[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
THE PRESIDENT'S BUDGET SUBMISSION FOR FISCAL YEAR 2000
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, FEBRUARY 3, 1999
__________
Serial No. 106-1
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U.S. GOVERNMENT PRINTING OFFICE
54-578 cc WASHINGTON : 1999
Printed for the use of the Committee on the Budget
COMMITTEE ON THE BUDGET
JOHN R. KASICH, Ohio, Chairman
SAXBY CHAMBLISS, Georgia, JOHN M. SPRATT, Jr., South
Speaker's Designee Carolina,
CHRISTOPHER SHAYS, Connecticut Ranking Minority Member
WALLY HERGER, California JIM McDERMOTT, Washington,
BOB FRANKS, New Jersey Leadership Designee
NICK SMITH, Michigan LYNN N. RIVERS, Michigan
JIM NUSSLE, Iowa BENNIE G. THOMPSON, Mississippi
PETER HOEKSTRA, Michigan DAVID MINGE, Minnesota
GEORGE P. RADANOVICH, California KEN BENTSEN, Texas
CHARLES F. BASS, New Hampshire JIM DAVIS, Florida
GIL GUTKNECHT, Minnesota ROBERT A. WEYGAND, Rhode Island
VAN HILLEARY, Tennessee EVA M. CLAYTON, North Carolina
JOHN E. SUNUNU, New Hampshire DAVID E. PRICE, North Carolina
JOSEPH PITTS, Pennsylvania EDWARD J. MARKEY, Massachusetts
JOE KNOLLENBERG, Michigan GERALD D. KLECZKA, Wisconsin
MAC THORNBERRY, Texas BOB CLEMENT, Tennessee
JIM RYUN, Kansas JAMES P. MORAN, Virginia
MAC COLLINS, Georgia DARLENE HOOLEY, Oregon
ZACH WAMP, Tennessee KEN LUCAS, Kentucky
MARK GREEN, Wisconsin RUSH D. HOLT, New Jersey
ERNIE FLETCHER, Kentucky JOSEPH M. HOEFFEL III,
GARY MILLER, California Pennsylvania
PAUL RYAN, Wisconsin TAMMY BALDWIN, Wisconsin
PAT TOOMEY, Pennsylvania
Professional Staff
Wayne T. Struble, Staff Director
Thomas S. Kahn, Minority Staff Director and Chief Counsel
C O N T E N T S
Page
Hearing held in Washington, DC, February 3, 1999................. 1
Prepared statement of:
Hon. Kenneth E. Bentsen, Jr., a Representative in Congress
from the State of Texas.................................... 6
Hon. Bob Clement, a Representative in Congress from the State
of Tennessee............................................... 7
Hon. David E. Price, a Representative in Congress from the
State of North Carolina.................................... 7
Hon. George Radanovich, a Representative in Congress from the
State of California........................................ 8
Jacob J. Lew, Director, Office of Management and Budget.......... 8
Charts:
The Budget Is in Surplus After Years of Deficit.......... 9
Investing the Surplus for Our Future: Cutting the Debt By
More Than Two-Thirds................................... 11
Framework for Social Security and Medicare Reform With
Long-Term Fiscal Discipline............................ 12
Sources of Unified Budget Surplus........................ 13
Investing the Surplus for Our Future..................... 14
Interest as a Percent of Outlays in 2014................. 15
Prepared statement of........................................ 16
Additional information supplied for Mr. Price................ 47
Additional information supplied for Mr. Holt................. 54
THE PRESIDENT'S BUDGET SUBMISSION FOR FISCAL YEAR 2000
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WEDNESDAY, FEBRUARY 3, 1999
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to notice, at 10:02 a.m., in
room 210, Cannon House Office Building, Hon. John Kasich
(chairman of the committee) presiding.
Present: Representatives Kasich, Chambliss, Shays, Herger,
Franks, Smith, Nussle, Hoekstra, Bass, Gutknecht, Hilleary,
Sununu, Pitts, Knollenberg, Thornberry, Ryun, Collins, Wamp,
Green, Fletcher, Ryan, Toomey, Spratt, Rivers, Thompson, Minge,
Bentsen, Davis, Weygand, Clayton, Price, Markey, Kleczka,
Clement, Moran, Hooley, Lucas, Holt, Hoeffel, and Baldwin.
Chairman Kasich [presiding]. The committee is going to come
to order.
What we are going to do first is the consideration of Mr.
Crippen, and, as you know, June O'Neill is leaving the CBO, and
Senator Domenici and I have met with a number of candidates
along with Mr. Spratt and Senator Lautenberg, and, essentially,
Senator Domenici and I have come up with a recommendation who
is Dan Crippen.
Probably the single best thing about Dan Crippen is that he
has his Ph.D. from one of the finest universities in the world,
Ohio State University, and he has his M.A. from Ohio State
also, so he got it right there and his B.S. from the University
of South Dakota. He also is a principal in the Duberstien
Group. He was Assistant to the President for Domestic Affairs
from 1988 to 1989 and Deputy Assistant to the President from
1987 to 1988.
We think he will be a good CBO Director. He is not the
director that Mr. Spratt or Mr. Lautenberg would have wanted,
but this ultimately gets down to a decision that does get made
by the majority even though this man has to operate not as a
servant to the majority, and I think it is pretty clear that
Dr. O'Neill--she didn't. [Laughter.]
So, anyway, we would just like to make a motion and get
this approved. Mr. Spratt.
Mr. Spratt. Mr. Lautenberg and I have met with Dr. Crippen
twice. Dr. Crippen has assured us that he will maintain the
independence and professionalism of the CBO and its
professional staff.
We met with Dr. Crippen not because we doubted his
competence but because he is in a sense cut from a different
pattern than his predecessors in his position. His background
and experience are more distinctly partisan than anybody who
has ever held this position before.
Dr. Crippen has assured us that he will work with Democrats
and Republicans alike on a nonpartisan basis, and, based on
these assurances, I intend to support his selection.
Mr. Chairman, I would just like to say that it has been 25
years almost since Congress created the Congressional Budget
Office. We created them to be neutral, nonpartisan, to give an
independent, impartial estimate forecast. We haven't always
agreed with their work, but I think we have respected their
independence. They have earned the trust that they enjoy with
most of us in Congress. And even if they haven't always been
right, they have been basically honest and rigorous and
professional in their work, and their virtues have served us
well. The CBO has refused over the years to help us forecast
the deficit away, and the discipline that they have held has
helped us wipe out the budget deficit, and I simply hope and
trust that Dr. Crippen will fight to maintain those independent
goals.
Chairman Kasich. I would like to recognize Mr. Chambliss,
the gentleman from Georgia, for purposes of offering the
necessary unanimous consent request.
Mr. Chambliss. Mr. Chairman, I ask unanimous consent that
pursuant to section 201(a)(2) of the Congressional Budget Act
of 1974, the Committee on the Budget recommends to the Speaker
and the President pro tempore that Dr. Dan Crippen be appointed
as the Director of the Congressional Budget Office.
Chairman Kasich. Without objection, so ordered.
I want to, first of all, thank Mr. Spratt, his staff, and
the Democrats for the way in which we have been able to proceed
through the rules package, and, frankly, we put something in
the rule that I think will serve the Democrats--or I shouldn't
say the Democrats--whoever would be in the minority for a
period of time, and I think it will serve them well. It will
make sure that there is adequate protection for the minority.
In terms of Mr. Crippen, you can have a big fight over these
kind of things, but they don't really serve us well. We are
going to have enough to--hopefully, we won't have to fight, but
we may have enough to fight about without having to look for
one, and it is always nice to be able to have some bipartisan
agreements as we proceed through some of these which I think
are kind of formalities.
But let me welcome Jack Lew. I like that Jack's a guy who
as Director of OMB he has made a heck of an accomplishment. I
don't whether your mom--is your mom and dad still alive, Jack?
Mr. Lew. My mother.
Chairman Kasich. Your mom is? I mean, I don't know if she
realizes that really through shear persistence and obviously
talent Jack has been able to--it started with Leon isn't that
right?
Mr. Lew. It started with Speaker O'Neill.
Chairman Kasich. Up here--well, OK, but then you got with
Leon, isn't that right, and you became really his top
assistant, and then when Mr. Panetta became the head of OMB,
Jack went over and was involved in a lot of the negotiations,
and the interesting story here is if you hang around long
enough; if you have got talent and persistence, you can end up
getting the top job. So, I think it is very exciting, and I am
excited for you, and I hope your mom and your whole family--you
know, a lot of times, they don't what the heck we are doing in
this stuff, but I hope that sometime they will come to be able
to truly realize what you have been able to accomplish being
the Budget Director to the President of the United States. That
is not bad, Jack; that is pretty darn good work.
So, I want to welcome you here this morning, and point out
that 5 years ago few of us would have conceded to the
opportunity to talk about surpluses, because when we were back
in those days of trying to negotiate the budget agreement over
there in the Capitol offices, we were struggling for literally
every penny that we could get. You know, the famous phrase
there ``Brother, can you spare a dime?'' because we didn't know
how we could make this all add up to balance in 2002, and, low
and behold, within a very short period of time, here we are
with surpluses which is really wonderful news, because I think
it gives us an opportunity to really leverage this good news
into more good news. Last week, the CBO of course projected
that we could have almost a $2.6 trillion surplus over the next
10 years. I suspect that maybe those numbers may even be low.
I mean a $2.6 trillion surplus, that is just amazing, and,
frankly, I think it comes about for three reasons: one is I
think that the benefits of the business community becoming a
lot more efficient has allowed them to have higher levels of
productivity without inflation, with minimal amounts of
inflation, and, at the same time, I think it also reflects the
fact that a trade-oriented export policy is very beneficial to
a country, and, at the same time, it was just like yesterday
when Dr. Greenspan was here and said that if you can put
together a credible plan to balance the budget, the interest
rates can come down two points, and if there is anything we
have learned it is that interest rates are the driving engine
of what happens with the economy; the lower they are, the
better we do; the higher they are the worse we do. And as a
result of the hard work that everybody did in 1995 and in 1996
and in 1997, we feel up here and working with the
administration we were able to put together a plan that dropped
those interest rates down and has given us the kind of economic
growth that we would never have anticipated had any of us, Mr.
Spratt or Jack or myself, been asked, ``Is it possible that in
1999 we will be projecting a $2.6 trillion surplus?'' We would
have said, ``There is something wrong with you.''
CBO also tells us that lower projected Medicare spending
will extend the life of the trust fund by possibly 3 years
until 2010. We know we have a commission that is beginning to
take a look at what we can do to extend it even further, but
all this good news is the result in my judgment primarily of
what we were able to do in 1997, and that meant at that point
we had to work together.
