax loopholes. He also wants to restrain spending growth across an array of federal programs. An exception is education.

Mid-May: Debt Limit-Plus — How Far to Push?

The United States hit the $14.29 trillion debt-ceiling limit in mid-May, but the Administration has employed extraordinary steps and found available cash that extends until early August the deadline for raising the cap. At that point, the government can no longer borrow money. It faces the prospect of actually defaulting on outstanding loans, an event that would have devastating economic implications for the United States and world economies.

House Republicans say they won't raise the debt ceiling without major spending concessions. White House spokesman Jay Carney, while defending Obama's Senate vote against raising the limit in 2006 as a token vote, said a failure by Congress to act on the debt ceiling would be an "Armageddon-like" moment for the economy.

How It Affects You:
Consequences of a default would be significant, starting with a wild fluctuation in interest rates, which would affect retirement holdings. It's also possible that the debt-ceiling debate could prompt a larger negotiation about future spending and tax levels.

September: Round Two of Budget Wars

The battle on federal spending could hit a major impasse as Congress wrestles with appropriations bills for 2012 and the clock counts down to the beginning of the new fiscal year. Congress likely will be tied in knots about spending cuts, including the radical Medicare and Medicaid proposals. Don't be surprised by the inability of Democrats, Republicans and the White House to reach a compromise.

How It Affects You: You won't feel anything yet, but programs and taxes important to you could feel the squeeze starting Oct. 1.

Oct. 1: Start of the 2012 Fiscal Year

If the past is any lesson, it's unlikely that there will be a 2012 budget by this deadline, and the federal government either will be run on a stopgap spending measure or shutdown until Congress resolves its spending disputes.

How It Affects You: Taxes, tax loopholes and spending cuts in critical programs could take effect in the new fiscal year. While big changes in Social Security and Medicare aren't likely, a range of cuts in programs such as emergency heating, job retraining and unemployment benefits are possible.

Nov. 6: One Year Until Election Day

The budget battle promises to have a major effect on the 2012 presidential race, raising questions about the role of government in entitlement programs and the debate about whether established programs such as Medicare, Medicaid and Social Security should be dramatically overhauled for future beneficiaries.

Judi Hasson is a veteran Washington reporter.

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