On Behalf of the Joint Economic Committee
Debate on the Budget

March 27, 2001

Mr. Speaker, the Joint Economic Committee has been granted the authority to control one hour of the budget debate since passage of the Full Employment and Balanced Growth Act of 1978 authored by Senator Hubert Humphrey and Congressman Gus Hawkins. It is our duty to present views on the current state of the US economy and provide input into the budget debate before us.

I am proud to be here today to continue the tradition begun by Sen. Humphrey and Congressman Hawkins.

The Budget before us is not one of which those two men would be proud. Rather than leading us down an economic path of balanced growth and full employment, the budget before us today has the real potential to dismantle great strides made in our economy during the past decade.

Each day we anxiously watch stock market fluctuations highlights the fact that this budget is far too dependent upon highly imprecise economic forecasts. If the budget outlook weakens and this bill has already become law, the basic workings of government will be greatly hindered by returning to the days of budget deficits.

My key concerns with the budget before us lie in three areas:

1. The $1.6 trillion in tax cuts are too large, are weighted too heavily toward those with upper incomes, and jeopardize our government’s ability to continue necessary funding levels for other important national priorities such as educating our children, defending our borders, and caring for our sick.
2. The budget raids the Medicare Trust Fund. Baby Boomers begin becoming eligible for Medicare in 2011. The time for protecting Medicare’s fiscal resources is now. The budget before us fails that test.
3. Drugs are too integral a part of medical care today for Medicare to continue to serve seniors adequately unless we add a prescription drug benefit. The budget before us fails to dedicate any new dollars to a Medicare prescription drug benefit.

A MATTER OF PRIORITIES: TAX BREAKS FOR THE WEALTHY OVER OTHER NEEDED PRIORITIES

A budget is essentially a statement of priorities and this budget makes abundantly clear that the priority is tax cuts for the wealthy at the expense of needed government spending in other areas.

President Bush and his Congressional followers have crafted a tax plan that on the surface appears to have something for everyone in order to help spur the economy. However, upon closer inspection, it is quite clear that there are many children left behind with the GOP tax cuts, but a generous helping hand offered to workers who earn over $373,000 annually.

First, I would like to dispel any notion that the GOP tax plan will actually help spur the current slowdown in the economy. The tax breaks proposed thus far will only help spur the economy if taxpayers see immediate relief and if the tax breaks are distributed equitably amongst all income groups. This will not happen under the tax plan passed by the Ways & Means Committee. The economic stimulus will happen when the tax cuts are fully phased-in. In order to control the exorbitant cost of the tax package, the Republicans can’t allow the tax cuts to take full effect until 2006 or later. Are my colleagues predicting an economic slowdown five years from now?

Even if the tax breaks were to take full effect much sooner, it is highly unlikely that the U.S. would see much economic stimulation. The bulk of the tax package benefits those in the top 1% income group. Workers in the 1% income group receive an average income of $1.1 million annually and will receive an average tax break of $28,608 annually. These folks will account for over thirty percent of the tax revenues lost. Meanwhile, those workers earning less than $27,000 will only see a meager tax break of $239 annually, comprising only six percent of the lost tax revenues. We cannot afford to spend trillions of dollars on a tax benefit that is concentrated on the wealthiest income-earners.

The cost of these tax cuts eat up resources that could otherwise be used for important governmental programs that help many more people. We can and should be increasing our investment in education. President Bush has made education one of his highest rhetorical priorities. Unfortunately, this budget fails to follow through with the resources necessary to make great strides. In fact, it provides less than half the average increase Congress has granted Department of Education appropriations for the last five years.

The budget before us today clearly demonstrates a lack of commitment to our children. Republicans reduce funds for the Child Care Development Block Grant (CCDBG) by $200 million in 2002 and freeze funds after 2002. The child care provided through the CCDBG is important to help poor families move from welfare to work. At the moment, the block grant only has enough money to serve 12 percent of the eligible children. We need more funding in this program, not less. As Secretary of HHS Tommy Thompson said ,welfare reform does not come cheap.

The Republicans let Temporary Assistance for Needy Families Supplemental Grants expire in 2001. Even worse, the Republican budget encourages states to divert the remaining federal funds to pay for state income tax credits for charitable contributions. These funds would otherwise provide critical welfare-to-work services. Democrats Boost Title XX Social Services Block Grant Funding in the Democratic budget would allow an increase to at least $2 billion in 2002.

And those are only a few examples of important domestic spending arenas where this budget falls far short.

PROTECTING MEDICARE

Measurements of the solvency of the Part A Trust Fund have been the long-standing mechanism by which we’ve measured the health of the Medicare program. Today, the Part A Trust Fund enjoys the longest solvency time period in the history of Medicare with insolvency now at 2029.

That should not be interpreted to mean all is well with Medicare. We all know that is not the case. In fact, starting in 2011, the baby boom generation will begin becoming eligible for Medicare benefits. That begins a major demographic shift with far fewer workers supporting far greater numbers of seniors on Medicare. Today the ratio is approximately 3.4 workers per Medicare beneficiary. According to the Medicare actuary, that number is predicted drop to about 2.1 workers per beneficiary by 2029. All of this cries out for protecting every cent that we have in the Medicare Trust Fund and making changes to law to ensure that more funds go into the Trust Fund in the future. But, the budget before us does the opposite.