Now, I think we face three or four new challenges: first,
the coming retirement of the baby boomers who will put enormous
strains on Social Security. We all know that the Social
Security system is a matter of demography. We have a lot of
baby boomers paying for our mothers and fathers; they are
secure. The question is will the baby boomers and their
children, us--will we be secure along with our children as the
coming retirement approaches and the demographics start to work
against us?
We all know we need to improve the quality of education in
this country; that a trained workforce and smart kids are not
only important to the economy but also, of course, those are
the tools that give our kids a chance to grow up like Ed Markey
did and become a Member of the United States Congress.
And we know we need to do these things while we have a
growing economy that provides jobs and opportunities for
everybody, and I think we all know that the number one issue
before us is what can we do to make sure that the economy
continues to grow, because if the economy continues to remain
strong, the news continues to be good, and we can take the good
news and leverage it for even more good news.
The President is looking at all these issues. Speaker
Hastert has indicated that these issues are issues that
Congress will be focusing on. We are looking forward in areas
where we can get some things accomplished in a bipartisan
fashion. Jack, I am interested in your USA accounts. As you
know, I called for something along this line last year, and, in
fact, I had suggested that we take the surplus and we begin to
divide it up among all the people who paid payroll taxes, and I
have with me today a passbook, and the passbook will be
distributed to all the Members of the House to show them how
much money they would have in a personal savings account that
they would be able to direct like Federal employees and how
that money could grow and what it can mean in terms of the
concept of personal savings accounts. I happen to believe with
Social Security people ought to have 2 percent of payroll in an
account, and they ought to direct it, and I don't think we need
any political appointees to tell us where that money ought to
go. I think we can do it on our own, but until the day comes
when we can get to the 2 percent or 3 percent of payroll, the
notion that people ought to have these personal retirement
accounts is one that I think is very positive. It would get
Americans to understand the value of having personal retirement
account and what that can do to enhance their retirement
security. That is an area, Jack, maybe where we can reach some
agreement in this year. I don't know, maybe we can do the whole
deal, and we can get complete agreement, but, if not, it seems
to me as though the retirement accounts are a good first step.
But I am disappointed, naturally, in some of the things
that I found in the budget. Based on the count that we have
made, this 5 year budget has about a $108 billion in new taxes
and fees and over--this is pretty amazing--over $200 billion in
new domestic spending; almost 40 new mandatory programs and
almost 80 new discretionary programs. I don't know that Bob
Clement would like all those new Federal programs. He would
probably like to get a little bit more money back to Opryland,
I don't know, but that is an awful lot of new spending, and the
taxpayers will pay over the next 10 years about $22 trillion in
taxes to the Federal Government. I think people are paying too
much in taxes, and over here I believe that we will push and
would like to see a very significant tax cut. I don't like the
idea that we want to have governmental appointees investing our
payroll taxes in the market. We believe that people ought to
have the power to do that.
We also don't like the idea that we want to have control in
Washington in terms of what we want to do with education,
because we think that people will do better, our schools will
do better, out children will do better if we can control
education through our communities and our neighborhoods and our
local school houses.
However, we are approaching the end of the century. We have
certain obligations and responsibilities as we approach the new
century, and all of our actions should be based on some
fundamental principles. We need to have a commitment to each
other based on our shared values. This will allow us to restore
our society and our American family, and we must maintain a
commitment to individual freedom. I believe we have to trust in
and believe in the creative genius of individual citizens. I
think if we do these two things, if we reach out to one
another, we can have a great next millennium. And, so I am
excited that you are here, Jack. Maybe there are some things we
can do. Hopefully, as we go through the debate this year, even
if we don't agree we can still be the friends that we have been
over the years, and I now with great pleasure yield the podium
to Mr. Spratt.
Mr. Spratt. Thank you, Mr. Chairman. I want to join you in
welcoming Jack Lew back to our committee. As you noted, he is
no stranger to this committee or to the House. He spent a good
piece of his career working for the Speaker of the House. He
went to OMB with Panetta; he stayed over as the Deputy Director
with Frank Raines, and now he has taken the reins from Frank
Raines--if I can mix a metaphor--without any break in stride.
He has done a commendable job of carrying on, and today he
comes to the Hill with a budget bound in black and white, the
symbol of a new era. For the third year in a row, this budget
is in surplus which is phenomenal. Mr. Chairman, that is a long
way from 1992 when the deficit was $290 billion. In fact, if
you look at the economic report President Bush sent over here
in 1993, you will see that he projected a deficit this year
over $300 billion if we had continued course. We didn't, so now
we enjoy the fruits of our efforts. Because of the votes that
we cast in 1990, 1993, and 1997, we have virtually wiped out
the deficit in the unified budget, and we have come, as the
President has expressed, to an historic juncture. The budget he
is sending us rises to this occasion; it takes a high road into
the next century. It commits the surpluses that we foresee
coming to America's future. Sixty-two percent would go to make
Social Security solvent for another 30 years; 15 percent would
go to make Medicare solvent until 2020; 12 percent for an
account, an idea that you yourself have proposed, Mr. Chairman,
a Universal Savings Account so that every American can have a
chance to save and invest and have a better retirement and so
that we can increase the net national savings and boost the
economy in the next century; and 11 percent, a modest 11
percent, would go to defense and nondefense priorities, because
this budget, in addition to being a disciplined budget, also
has some heart and soul. It has got some programs in here for
education and community policing that we think work and that we
think the American people want.
Before I conclude and turn the podium over to our witness,
let me raise a word of caution. The surpluses that we foresee
in the future stem from economists' predictions. If we have
learned anything over the last 15 years, we have learned that
economists sometimes make mistakes. Furthermore, the surplus
they project this year, next year, and the following year, is a
surplus in the unified budget. If we back out the surplus in
the Social Security trust fund, there is, according to OMB, an
on-budget deficit in 1999, in 00, and a mere surplus of $200
million in 2001. Not until 2002, 3 years from now, will both
OMB and CBO see significant surpluses appearing. So, I think we
should bear that in mind as we take up the budget and talk of
bold tax cuts or big spending commitments, either one. The
watch words should be caution and restraint. Let us not blow
what we have accomplished. Thank you, Mr. Chairman, and thank
you, Mr. Lew. We look forward to your testimony.
Chairman Kasich. I ask unanimous consent that all members
who have opening statements, that those statements be permitted
to be placed in the record. Without objection, so approved.
[The statement of Kenneth E. Bentsen, Jr., follows:]
Prepared Statement of the Honorable Kenneth E. Bentsen, Jr., a
Representative in Congress From the State of Texas
Mr. Chairman, I would like to take a minute to praise President
Clinton for submitting another balanced budget--the third one in a
row--and dedicating most of the projected budget surplus to
strengthening Social Security and Medicare by paying down the national
debt. Reducing the $3.7 trillion national debt should be our number one
priority. We should pay down that debt while continuing the fiscal
discipline Congress showed up until last year. As members of the Budget
Committee, we should carefully review proposals for spending increases
and tax cuts to ensure that they are fully paid for under Congressional
budget rules.
Because of the strong economy and tough deficit reduction plans
enacted in 1990, 1993, and 1997, the Federal budget will be in balance
for 2 years in a row for the first time since 1957. The President has
rightly proposed that we take advantage of this historic opportunity to
buy down the huge national debt and strengthen Social Security and
Medicare for the retirement of the Baby Boom generation.
As we know all too well, the Federal debt held by the public
quadrupled between 1981 and 1993; interest payments on the debt doubled
as a share of the Federal budget from seven to 15 percent.
Paying down the debt grows the economic pie and creates more wealth
for all Americans. As this morning's Washington Post pointed out, there
is a ``shadow cost'' to not paying down the debt. A tax cut or a
spending increase, without offsetting spending cuts or tax increases,
would add more debt, create future obligations, and create no assets
new assets for the Trust Funds. A crushing Federal debt hinders gains
in productivity, creates higher tax rates, and increases the cost of
borrowing money. Unmanageable debt dampens economic growth.
In fact, a tax cut or large spending increase that resulted in more
debt would most likely result in rising interest rates. There would be
less money to invest, the debt's value would decline, and there would
be a greater squeeze placed on the Federal budget to come up with funds
to pay for Social Security and Medicare. This would also depress the
value of the dollar, reducing its purchasing power and increasing
inflation.
Finally, paying down debt will stop the government from eating up
private savings. With less government bonds available for purchase,
interest rates should decline and resources would shift to investments
that are critical to improving productivity and raising our standard of
living.
Public and private entities use debt to expand capital, but
excessive debt squeezes out productive uses of resources. Paying down
the debt is a less sexy but more efficient way of shoring up Social
Security and Medicare. This alone will not solve the long term solvency
issues of Social Security or Medicare, but it will certainly help.
The Administration's budget for the U.S. Army Corps of Engineers'
Civil Works program calls for over $1 billion in new fees to be
collected from our maritime industry through the a new proposal called
the Harbor Services Fund (HSF).
1. Does the Administration anticipate shippers who typically
utilize waterborne transport to move their products shifting to long-
haul railroads in hopes ofoffsetting the increased transportation costs
associated with the HSF?
2. The Port of Houston, which is located in my Congressional
district, has a very large bulk commodities handling facility. Will the
HSF have any negative impacts on our bulk cargo trade and in particular
grain or coal?
3. What benefits does the Administration envision by abdicating its
financial responsibility for dredging by including the entire Federal
share of new construction projects under the HSF?
4. What studies has the Administration conducted regarding the
possibility that international shippers may now try to divert their
cargo through either Mexico or Canada to avoid the HSF?
5. Administrator Lew, Can you please describe for me the Clinton
Administration's proposal to provide limited reimbursements for
Medicare cancer clinical trials. As a the sponsor of legislation, H.R.
61, to ensure Medicare reimbursement for all types of clinical trials,
I am very interested in learning more about your proposal.
6. Administrator Lew, As the representative for the Texas Medical
Center, the largest medical center in the United States, I am very
concerned about the Medicare reductions in the Fiscal Year 2000 budget.
In a time when we are already asking our nation's hospitals to absorb
more than $115 billion in Medicare reductions that were including the
Balanced Budget Act of 1997, do you believe that these additional
reductions are prudent and necessary?
[The statement of Bob Clement follows:]
Prepared Statement of the Honorable Bob Clement, a Representative in
Congress From the State of Tennessee
Mr. Chairman, we have an historic opportunity. Instead of facing
the $357 billion deficit that CBO projected in 1992, we are faced with
our first surplus in three decades. The question we must now decide is
what to do with it. Who should benefit from this suplus? Where do we
put our priorities? Should we dedicate part of this surplus to a tax
cut? If so, how much? Or should we conserve our resources to make sure
that we can meet our future responsibilities to the American people?
