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| July 12, 2001 | |||
Spending Increases, Not Tax Cuts, Threaten the Budget
Hey, Big Spender!
When Senator Domenici was chairman, we had a surplus. We were not spending any of the so-called surplus in Medicare. We were not spending a penny of the Social Security surplus. We had a general surplus in the rest of the budget. Now that the Senator from North Dakota has taken control and apparently things have almost spontaneously gone to hell, it seems to me he has a lot of explaining to do. I look forward to hearing it.
-- Senator Gramm, Congressional Record, July 10, 2001
Since becoming the majority party in the Senate, Democrats have been arguing that the budget, which had been in surplus under the Republican majority, is now in "deficit." They claim the budget surplus projected over the next 10 years will fall below the combined Social Security and Medicare Part A surpluses. In new Budget Committee Chairman Conrad's words, "We do have a problem of dipping into the trust funds to finance the other operations of Government, even in a time of economic growth."
But the Democrats' numbers are an inaccurate accounting of what Congress has passed and the President signed. They assume numerous spending increases that have yet to be enacted into law. They literally concede an entire array of policy and spending debates that have yet to take place! Without these new spending items, the 10-year surplus is $1 trillion more than the combined Social Security and Medicare trust fund surpluses, even after deducting the tax relief.
And, while upcoming re-estimates may reduce that "available" surplus, Congress has the ability to forego some spending increases or even - gasp! - reduce spending in non-priority areas. Those are the budget realities facing the new Democrat majority. They are in control not only of the Senate, but of the budget process that controls whether the surplus falls below certain trust fund balances. And while Senator Conrad may not like the choices he faces as the new chairman of the Budget Committee, primarily they are his choices.
Masquerading as a "Technical Budget Redefinition"
Do we still have a surplus? Yes. We've had budget surpluses for the last four years, and this year, revenue re-estimates notwithstanding, we will continue to have a surplus. Even with the $72 billion tax rebate/economic stimulus checks going out the door over the next two months, the surplus for the fiscal year that ends September 30 will be around $175-$200 billion. That's pretty good, considering that until Republicans took over the federal purse strings in 1995, we hadn't had any budget surplus in 26 years.
But over the past few years, a new definition of surplus has been invented. Under this definition, those revenues derived from the Social Security and Medicare Part A trust fund don't count. They're "off-budget."
Senator Gramm observed on the Senate floor July 10 that fiscal conservatives are loath to fight this definition as it encourages frugality and debt reduction. The more funds we wall off, the less there are available to spend. Nonetheless, dividing the federal budget into parts and pieces is bad policy that encourages gimmicks like the Medicare Home Health transfer of 1997 [see RPC paper, "Conrad Lockbox - Badly Flawed," 3/15/01]. As Robert Samuelson observed in the Washington Post July 11:
The virtue of the unified budget is that it gives the big picture. A smaller and selective budget provides a distorted picture. Even if all the federal debt is repaid, the rising costs of retirement benefits for baby boomers will exert upward pressure on future taxes. . . . What masquerades as a technical budget redefinition is really a subtle effort to confuse the public and suppress political debate. Though clever, it deserves our contempt.
Is the "Available" Surplus Used Up?
Setting aside the on-budget/off-budget definitions debate for the moment, it is important to examine whether the Bush tax cut has really reduced the surplus so far as to dip below the Social Security and Medicare Part A trust fund levels. Politically speaking, has the tax cut used up all the "available" surplus?
Again, the answer is no. The table below, supplied by the Republican Budget Committee staff using the most recent estimates, shows the surplus, minus the surpluses in the Social Security and Medicare Part A trust funds, is $1.069 trillion after the tax cut, increased entitlement spending, and associated interest expenses enacted so far this year.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 02 to 11 Available Surplus 96 106 132 155 172 223 275 318 377 447 524 2729 Tax Cut 74 32 84 101 100 126 142 151 158 176 117 1186 New Mandatory 0 6 7 7 7 10 10 9 10 11 12 88 Net interest 2 5 8 14 21 29 38 49 61 74 87 386 Resulting Surplus 21 63 33 33 44 59 85 109 149 186 307 1069 Source: Senate Budget Committee Republican Staff from SBC March Baseline
This analysis agrees with the June 28 press release by the Democratic staff of the Senate Budget Committee, which shared Senator Conrad's calculations that the remaining surplus after Social Security, Medicare Part A, Bush tax cut, and associated interest expenses are subtracted, is "just under" $1.1 trillion. The relevant part of the release states:
According to data released by Conrad, when we subtract the cost of the tax bill from the most recently revised surplus figures from the Congressional Budget Office (CBO), we see that the projected surplus in 2002 drops from $95 billion to $52 billion, while the projected 10-year surplus drops from $2.7 to just under $1.1 trillion.
So there you have it. Both Republican and Democrat Budget Committee staff agree that the tax bill enacted by Republicans and signed by President Bush leaves more than $1 trillion available to be targeted at spending priorities and additional debt reduction -- even after Social Security and Medicare are removed from the equation. Again, while these levels may change with the CBO's August re-estimate, right now they represent the only measuring stick we have.
