House budget chief offers $3.5 trillion budget

NEW YORK (CNNMoney) -- House Republicans on Tuesday made it official: They're proposing a $3.53 trillion budget for 2013 that would kill $55 billion in spending cuts aimed at defense and make up for them with savings elsewhere in the budget.

Overall, the plan from House Budget Chairman Paul Ryan would bring in $2.73 trillion in tax revenue in 2013, compared to $3.53 in outlays, leaving next year's deficit at just under $800 billion. After that point, annual deficits would fall significantly, reaching as low as $166 billion by 2018 but then begin to climb again.

As a share of the economy, Ryan estimates that his budget would leave the debt held by the public at 62.3% of GDP, down from about 73% this year. (Obama unveils $3.8 trillion budget)

The Ryan budget, coming in an election year when Congress is not expected to make major progress on fiscal policy, is as much a statement of party priorities as anything else. As such, it's light on details but heavy on promises.

Part of the budget calls for major tax reform, but that's a relative sideshow to where the Republicans come down on spending issues.

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Democrats have urged Republicans not to cap spending at less than the $1.047 trillion level agreed to in last summer's bipartisan budget deal.

But Republicans have said that number was a ceiling, not a level up to which Congress must spend. And, they add, once the so-called "sequester" of automatic spending cuts required under the 2011 Budget Control Act kick in, the effective spending cap for 2013 is closer to $950 billion.

The GOP, in its budget document Tuesday, is assuming a 2013 discretionary spending cap of $1.028 trillion. And it appears they arrive at a net spending number of roughly $950 billion after making various cuts, as would be the case if the cap had been left at $1.047 trillion.

In explaining the decision to cancel the automatic defense cuts, Ryan said the $55 billion in reductions called for under the Budget Control Act would be "devastating to America's defense capabilities."

Instead, the Ryan budget calls on appropriators to find savings in other areas. Among its proposals: make federal worker pensions more like those in the private sector, means-test entitlement benefits, and push through medical tort reform.

None of that is going to fly with budget writers in the Democratic-controlled Senate, Budget Chairman Kent Conrad made clear on Tuesday. The Senate, he said, will observe the caps set out in the 2011 budget act.

"The short-term budget is in place; it's the law," Conrad said. He accused Republicans of threatening to walk away from the deal and said failure to adhere to the caps would "once again threaten to shut down the government and further imperil the economic recovery."

Translation: Unless one side yields, the two chambers will be writing very different budgets for next year and that means a spending standoff is likely next fall in the run-up to Oct. 1, when the new fiscal year begins.

Another controversial proposal is Ryan's call for significant changes to Medicare. His plan resembles one he put out last year with Ron Wyden, a liberal Democratic senator.

The Ryan-Widen proposal would offer future seniors a choice of staying in the traditional fee-for-service Medicare plan or opting for a Medicare-approved private plan, all of which would be available via a new Medicare exchange.

No matter which plan they chose, including the traditional Medicare plan, seniors would receive a government subsidy to help pay for their choice.

The House GOP budget would also convert federal Medicaid funding for states into block grants. That could increase the burden on states, but also gives them more autonomy about how to set up their Medicaid programs. For example, a state could reduce how many people are eligible or increase enrollees' cost-sharing obligations.

Not surprisingly, the White House is decidedly not a fan of the Ryan approach, which differs dramatically from President Obama's budget.

"The House budget once again fails the test of balance, fairness, and shared responsibility," White House communications director Dan Pfeiffer said in a statement.

The independent Committee for a Responsible Federal Budget gives Ryan credit for making some unpopular decisions and coming up with a plan that could lead to a more fiscally sustainable budget.

At the same time, it added, Ryan's is not budget written to attract the necessary buy-in from all sides -- which will be essential for Congress to make progress on the fiscal front.

"It is tough to imagine this proposal gaining broad-based bipartisan support, which is what we need to move toward adopting a plan," said committee President Maya MacGuineas.

--CNN's Deirdre Walsh and Lisa Desjardins and CNNMoney's Tami Luhby contributed to this report.