I have asked my constituents where they think our priorities should
be. Over and over again, they tell me that we in Congress should be
working on paying down the national debt and on shoring up Social
Security for the 21st century. This budget that the President has
presented us allows us to do both. We can extend the life of the Social
Security Trust Fund by 25 years and simultaneously lower the debt-to-
GDP ratio from its current level of 44% to 7.1% by 2014, its lowest
level since 1917. Some have suggested an across-the-board tax cut. I am
not opposed to tax cuts. In fact, I have supported tax cuts and tax
credits in the past. However, take a moment to remember what happened
in the early 80's when we cut taxes but failed to cut spending. Our
deficit ballooned to all-time highs. Is this the course we want to
take? I think not.
I believe that the President's budget represents a strong framework
for paying down the national debt and extending the life of the Social
Security and Medicare Trust Funds. This budget is not a cure-all and it
is not without its problems. There are still many tough decisions to be
made in the future, but these reforms are an important first step.
Finally, I would like to commend the President for the courage and
leadership he has shown in putting these proposals before us. We live
in a nation that was built on ideas, and while we may not enact all of
his proposals, the President has taken significant steps toward
ensuring this country's continued prosperity.
[The statement of David E. Price follows:]
Prepared Statement of the Honorable David E. Price, a Representative in
Congress From the State of North Carolina
Proposed Analog Spectrum Fee
I am concerned about a proposal in the President's budget to impose
an ``analog spectrum lease fee'' of $200 million on television
broadcasters. Television broadcasters already pay a number of Federal
regulatory fees. In addition, there has always been an understanding
among broadcasters that a ``contract'' exists between them and the
Federal Government under which they provide statutorily required public
service in exchange for use of the broadcast spectrum. What is the
justification for this new fee, which according to the February 2, 1999
edition of USA Today could cost an average station $164,000 per year?
Is part of the justification for the fee to encourage stations to
transition more quickly from analog to digital? Many of the smaller
stations around the country already face a substantial financial
challenge in meeting the deadline to convert to a digital signal. As
the bigger stations convert more quickly to digital, will the smaller
stations' share of the overall fee rise proportionately?
[The statement of George Radanovich follows:]
Prepared Statement of the Honorable George Radanovich, a Representative
in Congress From the State of California
Mr. Chairman, thank you for scheduling this hearing today to allow
us to review the President's FY 2000 budget. I am particularly
concerned with issues relating to the Interior and natural resources. I
would like for the administration to respond to the questions below. I
appreciate the opportunity to submit this testimony.
Lands Legacy Initiative
Under this proposal, you envision converting this funding to
mandatory next year. Why do you want to do this? Will it not have the
effect of reducing congressional oversight?
Will not this proposal result in significantly increased
maintenance costs and therefore add to your backlog?
National Park Service testified last year that its backlog alone
was an estimated $6.1 billion in 1997, up from $1.9 billion in 1987. In
light of this, what will be the impact of such significant land
acquisition on eliminating or greatly reducing current backlog at
agencies like the Park Service?
PILT
The Federal ownership of land is a huge drain on local resources,
without comparable revenues as would occur with private ownership of
land. One of the solutions is the PILT program. Why did you not
increase Payments in Lieu of Taxes to the levels authorized under law
in your budget?
Cal-Fed Project
Mr. Lew, how many agencies at Interior and across the government
are involved in working on the California Bay Delta project? What is
the total spending requested by the Administration this year what is
last year's enacted level?
What are the expected future costs of water storage in the
watershed?
Mr. Collins. Mr. Chairman.
Chairman Kasich. The gentleman from Georgia.
Mr. Collins. Mr. Chairman, I agree with Mr. Spratt that we
have come along way since 1992, but I would like to amend that
we have come along since January 1, 1995 too, sir.
Chairman Kasich. Well, we are off to a good start here.
[Laughter.]
OK, I now recognize the gentleman--where are you from,
Jack?
Mr. Lew. From New York.
Chairman Kasich. The gentleman from New York is now
recognized. Do you think the Knicks, anybody on that team is
going to pass this year?
Mr. Lew. I make predictions about the economy. I leave
predictions about sports to others.
Chairman Kasich. All right, Jack, you have got the mike.
STATEMENT OF JACOB J. LEW, DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET
Mr. Lew. Thank you, Mr. Chairman, Congressman Spratt. I
appreciate the very gracious and generous introduction. Coming
back to this committee is in a way coming home. I spent many
years in this room. I look around at the pictures on the walls,
and I can't imagine how many years have gone by, and I don't
want to add them up.
If I might before going into my opening statement, make a
comment on the first order of business, your vote on Dan
Crippen as the head of the Congressional Budget Office. I have
known Dan for the better part of 20 years. He was a very good
and able adversary when I was in the Speaker's office and he
was in the majority leader's office in the Senate. I look
forward to working with him and congratulate him on his
nomination today.
I also understand that today his deputy was named--and
actually his deputy, Barry Anderson, most recently the most
senior civil servant at OMB. He is first rate, and we miss him.
We wish him and Dan well at CBO.
If I may, Mr. Chairman, I would like to submit for the
record my formal statement and briefly summarize it in a few
minutes. I would like to start, if I could, by taking a look at
where we have come from and where we are going. This really is
an historic opportunity, and I am proud to be here today to
present the President's 2000 budget.
It is a document that is more than 1 year's budget. It
really is a document that will shape the debate for the next
decade as we go into the 21st century. The historic
accomplishment of having a surplus of $117 billion in fiscal
year 2000 and projecting $4.8 trillion in surpluses over the
next 15 years is really remarkable.
When you remember where we started out in 1993 when
President Clinton took office, we were looking at a sea of red
ink. We were looking at deficits that would grow to $600
billion, $700 billion, $800 billion in a single year. There was
a lot of fear in the country, and it was legitimate fear. The
question was how could we run a deficit of $600 billion in a
single year and meet all of our obligations and pay our bills?
It took tough action in 1993 and, yes, in 1997 when we worked
on a bipartisan basis to finish the job. The outlook for the
next 15 years is very strong because of the tough decisions
that we made.
It is important to remember this history as we embark on
the decisions that we have to make now. If we repeat the errors
that we have sometimes made in the past, we won't have this
kind of projection in the future. But if we continue the
prudent decisions that we have made over the last several
years, we really could lay a foundation for long-term economic
growth.
Over this period it is important to note that the tax
burden on American families has actually come down and not gone
up. The success of balancing the budget has been by reducing
the size of government. A typical family of four, a family that
earns $55,000 a year, is now paying a lower share of its income
in taxes than anytime in 23 years. A family of four with half
the median income, roughly $27,000 a year, is paying the lowest
share of income since 1965. Many, in fact most, are getting
money back because of the earned income tax credit. Even a
family of four with twice the median income, $110,000, is
paying less than the combined income in payroll taxes than
anytime since 1977.
And government has gotten smaller. Every year that
President Clinton has been in office, every budget he has
submitted, the government has taken less of the economy than in
the preceding year, less of the economy than in either of the
two preceding administrations, and that is no exception this
year. The size of the government will fall from 19.7 to 19.4
percent of the economy.
The key element of reducing government has been to reinvent
government, and under the leadership of the Vice President, we
have seen dramatic strides in having a smaller government that
does more with less. The size of the Federal civilian workforce
has declined by 365,000. As a percentage of the total
workforce, the government is now the smallest it has been since
1931, and many of our agencies are doing a much better job
serving their customers better than at any other point.
Before 1993, when we were looking at that red ink, the
deficit was going to consume a larger and larger share of the
economy. It was going to make it very difficult to have
resources available for the Federal Government to do very many
other things. What we have got now is the exact opposite with
surpluses before us--and if I can change to the next chart, I
think this tells the story of why.
This picture shows how the debt as a percentage of the
economy will fall if the President's plan is adopted. When the
President took office, the debt had climbed to 50 percent of
the economy. Under the President's plan over the next 15 years,
the debt held by the public will fall to 7 percent of the
economy. This will bring the publicly held debt to the lowest
percentage of the economy, 7 percent; the lowest it has been
since 1917 before the United States entered World War I. The
President proposes to do this with a framework for Social
Security reform and long-term fiscal discipline.
I want to begin by underscoring that the President's
commitment last year and his commitment this year is
fundamentally that we must save Social Security first. A
statement of good intentions is not enough. We need to take
action. The framework the President has put forward lays out a
plan so that after we save Social Security, the next steps are
clear.
And if you look at the green on this chart, the green shows
both what the next step is and why that is a good step to take.
After we have set aside 62 percent of the surplus for Social
Security, the President has proposed that the next 15 percent
of the surplus should go to Medicare. The reason it is green on
that chart is that just as putting money into Social Security
will reduce the debt, so will putting money into Medicare. And
equally important, it will put the money aside to keep the
promises that we have already made. The benefits are already
due. It will put the money there to keep the promise to pay the
benefits that are due in the next generation.
After we fix Social Security and Medicare, the President
proposes a tax cut, and, as Chairman Kasich noted, it is the
Universal Savings Account which I hope we can reach a
bipartisan consensus on. Our view is that tax relief is
appropriate, and it should be designed to encourage savings. It
should be designed toward building retirement savings so that
individuals can supplement Social Security and pensions with
their own personal savings. After we have put 12 percent into
the tax cut plan, the Universal Savings Account, the President
has proposed that we put 11 percent of the surplus into
discretionary spending to meet our national defense and urgent
domestic priorities. I think there is a lot of bipartisan
consensus on many of those priorities. I think we agree on a
bipartisan basis that there is a need for more resources for
national defense. I think we agree on a bipartisan basis that
there is a need for more resources for education. If we are
going to put more resources into defense and if we are going to
put more resources into education, we are going to need to set
aside some of the surplus to meet those commitments.
If we look at the next chart, I think it will help explain
how the plan works.
A lot of questions have been raised about the accounting of
the President's plan, and a lot of the complexity really
relates to how we fund Social Security today and how we
determine the unified budget surplus today. Right now, the
unified surplus comes from two sources: every dollar that goes
into the Federal Government in excess of expenditure for
general revenue goes into the surplus. But just the same,
payroll tax dollars in excess of benefits go into Treasury
bonds, and they go into the Treasury as part of the surplus.
The real question is not where the unified surplus comes from.
The real question is what do we do with it?
Now, the President has proposed--and the next chart will
make this clear--that we have three very real choices as to
what to do with the unified surplus.
We could give the surplus back as either a tax cut or
additional spending, but that will have three effects, and I
don't think they are good: it will create new obligations for
the Federal Government whether it is tax cuts or spending; it
will add to the public debt; and it won't do a thing to extend
the life of the Social Security or the Medicare trust fund.
There has been a lot of debate in the last several weeks
about debt reduction, and we applaud everyone who endorses debt
reduction. We are for debt reduction. But it is important to
note several things about debt reduction: it is good because
there are no new obligations; it is good because it reduces the
public debt. But on its own, it doesn't do anything to extend
the life of the trust fund. And, perhaps, something that we
need to consider equally importantly, debt reduction has never
been a very popular political strategy. It has never been
something that has rarely prevailed when compared to tax cuts
or spending increases.