Conrad's Dilemma
So how does Senator Conrad claim that Medicare is being raided? Simple -- he assumes numerous spending increases that have yet to debated by the Senate. In the June issue of "The Newsletter of the Senate Budget Committee Majority Staff," his staff writes, "Looking forward, if we assume enactment of the policies already laid out in the budget resolution, we see that the available surplus will be further reduced to $5 billion in 2001, $25 billion in 2002, and $471 billion over the ten years." That reduction assumes more than $600 billion in new spending.
But the budget resolution adopted in May did not enact $600-plus billion in new spending. It did include mechanisms that such spending might be considered by the full Senate without falling prey to Budget Act points of order, but that's as far as it goes. New spending - either for discretionary items like defense or mandatory spending like interest reductions for student loans - must be debated, adopted by Congress, and signed by the President, just like any other law.
More importantly, the decision about whether to allow most of this new spending to be adopted by a simple majority is under the control of Senator Conrad! The Budget Act gives the Chairman of the Budget Committee broad authority to enforce spending levels. If the Senate is in danger of spending more than the available surplus, nobody is in a better position than Senator Conrad, as the Chairman of the Budget Committee, to hold the line and enforce fiscal discipline.
As Senator Gramm observed during floor debate on July 10:
I would have to say that the distinguished chairman of the Budget Committee has a power that no other Member of the Senate has because under the budget resolution, he unilaterally controls $423.8 billion worth of reserve funds, and simply by saying "no," that money cannot be spent. No one is in a better position than the distinguished chairman of the Budget Committee to deal with the crisis that he has talked about.
Yet Senator Conrad appears to have already thrown in the budget towel. Faced with declining tax collections (from the slowing economy, not the enacted tax relief), he claims to be "powerless" to curb the growth of spending. Instead, he appears ready to best the remarkable spending spree that took place the second half of 2000, when Congress and President Clinton conspired to increase spending over 10 years by almost $600 billion.
It's the Spending
Senator Conrad's own numbers belie his conclusion that "in the past six months, this administration . . . has put us right back into the bad old days of raiding every trust fund in sight." According to the most recent available estimates, if the Senate refuses to increase spending more than $1 trillion over the next 10 years, then the Medicare Part A and Social Security surpluses will continue to pay down public debt, just as they were doing under Senate Republican leadership.
If the Senate is unable to keep new spending below those levels, then the appropriate place to lay blame is at the feet of the single member who has the ability, right now, to control the spending - Senator Conrad. Judging by his recent comments, however, looking for leadership in his direction is futile. He already has given up the fight.
Attachment: Current Snapshot, prepared by the Republican Budget Committee Staff
MEDICARE HI SURPLUS SCORECARD ($ BILLIONS) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2002-06 2002-11 SBC March Baseline: Unified surplus 281.118 312.934 359.148 396.809 432.940 504.996 572.721 635.089 710.386 795.963 888.707 2006.827 5609.693 On-budget 124.942 142.097 171.286 195.686 211.605 266.799 316.203 359.195 416.669 484.265 558.187 987.473 3121.992 Off-budget 156.176 170.837 187.862 201.123 221.335 238.197 256.518 275.894 293.717 311.698 330.520 1019.354 2487.701 Discretionary 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Mandatory 1/ 0.003 6.223 6.600 7.006 7.081 9.597 9.542 9.360 9.668 11.080 12.244 36.507 88.401 Net interest 1.653 4.902 8.378 14.250 20.843 28.596 38.182 48.994 60.806 73.934 87.057 76.968 385.940 Tax cuts 2/ -73.809 -31.544 -84.007 -100.701 -100.323 -125.609 -142.123 -150.711 -158.157 -175.925 -117.288 -442.184 -1186.388 Total change 75.465 42.669 98.985 121.957 128.247 163.802 189.847 209.065 228.631 260.939 216.589 555.659 1660.729 Total including legislation: Unified surplus 205.653 270.265 260.163 274.852 304.693 341.194 382.874 426.024 481.755 535.024 672.118 1451.168 3948.964 On-budget 49.477 99.428 72.301 73.729 83.358 102.997 126.356 150.130 188.038 223.326 341.598 431.814 1461.263 Off-budget 156.176 170.837 187.862 201.123 221.335 238.197 256.518 275.894 293.717 311.698 330.520 1019.354 2487.701 HI surplus 28.714 35.899 39.282 40.674 39.935 43.752 41.459 40.702 39.327 37.158 34.406 199.542 392.594 On-budget less HI surplus 20.763 63.529 33.019 33.055 43.423 59.245 84.897 109.428 148.711 186.168 307.192 232.272 1068.669 1/ Includes effects of H.R. 581 and H.R. 1836 (JCT scoring). 2/ Includes effects of H.R. 1836 (JCT scoring) and H.R. 1727. Source: Senate Republican Budget Committee Staff
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