Rather than protect the Trust Fund for the future, this budget takes $153 billion – and maybe more – directly out of the Medicare surplus and allows those dollars to be spent on a Medicare prescription drug benefit.

There are those on the other side of the aisle who will argue that we’ve always dipped into the Medicare Trust Fund in order to finance current government spending and that this budget is no different. They are wrong. When we have used Medicare’s surplus as a funding source in the past, we have always used surplus dollars on a loan basis – and paid back those dollars with interest to the Trust Fund. What the budget before us today would do is use those dollars to fund a Medicare prescription drug benefit – meaning that those dollars will forever disappear from their intended purpose of funding hospital care for future Medicare beneficiaries.

America’s hospitals are concerned about this Medicare raid as well. In a letter dated March 16, the American Hospital Association, the Association of American Medical Colleges, the Catholic Health Association, the Federation of American Hospitals, the National Association of Public Hospitals and Health Systems, Premier, Inc., and VHA, Inc. all joined together to send a letter to Congress stating:

“While there is broad consensus that Medicare should include a prescription drug benefit, we believe that this benefit should be adequately funded; should not be financed through trust fund reserves; and should not be combined with a cap on the use of general revenue. Doing so will not only accelerate the insolvency of the Medicare Part A Trust Fund, but will also jeopardize the ability of health care providers to meet a rapidly increasing demand for services.”

Make no mistake about it. The dollars being diverted from the Medicare Trust Fund in the budget before us today will NEVER be returned to the Trust Fund. They are being spent elsewhere. And, that means that there are fewer resources dedicated to Medicare’s future. No ifs, ands, or buts about it.

MEDICARE PRESCRIPTION DRUG COVERAGE

The Congressional Budget Office estimates that Medicare beneficiaries will spend $1.5 trillion on prescription drugs over the next ten years. Medicare does not cover outpatient prescription drugs. None of us would belong to a health insurance plan that didn’t include prescription drug coverage, but we continue to leave the seniors without any Medicare coverage of these necessary medical costs.

It is past time for us to add a prescription drug benefit to Medicare. However, the budget before us today provides no new dollars for a Medicare prescription drug benefit. Instead, it diverts needed dollars from the Part A Trust Fund into an account which is being labeled for use on a Medicare prescription drug benefit by the Majority.

The Majority only makes $153 billion available over a ten-year period for a Medicare prescription drug benefit. Most estimates indicate that an adequate prescription drug benefit could cost upward of $30 billion a year – and a good benefit would cost much more -- $153 billion over ten is only a drop in the bucket. It is less than 1/10th the amount of money they are willing to “invest” in tax breaks which will have at best a questionable impact on the economy and less than 1/10th of the what CBO predicts will be spent on drugs for Medicare beneficiaries over thenext 10 years. But, we know full well that lack of prescription drug coverage in Medicare is causing millions of seniors to choose between needed medications and heat for their homes, and that failure to cover these drugs also means increased health care costs as people forgo the most appropriate drug treatment because they cannot afford it.

A portion of the $153 billion is dedicated to the President’s “Immediate Helping Hand” program. Unfortunately, that program is neither immediate or much help. It would provide grants to the states to enable them to cover prescription drugs for low-income seniors. However, the need for prescription drug coverage is not just a low-income problem – it is a middle class problem. And, states have made abundantly clear that they do not want to take on the burden of covering prescription drugs for seniors. The National Governors Association states point blank that, “if Congress decides to expand prescription drug coverage to seniors, it should not shift that responsibility or its costs to the states.” The Immediate Helping Hand program has not been warmly received by Congress either. To consider it the method for moving forward on prescription drugs in the budget just simply doesn’t make sense.

Again, it comes down to priorities. If we were to delete the estate tax provisions in the budget before us, new estimates from the Joint Committee on Taxation indicate we would have more than $600 billion that could be dedicated to a Medicare prescription drug benefit and other important priorities. The Republican estate tax proposal helps some 43,000 decedents of wealthy people. A Medicare prescription drug benefit would help 40 million seniors and disabled people. Over 90% of the beneficiaries of the estate tax cut make over $190,000 a year. The median income of Medicare beneficiaries is $14,500. Who needs more help?

For all of the reasons outlined above – and many more I have not had time to elucidate -- I oppose this budget before us today. It fails to appropriately prioritize the needs of our nation and could put us back in the economic ditch that the Reagan tax package created in the 1980’s, and from which we only recently emerged. During this time of unprecedented surplus, we should be shoring up the federal programs that people rely on, we should be increasing our investment in education, we should be improving the quality and availability of child care in our nation, we should be covering prescription drugs through Medicare, and doing much, much more. Instead, this budget squanders projected resources on tax cuts that disproportionately benefit the most well-off and puts at risk our ability to finance important government priorities now and in the future. I urge my colleagues to vote no on the budget before us.