We have come up with a third option that we think is
superior both in terms of its substantive detail and in terms
of the likelihood of making the tough decisions and sticking to
them. The President has proposed that we save Social Security
and Medicare; we undertake no new obligations until we can pay
for our old obligations; we reduce the public debt and get the
benefits of a virtuous cycle instead of the vicious cycle that
we have had for the last decade. We increase the trust fund
assets, and put the money in the trust fund so that we can pay
the benefits that people are now earning and that are due to
them. We think that that is the best plan for using the
surplus.
There has been a lot of discussion about the many
initiatives in the budget, and we are very proud of them. We
are proud of the initiatives that we have pursued over the last
6 years, and we think that they have made life better for the
American people from Head Start to child care to education to
the COPS Program. We have seen real effects in the investments
we have made. We have a lower crime rate; we have a better set
of health participants; we have better schools. We think that
going forward we need to continue to make these investments,
and, yes, we do need to make an additional investment in
national defense. We need to make sure that going into the next
century we continue to have the best fighting force in the
world as we do today.
Overall, the President's fiscal year 2000 budget provides
for important priority initiatives by achieving savings in
programs. Everything in the 2000 budget is fully paid for. The
President has not allocated a penny of the surplus for
discretionary spending until 2001 to give us time to take
action on Social Security reform and to take action on a broad
plan to allocate the surplus. It complies fully with the
current law spending caps, and it complies fully with the
current law pay-go rules.
We have an historic opportunity for long-term prosperity if
we rise to the occasion. By bringing down the deficit,
balancing the budget, running the kinds of surpluses we are now
projecting for the future, we have put our fiscal house in
order. And if I might show you one more chart, I think it will
show you--the benefits will be summarized very simply.
When the President took office in 1993, we were looking out
to 2014--the 15th year of the plan that the President has put
forward this year--and we were projecting that interest would
consume 27 cents out of every dollar of the Federal budget. The
current budget projects for the same year that interest will
consume 2 cents out of every dollar in the Federal budget. Now,
the difference is striking. The difference will give us the
ability to pay our bills. It will give us the ability to pay
Social Security, to pay Medicare, and, yes, to have some room
for tax relief as the President has proposed.
What we must remember is that this didn't happen by
accident. It happened because we took tough action in 1993 and
1997. We have fiscal discipline, and we have to maintain the
fiscal discipline today in order to make sure that this
projection becomes reality.
We look forward to working on a bipartisan basis, to going
forward with a long-term policy of both fiscal discipline and
investment in our future. We think that this is a once in a
lifetime opportunity to for us to put down a marker for fiscal
discipline and for economic prosperity for generations, and we
look forward to meeting the challenges.
[The prepared statement of Jacob J. Lew follows:]
Prepared Statement of Jacob J. Lew, Director, Office of Management and
Budget
One year ago, President Clinton set the course of the Nation's
budget policy with his charge to ``Save Social Security First.'' The
President recognized that we were entering a new era as we left behind
the decades of large budget deficits. He was building the foundation
for budgeting in this new era of surpluses.
Fiscal progress has produced a strong economy
The year 1998 was one of the most extraordinary in modern U.S.
economic history. We enjoyed the first budget surplus in 29 years the
largest ever in dollar terms, the largest as a percentage of the
economy in more than 40 years. And this budget surplus was not the
result of a temporary wartime policy, as was the last surplus in 1969.
We will have a budget surplus again in the ongoing fiscal year at an
estimated $79 billion, larger than last year's which will mark the
first back-to-back surpluses in more than 40 years. The budget I
present to you today proposes a third consecutive surplus the first
time that will have happened in half a century. And our 1998 budget
surplus was the sixth consecutive year of improvement in the U.S.
fiscal position the first time that has happened in American history.
The private sector is the key to economic progress, but we have
clearly seen in the decade immediately past that the Federal Government
can either hinder or promote economic progress. If the Federal budget
deficit is high, so that the cost of capital is driven up and the
financial future is uncertain, the private sector cannot yield the
progress of which it is otherwise capable. But if, instead, the Federal
Government declares its intentions of responsible fiscal behavior, and
lives by those intentions and if the Federal Government supplies the
public investments that America needs then the economy is free to
prosper. This is the path that this Administration has taken.
In 1998, we reaped the fruits of 5 years of fiscal responsibility.
After the best sustained growth of business investment since the
1960's, the U.S. economy fueled that decades-absent budget surplus. And
the economy itself defied the pundits, staying on a pace of solid,
above-trend expansion, in the face of an international financial
disruption that broke the stride of most other economies around the
world. Unemployment and inflation both hit three-decade lows, with the
lowest unemployment rates for African Americans and Hispanics in the
history of those statistics; real wages continued to grow after more
than a decade of stagnation, and a record percentage of adult Americans
worked in those higher-paying jobs; the percentage of Americans on
welfare fell to a 30-year low; the 10-year Treasury bond rate reached
its lowest level in 30 years; and a higher percentage of Americans
attained home ownership than at any time in our history.
The President deserves a great deal of credit for the virtuous
economic cycle that we now enjoy. The announcement of a firm intention
of fiscal responsibility in 1993 was greeted by a continued reduction
of interest rates, which helped to trigger the investment boom that has
proved central to sustained strong, non-inflationary economic growth.
The two other pillars of the President's policy investing in our people
and our technology, and opening foreign markets to U.S. exports
complete this winning economic strategy.
The 2000 Budget is a defining moment
This extraordinary budget-and-economic performance with the budget
setting historical standards and the resilience of the economy setting
global standards tells us something. It tells us that we have developed
a winning economic policy and that we must not turn back. We must not
discard the economic philosophy that got us here, to this confluence of
economic indicators that all sides now agree is the best in modern
memory.
So in one sense, our budget policy now clearly should be built on
continuity. We have achieved a sustained fiscal improvement, and we
should continue to sustain that improvement. We have an economy that
achieved a record sustained peacetime expansion, and we should continue
to sustain that expansion.
But in another sense, we have stepped into a new world. Where our
budget used to be written in red for so many years that people came to
take it for granted now we are in the black. And this change has
tempted some to throw away all of the policy principles that got us
here.
For two decades now, there has been much discussion about fiscal
discipline, restraint, and deficit reduction. Since 1993, we have taken
action; and far beyond the expectations of even the most optimistic, we
now have budget surpluses as far as the eye can see. But now, as the
first surpluses appear, it is important that we not revert to the
practice of cutting taxes and raising spending first, and thinking
about the fiscal consequences later.
As the President suggested in his State of the Union address 2
weeks ago, this is a moment that will do much to determine the
character of our country at the end of the next century. We can build
and strengthen the fiscal foundation that first arose in these last few
years. Or we can sweep it away, before it is firm and strong, and set
our economy to foundering again. The choice is clear and the President
is determined to pursue a balanced program of fiscal discipline and
prudent investment for the future. This budget charts that course into
an era of surplus.
Fiscal policy since 1993 was pivotal to our current good fortune
To see why fiscal responsibility matters, consider where this
Administration started 6 years ago. In 1992, the budget deficit was
$290 billion, the largest in the Nation's history. Between 1980 and
1992, the debt held by the public, the sum of all past unified budget
deficits, quadrupled; it doubled as a share of our Nation's production,
or GDP from about 25 percent to about 50 percent.
These adverse trends showed every sign of accelerating. Both CBO
and OMB projected that, without changes of budget policy, growing
deficits would add to the Nation's debt, and growing debt service costs
would add, in turn, to the Nation's deficits. OMB forecast the 1998
deficit, in the absence of policy change, at $390 billion, or 5.0
percent of GDP; by 2003, we expected the deficit to be $639 billion, or
6.6 percent of GDP. And there was nothing in the forecast to indicate
that this exponential trend would stop.
This threat was not turned back by accident. It required tough
policy choices, which the Administration and the Congress took in 1993
and 1997. The President's initial economic program cut spending and
increased revenues in equal amounts. Since that time, deficit reduction
(and ultimately surplus increase) has more than doubled the estimates
for the President's plan instead of the projected cumulative $505
billion, deficits have fallen by $1.2 trillion. That is $1.2 trillion
less in debt that the American taxpayer must service forever.
And this deficit reduction has come as much from lower spending as
from higher revenues. Spending has declined to its smallest share of
the GDP in a quarter of a century. And thanks to the strong economy,
receipts have grown beyond expectations, even though the tax burden on
individual families is lower than it has been for about a quarter
century:
The typical family of four with the median family income of $54,900
will pay a lower share of its income in income and payroll taxes this
year than at any time in 23 years. Its income tax payment considered
alone will be the lowest share of income since 1966.
A family with an income at one-half of the median level, $27,450,
will pay the lowest share of its income in income and payroll taxes
since 1965. Its income tax bill will be negative; it will receive money
back because of the earned income tax credit. That was never the case
before 1998.
Even a family at twice the median income level, $109,800, will pay
less in combined income and payroll taxes as a share of its income than
in any year since 1977. Taken alone, its income tax as a percentage of
income will be the lowest since 1973.
Receipts have risen as a percentage of GDP not because of a heavier
tax burden on typical individual families, but rather because of the
extraordinary growth of incomes of comparatively affluent Americans
(including capital gains and stock options that are not included in
measured GDP); and because of the rapid growth of corporate profits.
The historic bipartisan balanced budget agreement of 1997 has
reinforced expectations of Federal fiscal responsibility. This has had
a favorable effect on interest rates, and the economy at large.
In the last 6 years, we have enjoyed an extraordinary economic
performance because our fiscal policy was responsible and sound. If we
want to continue to enjoy such strong economic performance, we must
continue our sound fiscal policy. As the experience of the last 20
years clearly shows, budget problems are very easy to begin, and very
hard to end.
Reducing debt burden is as important to the Nation as it would be
to a family. The Nation must service its debt. If we gratify ourselves
today by collecting taxes insufficient to cover our spending, and
accumulate debt, our children and our grandchildren will have to
service that debt. If, instead, we reduce our debt, our children and
our grandchildren will be freed of the obligation to tax themselves
more heavily in the future just to pay the interest on the debt they
inherited.
The President's proposal will fully reverse the buildup of debt of
the 1980's and then go further. By 2014, the end of the 15-year horizon
of the President's program, the combined effects of the President's
commitments to Social Security and Medicare will reduce the Nation's
debt burden to an estimated 7 percent of GDP. This will be the lowest
ratio of debt to income that the Nation has enjoyed since before it
entered World War I. And as most experts would tell us, this will be
one of the greatest gifts that we could ever give our children, as we
exercise our fiscal stewardship of these United States.
