May 19, 1997

Noon

Congress's Budget Resolution Eliminates the Deficit

The foremost goal of Republicans upon assuming control of Congress in 1995 was to keep a promise made to the American people: Balance the federal budget and provide tax relief. For the third consecutive year, the Republican Congress will adhere to that promise by passing a budget resolution that reflects those goals. This time, finally, President Clinton is not standing in our way.

Upon enactment, the budget will:

• Balance honestly by 2002 -- the first time balance will be achieved since 1969.
• Provide permanent and significant pro-family and pro-growth tax relief -- the largest tax cut since Ronald Reagan's in 1981 -- a tax cut of $85 billion net and $135 billion gross over five years and $250 billion net over ten years.
• Avert the crisis of Medicare's imminent bankruptcy by keeping the trust fund solvent to at least 2007.
• Rein-in the unconstrained growth of federal spending, saving $300 billion over five years and $1.2 trillion over ten years.
• Produce the largest entitlement reform in U.S. history -- $560 billion over the next ten years.

• Protect Social Security and our commitment to the nation's elderly.

Deficit Elimination Versus Deficit Continuation

The budget resolution's deficit reduction path takes us to balance in 2002. To fully appreciate that fact, it is imperative to compare where America will be under that agreement versus where it would be without it. [See Table 1, and Charts 1 and 2, attached.]

• Most importantly, the deficit will be eliminated in 2002 rather than more than doubling to $139 billion -- the deficit figure we could expect without the mandatory and discretionary spending reform and the so-called "fiscal dividend" contained in this budget.
• The level of federal debt accumulated over the next five years will be half what it otherwise would have been -- $315 billion versus $600 billion. And after the first five years, deficit spending will cease to create new debt, rather than continuing to escalate, as is currently projected.
• There will be a surplus of $34.4 billion in 2007 under the agreement versus a $187.2 billion deficit under current projections.
• America will benefit from a net tax cut of $85 billion and a gross tax cut of $135 billion that will increase to $250 billion over ten years versus no tax cut without the agreement.
• Total federal spending will be reduced by $300 billion over five years and $1.2 trillion over ten years versus no spending reduction if there were no such agreement.

1997 Budget Compared to 1993 Budget

In comparison to the 1993 budget agreement reached between Clinton and his party in Congress, the 1997 agreement will:

• Reduce spending by $300 billion versus just $193 billion.
• Honestly balance the budget versus leaving a $206.2 billion deficit at the end of five years.
• Contain tax relief of $85 billion over five years and $250 billion over ten years versus a tax hike of $241 billion.

• Reduce the deficit by $240 billion more and reduce taxes $325 billion more than Clinton's 1993 budget.

Major Elements of the Agreement

The budget balances and reduces taxes by focusing on the basic principles that are important to America: Families should keep more of their own hard-earned money; the economy will produce more and better jobs; and the federal government will be smaller five years from now than it is today. [See 2, attached.]

While final details have to be completed by further legislation, the basic elements are clear. The agreement will:

• Accommodate a $500-per-child tax cut, estate tax reform, capital gains tax reform, IRA expansion, and a plan to make education more affordable.
• Extend the life of the Medicare trust fund to at least 2007 by simply slowing the rate of its growth by $115 billion over five years.

-- Per-beneficiary spending increases from $5,480 in 1997 to $6,911 in 2002 -- a more than 25-percent increase.

-- Medicare spending will grow from $209 billion in 1997 to $280 billion in 2002.

-- Average annual growth will be 6 percent over the next five years -- more than twice CBO's anticipated inflation rate for the same period.

-- New benefits are provided for diabetes, mammograms, colorectal screening, and immunizations.

-- The current 25-percent Part B premium rate is continued, with a phase-in over seven years of the cost of home health care (protections for low-income elderly will be provided).

• Assure a strong defense. [See table 3, attached.]

-- Adds $2.6 billion beyond Clinton's request for 1998 -- thus reducing the necessity of a costly supplemental spending package as requested by the President this year.

-- Adds $17 billion in budget authority and $5 billion in outlays over five years to the totals in the FY 1997 Budget Resolution.

• Apply tough enforcement mechanisms to guarantee that the budget will come to balance -- thus helping ensure that deficit elimination actually occurs.

-- The expiring discretionary spending caps (with separate caps for defense and nondefense) and Pay-As-You-Go limitations will be extended, and sequestration provisions will apply if the caps are exceeded.

• Reform Medicaid and achieve savings of $14 billion over the next five years.

-- Outlays would grow at a 6.9 percent annual rate of growth over the next five years, as compared to the currently projected 7.8 percent rate.

-- Per-beneficiary spending would increase from 1997's $2,261 to $2,963 in 2002.

