[US Budget] Snow defends US budget as critics wade in

from The Financial Times

Administration officials on Tuesday defended the White House’s 2007 budget in the face of strong criticism from congressional Democrats and some scepticism on the part of Republican lawmakers.

John Snow, Treasury secretary, in testimony before the Senate finance committee, came under fire from Democrats led by Chuck Schumer on the administration’s plans to cut spending at the same time as making permanent tax cuts passed during President George W. Bush’s first term, including on capital gains and dividend payments.

The administration’s budget, released on Monday, would boost spending on defence and homeland security discretionary spending, but called for cuts in other discretionary spending programmes. It also called for $65bn (£37bn) of reductions in planned entitlement spending over the next five years, the largest part being savings of $36bn in Medicare, the medical scheme for the elderly and disabled.

The administration is also seeking to extend tax cuts passed in Mr Bush’s first term, some of which are set to expire, costing $1,353bn over the next 10 years on the White House’s calculations.

Mr Schumer characterised the budget as pushing tax cuts “geared towards the well-to-do, rather than the middle class that is finding it harder and harder to make ends meet” at the same time as cutting programmes that benefited the middle class.

Mr Snow said that allowing the tax cuts to expire would amount to a tax increase – and that extending the tax cuts would reduce uncertainty in the outlook for business leaders and would encourage investment and job creation. “Tax increases carry an enormous risk of economic damage and I can tell you today that the president will not accept that risk,” Mr Snow said.

Olympia Snowe, a Republican senator, accused the White House of “putting the cart before the horse” by seeking to extend tax cuts before addressing the alternative minimum tax – a tax that was introduced to prevent the wealthy from avoiding tax but which threatens to embrace the middle classes. There is bipartisan support for what will be costly reform.

Mr Snow said that a solution to the AMT would be part of a broader effort to overhaul the tax system, following the report last year of an advisory panel on tax reform. Max Baucus, the Democratic senator, pronounced the tax reform effort “dead” in the eyes of Congress, a conclusion which Mr Snow said he did not accept.