The President's policy would devote more than three-fourths of
future budget surpluses to reducing the Nation's debt through
contributions to Social Security and Medicare; and would dedicate
another 12 percent to household savings through Universal Savings
Accounts. This is important to our economic performance for four basic
reasons: First, it increases the Nation's savings rate, which is
critical to productivity gains and economic growth. Second, it reduces
the debt. Third, it improves the fiscal position of the country, and
puts it on a stronger footing for whatever uncertainties might arise.
And finally, it improves the retirement security of all Americans.
The current challenge is to use the surplus prudently
In 1993, we faced the challenge of eliminating projected budget
deficits of $4.3 trillion over 10 years. Today we face the enormous
opportunity of projected surpluses of more than $4.8 trillion over the
next 15 years. The challenge is to use this surplus prudently to
maintain our strong economic and budgetary performance.
We must save Social Security first. A statement of good intentions
is not good enough for the millions of Americans, retired and working
today, who rely on Social Security for their retirement security and
for protection for their families against disability and premature
death. From the beginning, this Administration has kept its eyes on the
future, and taken policies that would benefit the Nation for
generations to come. It has paid off. Saving Social Security first is
precisely such a future-oriented policy.
The President's FY 2000 budget symbolically, as well as
financially, ``in the black'' continues firmly on that successful path.
The budget maps a course for the Federal Government after Social
Security is reformed and makes its own policy recommendations for the
beginning of the bipartisan Social Security reform process that the
President inaugurated last year. But the budget also draws a line that
this Administration will not pass without Social Security reform.
Thus, the FY 2000 budget is fully paid for within the existing
budget law. Just as in every previous year, the President has specified
his own priority initiatives, but has paid for all of them line by
line, dime by dime with savings from elsewhere in the budget.
The President's policy calls for a bipartisan Social Security
reform, this year. The President has already committed 62 percent of
our projected budget surpluses enough to extend Social Security's
solvency almost an extra quarter century, to 2055. We hope that this
will launch a bipartisan process to address long-term Social Security
solvency. We are gratified that several leaders from the Congress have
already accepted this principle and hope that both parties, the
President and the Congress, can follow through on this commitment and
achieve sufficient additional reforms to extend the solvency of the
trust fund at least through the traditional 75-year actuarial horizon.
If we achieve that objective, the budget makes further commitments
of the surplus to priority National objectives in the future. The
President proposes to dedicate 15 percent of the surplus to extending
the solvency of the Medicare trust fund. This is a key element of the
President's program, because the financial security of Medicare will be
threatened even sooner than that of Social Security. In 1997, the
President and the Congress, acting together, made Medicare financially
sound through 2010. The President's 2000 budget would extend that
lifetime 10 years further, to 2020. We see the commitment of the
surplus as a vital step to facilitate an environment in which a
bipartisan effort including the current Medicare Commission can go even
farther; with the time horizon so short, even after the contribution of
15 percent of the surplus, we cannot delay Medicare reform. As the
President stated, he wants to consider, as a part of this reform
process, expanding Medicare coverage to include prescription drugs.
The President also proposes using 12 percent of the surplus to
finance his new Universal Savings Accounts ``USAs.'' This proposal
includes seed money for Federal contributions, plus additional funds
for matching contributions if individual workers contribute their own
money. The matching contributions will provide a larger percentage
inducement for low-wage workers. The goal is for all Americans to see
the rewards of saving building up in these USAs and with this
introduction to the power of compound interest, to begin to save
further on their own. The President believes that this program, with
its Government seed contribution, has the potential to reach even those
who have failed to respond to the generous subsidies in the current-law
Individual Retirement Accounts (IRAs).
The President wants a fiscally responsible tax cut. He believes
that the USA is the right kind of tax cut targeted toward the future,
and helping the many American families who have the most difficulty
saving for their retirement. It strengthens perhaps the most neglected
of the figurative three legs of the retirement stool personal saving,
to stand alongside Social Security and employer pension plans--and for
the many who have no employer plan, this initiative may be crucial.
Most importantly, it is part of a plan that fixes Social Security
first.
Finally, the budget proposes that the remaining 11 percent of the
surplus be dedicated to other important priorities including education,
National security, and health care. In last October's negotiations on
the Omnibus appropriations for fiscal year 1999, Congressional leaders
argued that our National defense needs had outgrown the existing
discretionary spending caps and, indeed, defense received the largest
share of the additional emergency funds made available in that
legislation. Likewise, the American people have recognized that the
quality of their children's education will determine how they progress
in life and also the strength of the future economy. The President's
budget is a sound, disciplined way to provide the additional resources
for these priorities that both sides recognize will be needed if our
country is to survive and prosper in the next century.
The President's framework for Social Security reform and long-term
fiscal discipline works
The President's contribution of the surplus to Social Security will
use many of the existing financial management tools of the Federal
Government. It will be in addition to the accumulation in the Social
Security trust fund that would occur with no change in the current law.
After the trust fund is credited for all of its own receipts,
exactly as in current law, the Treasury will be left with the unified
budget surplus. Each dollar of that unified surplus can be used only
once for cutting taxes, increasing spending, or buying down the debt.
The President has brought the debate right to the point: What should we
do with that surplus? Or to put it another way: If we were to look back
fifteen years from now, or at the end of the next century what would we
want to be able to say that we had accomplished with this opportunity?
The President wants to leave a legacy of building for the future:
saving Social Security and Medicare; encouraging Americans to save for
their own futures, build wealth, and prepare for retirement; investing
in education; ensuring our National security; and making other key
investments.
So the President started by committing 62 percent of the surplus to
save Social Security first. Most of the share committed by the
President to Social Security will be used to buy down the publicly held
Federal debt through the periodic debt refundings of the Treasury
Department, in exactly the same way as debt was retired last year. That
same amount will be credited to the Social Security Trust Fund, in the
form of Treasury securities. This same procedure will be followed for
the President's contribution to the Medicare trust fund.
This commitment will significantly extend Social Security solvency.
At the end of 1999, the currently estimated combined balances of the
OASDI trust funds is about $850 billion. Through 2014, we estimate that
additional contributions to the trust funds under the current law,
including interest, will total about $2.7 trillion, leaving a total
balance of about $3.5 trillion. The President's program would
contribute an additional $2.8 trillion to the trust funds over the next
15 years. Taking into account additional interest earnings, that would
leave a balance in the trust funds of more than $7 trillion instead of
the approximately $3.5 trillion under the current law. The President's
program will more than double the balances in the trust funds over the
next 15 years--without accounting for higher earnings on the portion of
the surplus invested in corporate equities.
Because the President's plan will reduce the public debt, the total
obligations of the Federal Government will not increase. We are already
committed to paying benefits beyond 2032, when the trust fund is now
expected to be exhausted. The President's proposal would deposit assets
in the Social Security trust fund to pay these obligations, and reduce
by an equal amount the debt borrowed from the public. Interest payments
will go to the trust fund, to cover future Social Security benefits,
rather than to banks, individuals and other investors in Government
bonds.
A small portion of the President's commitment to Social Security
(21 percent of the commitment) will take the form of holdings of
corporate stock. Because the Social Security trust fund will need that
amount of the cash surplus to purchase the shares, this contribution
will not reduce the public debt. However, it will improve the Federal
Government's implicit balance sheet to the same degree, but in a
different way. While the reduction of debt will reduce the Federal
Government's liabilities, the corporate shares will increase the
Federal Government's assets. The salutary effect on the Government's
balance sheet will be the same, but it will appear on the other side of
the balance sheet.
Thus, the President's policy in no way increases the total
obligations of the Federal Government. In fact, by retiring part of the
public debt, it strengthens our economy in exactly the same way that
reducing the budget deficit, and avoiding the accumulation of debt, has
helped the economy over the last 6 years. The President's program does
shift the Federal Government's commitments to Social Security, however,
and in that way improves Social Security's solvency for the next
century. This will give Social Security a first call on the economic
benefits associated with long-term reductions in publicly held debt.
The President believes that budgeting in an era of surpluses
requires a focus firmly on the future. We must put money aside against
our current obligations before we incur any new obligations. The
President's program does that, by retiring debt and accumulating assets
against the Social Security commitments that we already have.
We must balance fiscal discipline with prudent investments for the
future
In addressing these priorities, the FY 2000 budget builds upon the
investments in our people and our technology that were set in motion by
past budgets.
Last year's budget implemented the Balanced Budget Act of 1997,
maintained fiscal discipline reserving the surplus until we save Social
Security first and provided a strategy of targeted investments to help
sustain economic growth. For example, last year's budget provided
resources for:
The first year's investment to reduce class size by hiring 100,000
new teachers. Smaller classes ensure that students receive more
individual attention, a solid foundation in the basics, and greater
discipline in the classroom. In this year's budget, the President
proposes investments in this area, ultimately to reduce class size in
the early grades to a national average of 18.
Investments to protect our economic interests at home by responding
to international economies in turmoil. The disruption in financial
markets last year lead to economic dislocation in Asia, Latin America
and the Soviet Union. This, in turn, hurt American exporters, farmers
and ranchers, who found that markets overseas were beginning to dry up.
With President Clinton's leadership, Congress approved nearly $18
billion for the International Monetary Fund, a stabilizing force in the
world economy.
A guaranteed, record-level investment for the next 5 years in the
Transportation Equity Act for the 21st Century to continue rebuilding
America's highways and transit systems, which are essential to continue
the growth of modern commerce. This legislation also funds programs for
highway safety, transit and other surface transportation, while
safeguarding air quality, and helping former welfare recipients get to
their jobs.
Over the past 6 years, the President also worked with the Congress
to establish and build upon significant investments in education and
training, the environment, law enforcement and other priorities to help
raise the standard of living and quality of life for average Americans
both now and in the future. For example, the President's commitment to
fund key domestic investments has:
Advanced cutting-edge research, putting the National Institutes of
Health on a path to doubled funding for research including intensified
work on diabetes, cancer, genetic medicine, and the development of an
AIDS vaccine.
Established the children's health care initiative, the largest
investment in health care for kids since Medicaid was created. Last
year, 47 states began programs designed to provide meaningful benefits
to as many as five million uninsured children.
Increased Head Start's ability to provide greater opportunities for
disadvantaged children to participate in a program which prepares them
for grade school. Last year, a boost in Head Start funding put 835,000
children into the program, making further progress toward the
President's goal of putting a million children in Head Start by 2002.
Invested in public schools to help States and communities raise
academic standards, strengthen accountability, connect classrooms and
schools to the information superhighway, and promote public school
choice by opening 900 charter schools.
Protected and restored some of the Nation's most treasured lands,
such as Yellowstone National Park, and the Everglades; provided the
funds to conserve others; and accelerated toxic waste clean-ups.
Built the COPS program to support community policing. This year
COPS will reach the goal of putting 100,000 more police on the streets
of America's communities. COPS has helped reduce violent crime for six
straight years. The 21st Century Policing Initiative proposed in this
budget will expand on the number of police and provide other law
enforcement tools to the community.
