Budget office outlines range of options on spending, revenue

The Congressional Budget Office has released its biennial report on policy options, detailing more than 250 proposals for spending and revenue as lawmakers and President Bush prepare for battle over the fiscal 2008 budget.

The 374-page report's proposals range from trimming weapons programs to letting Bush's 2001 tax cuts expire. Some are more realistic than others, but lawmakers and the White House have pledged to try to balance the budget within five years and CBO's menu will likely be a starting point.

On the spending side, policymakers are faced with rising defense costs that few observers say will be curbed anytime soon. But the administration has been leaning toward trimming the Army's Future Combat System combat vehicle program, for example. Congress has never been fully persuaded about FCS, however, and overall budget concerns prompted the White House to slow its growth in the fiscal 2008 budget.

According to CBO, eliminating the program would save taxpayers $62 billion over the next decade. On the other hand, adding two new Army divisions to contend with escalating commitments, which some lawmakers advocate, would cost $86.9 billion over 10 years.

Health care is another big cost in the budget, and Bush has proposed big savings in Medicare, about $252 billion over the next decade.

Congress has balked in the past, though, and Democrats are unlikely to go along with the bulk of his proposals.

Some of CBO's health options are similar to parts of Bush's plan, such as reducing payments for hospitals and home health care, reducing rental periods for oxygen equipment and increasing premiums for federal prescription drug plans.

CBO includes some options more palatable to Democrats, such as eliminating subsidies to private insurers to entice them to participate in Medicare in underserved regions. That would save $3.5 billion over 10 years, CBO said.

As for revenues, Congress will be attempting to alter the alternative minimum tax to keep it from encompassing more middle-class taxpayers. Neither Bush nor Democratic lawmakers have proposed to offset the cost.

Eliminating the AMT would cost $668 billion over 10 years; indexing it for inflation and making exemptions permanent would cost $522 billion. Making permanent all of Bush's 2001 tax cuts, plus AMT relief, would cost $1.2 trillion over 10 years; extending lower tax rates on capital gains and dividends enacted in 2003 would cost another $208.5 billion.

Congress must either find offsets under the "pay/go" rule, waive the rule and increase the deficit, or let some tax cuts expire. Other options include increasing all individual income tax rates by 1 percent, raising $445 billion, or increasing rates on taxpayers making more than $1 million filing jointly -- or $500,000 for single filers -- by 5 percentage points, raising $224 billion over 10 years.

Other options outlined by CBO include delaying NASA's mission to Mars by 5 years, to 2025, yielding $2 billion in fiscal 2008 and $48.7 billion over the next decade; replacing the mortgage interest deduction with a 15 percent tax credit for interest on mortgages of $400,000 or less on a primary residence only, raising $418.5 billion in revenues, and eliminating public financing of presidential campaigns, saving $500 million.