News From Terre Haute, Indiana

February 28, 2013

Donnelly advocates ‘more thoughtful’ way to deal with spending cuts

Arthur Foulkes
The Tribune-Star

TERRE HAUTE — Sen. Joe Donnelly is calling for a “balanced” approach to avoid the looming sequester, telling reporters Wednesday he favors a combination of new taxes and spending cuts.

Donnelly, 57, also told reporters he favors a “more thoughtful, smart way to reduce spending” than the across-the-board cuts in the sequester. He favors, for example, a bill currently before Congress that would give top military leaders the flexibility to apply cuts where they see fit.

“Let the Joint Chiefs [of Staff] decide where the Joint Chiefs need to spend the money,” Donnelly said.

The first-term senator also told reporters that preliminary numbers show Indiana’s Crane Surface Naval Warfare Center could see about $36 million in lost funding through sequestration – the largest total in the state. Other cuts would be felt in federally funded child immunization grants and support for first responders, he said.

In 2011, President Obama and Congress agreed to the $1.2 trillion sequestration (spread over the next decade) during talks to raise the federal “debt ceiling.” The sequester would cut spending this year by $85 billion to about $3.8 trillion, according to the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution. In inflation-adjusted dollars, that means 2013 spending would fall to approximately the 2011 level, according to the center’s projections.

On the revenue side, Donnelly said he would like to see tax revenues equal about 20 percent of Gross Domestic Product – the market value of all goods and services produced within the U.S. Currently, federal tax revenues equal about 16 percent of GDP, he said.

To help raise that additional revenue, Donnelly, a Democrat, said he favors the so-called “Buffett Rule.” Named for investor Warren Buffett, the Buffet Rule would set a 30-percent minimum federal tax rate on taxpayers with adjusted gross incomes of more than $1 million. He said he also favors closing tax “loop holes” for the oil industry.

According to the Tax Policy Center, federal spending will reach about 25 percent of GDP by 2033. Meanwhile, federal revenues are projected to remain well below 20 percent of GDP over the same period, resulting in growing deficits.

The country’s big entitlement programs — Social Security, Medicare and Medicaid — are expected to be responsible for the lion’s share of new federal debt in coming years. The current sequester largely exempts those programs, but Donnelly said they cannot be ignored in the long run.

“To not have [entitlement spending] as part of the discussion is, [in effect], playing all around the edges while the largest portion is sitting in the middle,” he said.