This year's budget builds on the President's efforts to invest in
the skills of the American people. It continues his policy of helping
working families with their basic needs raising their children, sending
them to college, and expanding access to health care. It also invests
in education and training, the environment, science and technology, law
enforcement and other priorities, to help raise the standard of living
and quality of life of Americans.
Families and Children: For 6 years, the President has sought to
help working families balance the demands of work and family. In this
year's budget he proposes a major effort to make child care more
affordable, accessible and safe by expanding tax credits for middle-
income families, and for businesses to expand their child care
resources; by assisting parents who want to attend college meet their
child care needs; and by increasing funds with which the Child Care and
Development Block Grant can help more poor and near poor children. The
budget proposes an Early Learning Fund, which would provide grants to
communities for activities that improve early childhood education and
the quality of childcare for those under age five.
Education: The President has worked to enhance access to, and the
quality of, education and training. The budget takes the next steps by
continuing to help States and school districts reduce class size by
recruiting and preparing thousands more teachers and building thousands
more new classrooms. The President proposes improving school
accountability by funding monetary awards to the highest performing
schools that serve low-income students, providing resources to States
to help them identify and change the least successful schools, and
ending social promotion by funding additional education hours through
programs like the 21st Century Learning Centers. The budget also
proposes further increases in the maximum Pell Grant to help low-income
undergraduates complete their college education, and more funding for
universal reemployment services to help train or find jobs for all
dislocated workers who need help.
Environment: This Administration proposes a historic interagency
Lands Legacy initiative to both preserve the Nation's Great Places, and
advance preservation of open spaces in every community. This initiative
will help address sprawl and air and water pollution, through land
acquisition, preservation efforts, environmental protection and local
growth management. The Administration also proposes a new financing
mechanism, Better America Bonds, to further creation of open spaces in
urban and suburban areas. The Better America Bonds initiative is an
example of our use of targeted, paid-for tax cuts to achieve the
Nation's priority goals. In addition, the budget would restore and
rehabilitate national parks, forests, and public lands and facilities;
expand efforts to restore and protect the water quality of rivers and
lakes; continue efforts to double the pace of Superfund clean-ups; and
better protect endangered species.
Defense: The President is committed to maintaining world military
leadership to provide for the safety of American citizens and the
primacy of American Armed Forces. To ensure America's Armed Forces are
fully prepared to meet the challenges of the next century, the
President proposes a long-term, sustained increase in defense spending
to enhance military readiness, improve recruitment and retention, and
provide the most modern and effective weapons. In addition, these
resources will reinforce the ability of the Defense Department to
counter emerging threats such as terrorism, reduce threats from weapons
of mass destruction, maintain the nation's nuclear deterrent, and
provide humanitarian and disaster assistance.
Health Care: The President has worked hard to expand health care
coverage and improve the Nation's health. The budget gives new
insurance options to hundreds of thousands of Americans aged 55 to 65,
and it advocates bipartisan national legislation that would reduce
tobacco use among the young. The President's budget proposes
initiatives to help patients, families and care givers cope with the
burdens of long-term care; and it helps reduce barriers to employment
for individuals with disabilities. The budget also enables more
Medicare recipients to receive promising cancer treatments by
participating more easily in clinical trials. And it improves the
fiscal soundness of Medicare and Medicaid through new management
proposals, including programs to combat waste, fraud and abuse.
Embassy Security: The bombings of U.S. embassies in Kenya and
Tanzania highlight the dangers faced daily by Americans who work in
U.S. facilities abroad. The budget proposes an increase to the State
Department's operating budget to ensure protection of embassies and
other facilities, and the valuable employees who work there. The budget
also includes a request for $3 billion in advance appropriations for a
multi-year security construction program.
The 2000 Budget saves the surplus until we fix Social Security first
The President's FY 2000 budget is fully paid for, in compliance
with the discretionary caps and the pay-as-you-go budget rules. The
budget allows for appropriations for important domestic and national
security priorities by limiting other discretionary spending and
achieving mandatory savings. Offsets to discretionary spending include
the President's tobacco policy (which would reimburse the Federal
Government for tobacco-related discretionary health care costs), FAA
user fees, health care savings, Superfund receipts, student loan
savings and the recall of additional Federal fund reserves at lending
guaranty agencies, and reform of the existing harbor maintenance excise
tax. With the use of these offsets, in keeping with longstanding budget
practice, the 2000 budget complies with the discretionary spending
caps.
The budget provides targeted tax reductions, financed by the
elimination of tax loopholes, and inefficient or obsolete tax
subsidies. Important tax cuts and incentives, in addition to the
President's USA retirement savings program, include the tax credit for
long-term care needs, the public school construction and modernization
bonds, the expansion of the child and dependent care tax credit, the
new Better America Bonds, extension of the R&E tax credit, the work
opportunity tax credit, the welfare-to-work tax credit, and the tax
incentives for reductions of carbon emissions that cause global
warming. Important mandatory initiatives include child care, the
Medicare buy-in, disability and cancer clinical trials programs, and
extension of health-care programs to immigrants. Taking all of these
policy steps together, the budget complies with the pay-as-you-go
rules, and the tax cuts and mandatory initiatives are fully paid for.
We need adequate resources for a strong defense and critical domestic
priorities
For future years, the budget includes the discretionary resources
contemplated as a part of the plan for Social Security reform. While
these funds will only be available if Social Security reform is
enacted, the Administration's policy is categorically defined including
those resources. Social Security reform is one of the President's
highest priorities for this year and we must work on a bipartisan basis
to accomplish this important goal. The comprehensive framework for
allocating the surplus will also provide these critical discretionary
resources.
The President believes that his discretionary priorities are
important to economic growth, and to the Nation's well being and
quality of life. Some have disagreed, and have argued that Federal
spending in general is too high. This debate requires some perspective.
First, and perhaps most fundamentally, consider the record. Over
the years 1980-98, Federal spending averaged 21.9 percent of GDP. But
Federal receipts averaged only 18.5 percent of GDP. Thus, the Federal
budget averaged a deficit of about 3.4 percent of GDP. When this
Administration set out to cut the budget deficit that we inherited, our
original plan called for roughly equal spending cuts and revenue
increases (with spending cuts in fact slightly larger). While the
results of this plan have been far beyond what we ourselves anticipated
with the deficit falling by more than twice as much as our original
estimates they did maintain the balance between spending cuts and
revenue increases.
In balancing the budget, this Administration has controlled Federal
spending well beyond the record of its predecessors. As a percentage of
GDP, spending in every year for which President Clinton submitted a
budget has been lower than in any year of the two preceding
Administrations. In every budget year from 1994 through 1998, Federal
spending as a percentage of GDP fell. Spending as a percentage of GDP
in 1998, at 19.7 percent, was the lowest in almost a quarter century.
Some argue that ``Federal spending is still going up.'' In the
simplest terms--total dollars with no discounting for inflation, no
allowance for the growth of the economy, and no allowance for the
growth of the population government serves--that is true. But even in
this format, the analysis tells a great deal about the record of
Federal spending under this Administration.
From 1993 through 1998, 31 percent of the simple dollar increase in
Federal outlays came because more elderly people retired on Social
Security benefits, and prior retirees received cost-of-living
increases; 26 percent arose because of additional beneficiaries and
higher costs under Medicare; 18 percent arose because, even with a
rapidly declining budget deficit and by 1998, a budget surplus there
was more debt to service, and so net interest costs went up; and 10
percent came from increased costs under Medicaid, more than two-thirds
of which went for the expenses of the indigent elderly, blind,
disabled, and mentally retarded, many of those in long-term care.
Thus, there has been almost no spending growth in programs other
than Social Security, Medicare, Medicaid, and net interest. Spending of
the entire remainder of the Federal Government over 1993 to 1998 shrank
by 5.4 percent in inflation-adjusted dollars, and fell from 11.5
percent to 8.8 percent of the Nation's GDP.
This shrinking of core government operations cannot go on forever
if government is to accomplish the missions assigned to it. We all take
for granted the obligation to maintain critical core functions like the
FAA, the FBI, and the administration of Medicare. As we consider how to
budget in this era of surpluses, we must consider carefully the
resources available for these 1often-anonymous functions that the
Nation has a right to expect its government to perform well.
A key element in the Administration's ability to expand strategic
investments, while balancing the budget, is the reinvention of
government doing more with less. Efforts led by Vice President Gore's
National Partnership for Reinvention have streamlined government,
reduced its workforce, and focused on performance to improve operations
and delivery of service. And these efforts, by reducing the cost of
government operations, have improved the bottom line and contributed to
our strong economy.
Since 1993, the Administration, working with Congress, has
evaluated and eliminated hundreds of unnecessary programs and projects.
The Administration has cut the size of the Federal civilian work force
by more than 365,000 people, creating the smallest work force in 35
years and, as a share of total civilian employment, the smallest since
1931.
The Administration, however, is working to create not just a
smaller Government, but a better one a Government that best provides
services and benefits to its ultimate customers, the American people.
It has not just cut the Federal work force, it has streamlined layers
of bureaucracy. It has not just reorganized headquarters and field
offices, it has ensured that those closest to the customers can best
serve them.
For 2000, this Administration once again is turning its efforts to
the next stage of ``reinventing'' the Federal Government. It plans to
dramatically overhaul 32 Federal agencies to improve performance in key
services, such as expediting student loan processing and speeding aid
to disaster victims. It also plans to tackle critical challenges, such
as ensuring that Government computers can process the year 2000 date
change, and making more Government services available electronically.
Under the 1993 Government Performance and Results Act, Cabinet
departments and agencies have prepared individual performance plans
that they will send to Congress with the performance goals they plan to
meet in 2000. These plans provided the basis for the second Government-
wide Performance Plan which is contained in this year's Budget. For the
first time in 2000, agencies will submit to the President and Congress
annual reports for 1999 that compare actual and target performance
levels and explain any difference between them.
We have an historic opportunity for long-term prosperity if we rise to
the moment
There is much to be proud of in America today. By balancing the
budget, we have not just put our fiscal house in order; we have left
behind an era in which the budget deficit, as the President said
recently, ``came to symbolize what was amiss with the way we were
dealing with changes in the world.'' Today we have risen to the
challenge of change by preparing our people through education and
training to compete in the global economy, by funding the research that
will lead to the technological tools of the next generation, by helping
working parents balance the twin demands of work and family, and by
providing investment to our distressed communities to bridge the
opportunity gap.
If the deficit once loomed over us as a symbol of what was wrong,
our balanced budget is proof that we can set things right. Not only do
we have well-deserved confidence, we have hard-earned resources with
which to enter the next century.
As the President said, what we do now after having balanced the
budget will shape the character of the next century. We can build upon
our newfound firm economic foundation; or we can squander it.