-- States will receive increased flexibility as requested by the nation's governors by such means as repealing the Boren amendment, easing the waiver process, and eliminating burdensome and unnecessary administrative requirements.

• Allow states to significantly reduce the population of uninsured children by providing $16 billion for children's health over the next five years.
• Hold the line on nondefense discretionary (NDD) spending.

-- Compared to current projections, NDD spending will fall by $61 billion over the next five years.

-- After taking into account the expiring Section 8 low income housing contracts that must be renewed over the next five years ($35 billion), NDD spending will increase just $35 billion over the next five years.

-- NDD outlays will increase at an annual average of just one-half of one percent over the next five years -- this compares to 6 percent over the previous ten years.

-- This includes an assumed increase of $8 billion in transportation outlays above the President's proposed level over the next five years.

-- After taking into account inflation, discretionary spending would fall 1.1 percent in 1998, 0.5 percent in 1999, 1.8 percent in 2000, 3 percent in 2001, and 4 percent in 2002.

• Contain no legislative change in the Consumer Price Index (CPI) -- thus there will be no change in law of CPI-adjusted entitlement programs.

Clinton's Record of Obstructing Deficit Elimination and Tax Reduction

Since 1995, standing between Republicans and achieving a balanced budget was the President. For more than two years, President Clinton has blocked all of the Republicans' efforts to eliminate the deficit and reduce taxes.

• Prior to Republicans assuming control of Congress in 1995, President Clinton refused to embrace even the idea of a balanced budget.
• Clinton's first three budgets -- released in 1993, 1994, and 1995 (for FYs 1994, 1995, and 1996 respectively), left deficits of $241.4 billion, $201.2 billion, and $194 billion by his own estimation (which CBO scored at $228.5 billion, $206.2 billion, and $276 billion respectively).
• Clinton's first budget called for an astronomical tax hike of $220 billion that Democrats in Congress increased to $240 billion.
• The President vetoed the Republicans' balanced budget in 1995 -- a budget that would have cut taxes. Not until election year 1996 did he even aspire to balance, producing a budget that left an $81 billion deficit in its final year. His budget this year left a $69 billion deficit.

What Clinton Did Not Get In This Agreement

Despite the new spending, new taxes, and continued deficits that President Clinton pursued before Republicans took control of Congress and his obstruction of deficit elimination, spending cuts, and tax cuts since then, Clinton was able to achieve only minimal gains for his policies in this agreement.

• Unlike the President's budget proposal (which sunsets the tax cuts), tax cuts will be permanent and significant.
• There are no new entitlement programs.
• Clinton's increased mandatory spending amounts to only $31 billion and nondefense discretionary spending increases just $34 billion over a freeze (after taking into account Section 8 housing renewals) over the next five years.
• Welfare spending for aliens not yet residing in America is not provided.
• The option for seniors of Medical Savings Accounts (MSAs) was not denied.
• Of the existing programs that Clinton wanted to have classified as "protected domestic priorities" under the agreement, three-quarters of those requested (40 programs) were rejected. Rejected programs include: Legal Services Corporation, National Endowment for the Arts, National Endowment for the Humanities, AmeriCorps, Advanced Technology Program, Goals 2000, Family Planning, and OSHA.
• Only 13 programs that Clinton wished to be funded at the level requested in his budget were agreed to.

TABLE 1 - Deficit Stream Comparison
	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	Total
Baseline Deficit	67.2	89	109.1	121.3	94.5	104.9	103.2	108.6	133.3	127.8	117	1108.6
Fiscal Dividend		1	4	13	24	34	41.8	48.7	55.6	62.8	70.2	355.1
Actual Deficit	67.2	90	113.1	134.3	118.5	138.9	145	157.3	188.9	190.6	187.2	1463.8
Agreement Deficit	67.2	90.4	89.7	83	53.3	-1.3	-4.6	-19.8	-23.9	-29.5	-34.4	202.9
Deficit Difference	0	0.4	-23.4	-51.3	-65.2	-140.2	-149.6	-177.1	-212.8	-220.1	-221.6	1260.9

TABLE 2 - Details of Agreement					TABLE 3 - Defense Spending Under the Agreement
Discretionary:
Defense	-77					1998	1999	2000	2001	2002	Total
Nondefense	-61				Budget Authority	269	271.5	275.4	281.8	289.8	1387.5
Mandatory:					Outlays	266.8	266.5	269	270.7	273.1	1346.1
Presidential initiatives	31
Medicare	-115
Medicaid	-14
Other mandatory	-40
Revenues:
Net tax relief	85
Total Policy Changes	-190
Debt Service	-14
Total Deficit Reduction	-204

* Data provided by the Senate Budget Committee, Joint Economic Committee, House Budget Committee, and Congressional Budget Office.