US Senate debates the ultimate balancing act

With a promise "to return the nation to fiscal reality", the Senate has opened debate on the issue that could make or break the Republican- controlled 104th Congress (and not inconceivably one day the United States economy as well): how, after two decades of massive deficits, to balance the federal budget.

The hearings which began yesterday under the stern eye of Senator Pete Domenici, chairman of the Budget Committee, are but the first step in a legislative marathon that must reconcile Mr Domenici's plan to balance the budget and an even more ambitious scheme from the House of Representatives tomorrow.

If all goes well, Congress will send an agreed bill to President Bill Clinton by the end of July that sets the budget on a "glide path" to equilibrium by 2002. The budget has not been balanced since Richard Nixon took office in 1969.

Mr Domenici's proposals, to be unveiled today, call for cuts of more than $1,000bn (£630bn) in planned spending over the next seven years, of which about a quarter - $250bn - would be achieved by slowing the growth of Medicare, the federal health programme for the old and disabled.

Only defence spending, to be frozen at about $270bn a year, and social security would escape relatively unscathed. Almost every other area of expenditure will be affected, from farm subsidies and retirement benefits for government workers, to foreign aid. Other federal subsidies will be slashed, and government departments scaled back. The House plan, which must also accommodate the $189bn of tax cuts contained in the Contract with America and approved earlier this year, will be even more draconian. It would abolish three cabinet departments - Commerce, Education and Energy - slash welfare, end funding for public broadcasting and the arts, and slap a fixed overall ceiling on "discretionary" spending that would decimate dozens of programmes.

The stakes could scarcely be higher. The scale of the exercise dwarfs President Clinton's $500bn deficit-reduction plan, passed by a single vote in summer 1993. Success, even a partial success, could strengthen the economy and bolster the sickly dollar. Resounding failure, on the other hand, would probably destroy any remaining faith in efforts to put the country's finances in order.

Politically, the process will be the legislative equivalent for Republicans of walking on coals. Every spending cut will be met by howls of protest; none louder than those already directed at Medicare, where the mere prospect of trimming spending growth from a projected 10 per cent a year to 7 per cent has outraged the hugely powerful senior citizens' lobby and allowed Democrats to accuse Republicans of making life harsher for the elderly to free money for further tax cuts for the well-off.

The tax cuts are a bone of bitter contention within party ranks. Mr Domenici, a deficit hawk, will contemplate no cuts until a balanced budget plan is carved in stone. But to the Speaker, Newt Gingrich, presidential candidates like Senator Phil Gramm and to other resurgent "supply-siders", tax cuts are an equal article of faith. The budget debate will be the defining test of whether the more cautious and pragmatic Senate, with its cumbersome rules, can work with Mr Gingrich's conservative and ideologically driven House and deliver on the pledges of the Contract with America. The omens are not encouraging: after sailing through the House, the balanced- budget amendment to the Constitution failed in the Senate in March.

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