The President has brought the debate right to the point: What
should we do with the surplus? Or to put it another way: If we were to
look back fifteen years from now, or at the end of the next century
what would we want to be able to say that we had accomplished with this
opportunity?
The President wants to leave a legacy of building for the future:
saving Social Security and Medicare; encouraging Americans to save for
their own futures, build wealth, and prepare for retirement; investing
in education; ensuring our National security; and making other key
investments.
There is no more pressing issue facing us as a nation than the need
to guarantee that Social Security will be there for generations to
come. And there is no better time to act than now while the system is
still strong. This is truly an exceptional moment in America the
economy is prosperous, the budget is in balance, and the President's
commitment to national dialogue has created conditions for constructive
action. We must seize this moment.
Chairman Kasich. Mr. Lew, let me--thank you for your
testimony--let me just get in just two quick areas because
there are members that have questions, and I don't want to--I
had a chance to make a long opening statement. Alan Greenspan,
when he was asked about the board that you want to create
investing in the markets--first of all, the notion that we can
use the capital markets to be able to solve a large portion of
the problem for the baby boomers, I believe is right on target.
The question is, of course, who gets to control it? Do we have
a board of smart people or do we just let--you know, we call
smart people--I know I could never get appointed to a board
like that--or do we let individuals be able to manage their own
retirement? I tend to think, Jack, that as much as I like you
that you worry about your retirement a lot more than I worry
about your retirement, number one, and so I think you ought to
have the maximum control to invest your payroll taxes rather
than I getting on a board and investing your money for your
retirement, because I think you care about it more than I do.
It is kind of like what Federal employees get to do. We don't
have any smart persons board that invests the Federal
employees' money; we invest it ourselves, and I think everyday
Americans are just as smart as Federal employees when it comes
to planning for their own retirement. But Greenspan said in the
notion of having a political board investing in the market, he
said, ``Even with Herculean efforts, right, I doubt it would be
feasible to insulate over the long run the trust funds from
political pressures, direct and indirect to allocate capital to
less than its most productive use.'' In other words, this board
would be subjected to political pressures, and so somebody
would be making--some board would be making a political
decision about our retirement when we don't get the return we
ought to get because they are considering political pressures
of political concerns. Wayne Angel, Bear-Stearns, warned that
the proposal ``enlarges the role of government dictating to the
private economy to a degree that many of us would find
unacceptable.''
Jack, what is wrong with the notion that individuals, you
and me, should have control over our payroll taxes to be able
to direct those payroll taxes into investment opportunities
that provides for our retirement? Why do we need to give this
opportunity to some board who get appointed by a President?
What is the thinking there?
Mr. Lew. Mr. Chairman, I hope we agree more than we
disagree, and we begin with the notion that Social Security is
the foundation for retirement and that individuals should be
guaranteed benefits as they are today. They shouldn't be
subject to the risks that if market were to somehow fall the
day they retire that they would be penalized for the rest of
their retirement, but there should be that foundation where we
have a shared societal----
Chairman Kasich. Everybody agrees on that.
Mr. Lew [continuing]. Everyone agrees on that. We think
that investing the Social Security fund to a very modest extent
in equities is a good idea. We think it gives the Social
Security fund the upside potential that all private pension
plans and State and local government pension plans have today.
What we have suggested--and we took very seriously the
considerations that Chairman Greenspan discussed with you--is
that it be a truly independent board that is insulated from
political pressure.
We suggested that it should not be picking and choosing. We
do not want any branch of government picking and choosing what
equities to invest in. We want to have a broad market basket of
investments with a little bit of everything, where there is an
independent board, private managers, the same people who manage
money market funds, putting these assets into literally the
entire stock market. That means that we will not be picking and
choosing; we won't be making the kinds of markets decisions
that we agree the government should not make.
The risk that Chairman Greenspan has pointed out is one
that I think we do have to take seriously. The plan we have put
forward we believe meets the criteria that he set out. The
question is would we stick to our guns 5 years, 10 years, 15
years from now to resist the temptation to change the plan? I
have confidence that the same way we have left the Federal
Reserve Board as independent as it is because that is the right
thing to do, we would leave this independent board independent
for its entire life. That would be the right thing to do, and
that is what we are proposing.
As far as individual choice goes, the Universal Savings
Accounts give individuals the ability to make decisions on
their own retirement. We wouldn't be telling individuals how to
invest that money. They would have choices. We need to work
through the administrative detail, because there is a little
bit of a tradeoff. Total free choice has very high
administrative costs. In our Federal retirement plan, we have
modified choice. We have limited options that dramatically
reduce the administrative costs. What we hope to work through
as we work on the Universal Savings Account is a way to give
individuals choice with the lowest possible administrative
costs.
Chairman Kasich. Right, well, why wouldn't individuals be
able to have the same limited choice, nevertheless choice, to
direct their own money? Why should Federal employees have that
right, but yet I don't have that right if I am not in the
Federal Government?
Mr. Lew. What we are proposing for the Universal Savings
Accounts----
Chairman Kasich. I am talking about--no, I am talking about
for the payroll taxes.
Mr. Lew [continuing]. Well, the problem with the payroll
tax being handled that way is that markets go up and markets go
down. They don't always do it at times that are convenient for
an individual person's retirement. If it is a small part of the
total Social Security trust fund, we can handle those kinds of
fluctuations in a way that an individual could not handle it.
Our concern is if you take out an annuity on a day when the
stock market went down 10 percent, you are losing 10 percent of
the value of your savings for the rest of your retirement. That
is something where if you waited a month, if you waited a week,
certainly, if you waited long enough it would rebound. And if
we share those risks, then we are protecting individuals from
having the bedrock of their retirement, their Social Security
benefit, fluctuate.
Chairman Kasich. But an investment made by a board is
subjected to the same changes in the economy as if I am
controlling it. In other words, a Federal employee has that
option. They get to an invest in a series of risk managed
accounts, and what you are saying is--and the other thing is,
of course, we are not talking about people putting their money
in an annuity tomorrow and taking it out the next day. We all
know that the power of investing in the American economy is
that over a significant period of time, over decades, the
economy is going to return you about 6, 7, or 8 percent as
compared to a government bond. So, we are not talking about in
and out.
But let me just ask you this, Jack, to get to the bottom
line: Is there any way that this administration over the next 2
years would permit the individual to be able to direct their--
you know, the 2 percent of payroll--the way that they see fit
in a government-approved account without this board? Is there
any way that we could reach agreement on that or do you think
that that is impossible?
Mr. Lew. Well, we have made very clear that keeping the
current payroll tax to fund the current benefit system is key.
We think that it would be risky to do anything other than that,
but we have opened the discussion on giving the individuals the
choice on how to invest for their own retirement with the
Universal Savings Accounts.
Chairman Kasich. Right, but, in other words, the notion
that we take 2 percent of payroll and allow the everyday
American to be able to direct it in some board-approved
accounts like Federal employees do, we cannot reach agreement
on that in this Congress, is that correct? This is a very
important point.
Mr. Lew. It is an important point, and what I want to be
very clear about is that we are very committed to the current
structure of a guaranteed benefit.
Chairman Kasich. OK, the answer is no.
Mr. Lew. And the guaranteed benefit sounds to me perhaps to
be incompatible with what you are suggesting. I would like to
look at a specific proposal before giving you a clear answer.
Chairman Kasich. Well, you know specifically what we are
talking about, the Feldstein proposal. I mean, any one of them,
Domenici; any of them, I mean, where you get 2 percent of
payroll, and you get to direct it. You would not want the
individuals to be able to do that, is that correct?
Mr. Lew. A lot of these proposals have had many lives, and
the reason I am reluctant to give you a blanket answer is that
I don't know exactly which one you are referring to. To the
extent that some of these proposals spend the surplus to give
these options and don't take the money out of the current
payroll tax, it may be more like our Universal Savings Account
and it may be a tax cut.
Chairman Kasich. No, we are talking about taking it out of
the current payroll.
Mr. Lew. And I think you understand our view on that.
Chairman Kasich. That is what I was afraid of, the answer
would be no, so that all these people walking around saying,
``I think we can get the administration to go along with an
agreement that individuals ought to be directing some of their
payroll taxes'' isn't going to happen, and I think we need to
know that, because that then tells us how we are going to look
at Social Security and how we are going to look at other parts
of the surplus.
Mr. Spratt. Mr. Chairman, they are proposing exactly what
you yourself were proposing last year.
Chairman Kasich. What you have to understand, Mr. Spratt,
is that is a weigh station. What I suggested is if can't go to
2 percent of payroll because there is paranoia about the fact
that everyday Americans can't figure out how to invest their
own payroll taxes, then what I would like to do instead of that
is to give some of this surplus to individuals to put it in an
account above and beyond Social Security so they can realize
what gains they can make through market-oriented investments.
But that isn't my solution. My solution is that 2 percent to 3
percent of payroll was that we can direct in government-
approved accounts that can give us a growth of 7 or 8 percent
that can get us out of this problem. So, I am just looking for
an interim step, something that we can all agree upon that can
use the magic of the American economy to be able to get us into
a better position.
One last question, Mr. Lew, I know that the President in
his speech in Buffalo--the Washington Post, one of my favorite
newspapers--and we have got one of their great reporters here
today--has quoted the President as saying of the surplus ``we
can give all back to you and hope you spend it right. The
conclusion being that we can't take a chance on that;
therefore, we have got to have all these targeted tax programs,
because if we give it to you, you might not spend it the way we
want you to spend it.'' Doesn't it make sense to give people
broad-based tax cuts and allow them to direct it toward what
their needs are rather than to have all the targeted tax cuts
so that we force people to go through a maze in order to get
their money once they come out the other side?
Mr. Lew. Mr. Chairman, we think there is a very clear
choice. We think that we have gotten a fair amount of
bipartisan agreement that putting 62 percent of the surplus
aside for Social Security is a good idea. We may have
differences to what it means to put 62 percent of the surplus
aside, but I think we have a general agreement that that is the
first step.
When you go beyond that, we think the next step is
Medicare. We have current commitments to Medicare and over the
next 10 years we will put $350 billion aside of the surplus to
keep the commitments we already have. On the question of
putting that money into a tax cut, I think one has to ask about
the alternative. If there is an alternative plan that would
extend the Medicare trust fund to 2020 that could reach
bipartisan consensus, we would like to see it. We think that it
is very difficult to cut benefits, it is very difficult to
reduce payments to providers, and it is very difficult to come
up with an alternative plan for Medicare that is attractive and
meets with quick bipartisan approval.
So, the choice is not just a choice between a tax cut and
nothing, it is a choice between a tax cut and putting the money
aside to meet our commitments to Medicare. We think that is the
right choice. It is a debate that we understand we are going to
be having, and it will be a heated debate. We look forward to
the debate because we think that is the right kind of debate to
have when we have a surplus. Our view is that we have to be
able to pay the bills for the commitments that we have today
before we undertake new commitments----
Chairman Kasich. Yes, I am not talking about Medicare; I am
talking about your targeted tax cuts as opposed to the notion
that they ought to be broad-based and let people make their own
choices.
Mr. Lew [continuing]. As far as the choice between the
Universal Savings Accounts and an across-the-board tax cut, I
think that that is a debate that we should have. We think that
the right way to get tax relief is to encourage savings, to
help people build the important leg on the retirement stool--
personal savings. They now get Social Security. Some get a
pension. They should also have savings. The alternative could
be an across-the-board tax cut. We think that the distribution
of a Universal Savings Account would help working people put
money aside for their own retirement. We think that the
benefits of an across-the-board tax cut would tend to go to
higher income, wealthier people. This is the kind of debate
that we could have reasonable disagreements on. We think those
are choices that we should make. Our view is that Universal
Savings Accounts are the right way to give tax relief, and we
would welcome within the framework where 12 percent is
allocated to a tax cut having that debate.
Chairman Kasich. Thank you, Director. Mr. Spratt.
Mr. Spratt. Jack, let me just read from the record what
Alan Greenspan said: ``The President's approach to Social
Security reform is a major step in the right direction, because
it would ensure that the large surpluses projected over the
next 15 years would be a positive contribution to national
savings.'' I think it would be useful if you picked up where
you left off in your testimony and took us step by step through
how you propose to take the trust fund for Social Security from
around $800 billion today to eventually over $6 trillion.
Mr. Lew. I would be happy to, Mr. Spratt.
Chairman Kasich. Even though the natural accumulation is
probably half that amount. How do you do that and at the same
time that you build up the assets in the trust fund how you
would buy down the national debt from $3.7 trillion held by the
public to $1.3 trillion?
Mr. Lew. Mr. Spratt, I think that we have to begin by
reminding ourselves what happens in the trust fund if we do
nothing. If we do nothing over the next 15 years, the trust
funds will accumulate $2.7 trillion in additional assets. Those
assets sit in the trust fund in the form of Treasury bonds
which have the full faith and credit backing of the Federal
Government just like a series-E bond or a bond bought by a
corporation or a bank does. What we are proposing is to put
more assets into the trust fund and have the increase go from
$2.7 trillion to $5.5 trillion, doubling the additional assets
in the trust fund over the next 15 years. And, as you pointed
out, there is already almost a trillion dollars of assets in
the fund. It would bring the total to over $7 trillion.
The question really is, what happens when those bonds come
due? How do we pay the bills? When we came in in 1993, looking
at the year 2012, when the Social Security Trust Fund was going
to start to redeem the bonds to pay benefits, everyone was
worried. They were worried because we were looking at a deficit
in 2012, not at a surplus. The question was: if you can't pay
your bills in 2012, how are you going to pay back the bonds?
Well, we're not looking at a deficit in 2012 anymore; we're
looking at a surplus. And because we have a surplus, if we lock
in the surplus, we will be able to pay those bills in 2012
through 2055. And the point I made earlier about interest--
perhaps a useful way to think about it is that a dollar of
interest paid on a Treasury Bond that's held by a bank, or a
private investor, is a dollar that goes from the Treasury
outside. A dollar of interest paid to the Social Security Trust
Fund is passed along in a benefit. So the dollar of interest
has a very different end if you're paying off debt held by the
public than if you're paying off debt held by the Social
Security Trust Fund in the form of assets. We're saying that
those dollars should be preserved so that we can pay our Social
Security benefits without having to make drastic reductions in
benefits, without needing a big tax increase.
We think it's prudent. We think it's only common sense.
Unfortunately, government accounting is complicated, so it does
take a little while to explain and to understand. But we think
it is the most prudent way to carry forward the fiscal policy
that's brought us the remarkable results that we're now
enjoying.
Mr. Spratt. What happens today with payroll taxes received
by the Treasury is that the Treasury ends up holding the cash
and the Social Security Trustees end up holding a special
government bond?
Mr. Lew. That's correct.
Mr. Spratt. What you're proposing is to take the cash that
the Treasury holds and buy outstanding debt with it, and, in
effect, transfer that debt in addition to the Treasury special
bonds so that you will augment the Trust Fund twice?
Mr. Lew. That's correct. And instead of having that money
go out in the form of either spending or a tax cut, let it
build up.
Mr. Spratt. Then, we build up to nearly $7 trillion; that
includes the earnings on the money invested in the market and
the earnings booked to the Treasury Bonds, and around 2020 we
need to start drawing down that debt. At that point in time,
instead of having several trillion dollars in outstanding debt
held by the public, the Treasury will owe maybe $1.3 trillion,
according to your projections. Debt service will have fallen
from 13 percent of our budget to 3 percent of our budget, and
the Federal Government will be in far better fiscal condition
to redeem these bonds so that the Social Security Trustees can
meet the obligations of the beneficiary. Is that the scheme?
Mr. Lew. That is exactly right. And the choice we make
today in terms of writing down the public debt is the key. If
we let the public debt go back up, then our interest payments
will go back, and we will lose the benefits that we've now
projected for the future. We need to lock in what we are
calling a virtuous cycle; it gives us the compounding effect of
reducing debt to replace the vicious cycle that was eating us
alive from 1981 to 1993.
Mr. Spratt. Now, these USA Accounts are not strictly
related to Social Security. They are supplementary to Social
Security. The would be paid for, at least in part, by voluntary
contributions and by government inducements that particularly
moderate income citizens would enjoy. You have not yet defined
all of the details, but don't you anticipate allowing each
individual holder of one of these accounts at least the choices
that Federal employees now have--either put it in a bond fund
or a government bond fund or a corporate bond fund or a stock
market index fund?
Mr. Lew. Yes, Mr. Spratt. First of all, it's independent
from Social Security, and that's a point we really want to
underscore. We don't think it should be mingled with Social
Security.
We're working on the details and we're very concerned that
as we define the details, we have as many good consequences as
possible. We want to encourage current pension plans to
continue to provide pensions. We want to encourage individuals
who are currently saving to add to their savings, not just
replace their savings. And we want to give them options, but we
want to make sure we balance unlimited options with the cost of
unlimited options.
One concern we have is that administrative costs can grow
if there's unlimited option. The current Federal system gives
us, all of us who are putting our retirement savings into it, a
limited range of options, where we can put our retirement
savings into a bond fund, into an equity fund, or into a
government bond fund. We probably will want more options than
that.
One of the things we hope to work out as we go through this
legislative process is thinking through the consequences and
how to draw the line in the right place. I don't think it's
magic. I don't thing three options is magic. Unlimited options
equally is not magic. Somewhere in the middle is the right
balance, and I think we need to work together to try to define
it so that individuals get the benefit of having the maximum
return on their dollar go to their retirement and not go toward
administrative expenses.
Mr. Spratt. Thank you very much. One last question for
clarification on another subject. Some of the press coverage of
the budget yesterday and some of the criticism made of it by
our colleagues across the aisle has indicated that there are
significant tax increases in this particular budget, which
seems odd at a time when we are looking forward to significant
surpluses down the road.
As I look through the budget, I see a redistribution of tax
benefits, from largely corporate taxpayers, who are enjoying
what you call unwarranted tax benefits, over to individuals
such as mothers and fathers who have children, with a dependent
care day care credit; and mothers and fathers who have parents
who are elderly and homebound--there will be a credit for them
too--a thousand dollar credit for their long-term care
requirements. It's a redistribution there of about $33 billion.
The New York Times yesterday included the recoupment from
the tobacco recovery--a recoupment of what the States will be
getting--$19 billion as a tax increase, but that's not a tax
increase. You've got the reinstatement of a Superfund tax,
which is just the renewal of the tax. You do have a $5 billion
item for recasting the way we charge for using the airlines and
the airways and the airports. But other than that--and, of
course, your tobacco tax, which may or may not be a starter.
I've got my doubt that it will go anywhere, but in any event,
other than the tobacco tax is there any significant tax
increase in this particular budget?
Mr. Lew. Mr. Spratt, I think you've got it exactly right.
We have proposed a variety of revenue raising provisions to pay
for a variety of tax cuts. We think that closing loopholes for
sham transactions is something that we can agree is good
policy. There are always people who benefit from those
loopholes who oppose it, but that's the kind of normal battle
we have to try to make the tax code work right.
What we've proposed in the form of tax cuts, we think are
very important benefits--whether it's for long-term care or for
building schools in our inner cities, or for providing for
environmental bonds to be issued. These are all important
investments that we think warrant the difficult choices in
terms of closing loopholes.
Now with regard to the tobacco tax--we do have a tobacco
policy in our budget. I know that it is a policy that not all
of us agree on, but we feel very strongly that, first and
foremost, it's good public health policy.
Last year, the President put forward a tobacco policy that
was designed to increase the price of smoking to reduce teen
smoking. Every day, 3,000 kids start smoking. Half of them
develop tobacco-related illness. Our goal is to raise the price
so that we will reduce in half the number of kids who start
smoking every day.
And we are not imposing a burden in a vacuum here. Today,
tobacco-related illness is imposing a burden on the Federal
Government. We spend $8 billion a year in discretionary
programs--the veterans' health program, the Department of
Defense health programs, our own Federal employee health
program, and a bunch of other smaller programs--to treat
tobacco-related illness.
We would get $8 billion in excise taxes from the tobacco
proposal, and it would just pay us back. The tobacco companies
would pay us back for what we're spending as a Federal
Government on discretionary spending for tobacco-related
illness. We think it's only fair that that burden should be
borne through the tobacco tax and not by the general taxpayer;
that it shouldn't go to corporate profits, and it shouldn't go
toward the benefit of the companies that are selling
cigarettes.
The policy is controversial. We understand that, and we
readily acknowledge in the budget that this makes it easier for
us to fund other health priorities and other important
programs. But what we're doing is we're getting back the money
that we're now spending on tobacco-related illness, which we
think is only fair.
Mr. Spratt. Thank you very much.
Mr. Chambliss. Mr. Lew, I thank you for being here this
morning. As a new member of this committee, I look forward to
working with you as we go through this process and hopefully
reach an accord on this budget. I think it's interesting though
that you say that there are no new taxes other than a tobacco
tax when, in fact, as I look at your numbers, you are looking
at increased fees for Coast Guard navigational services, $701
million; fees on international travelers, $1.6 billion;
Medicare processing fee, $495 million, which doctors will pay
when they process a Medicare claim, which means our Medicare
patients will pay; FAA user fees, $7.1 billion; Federal
Railroad Administration, $440 million; FDIC, $458 million; FCC
fee, $1 billion, and on and on and on. That's about $11 billion
over 5 years. If that's not a new tax, I don't know what it is.
I want to talk to you about a couple of different areas. On
the first one, you know agriculture has always been the
backbone of the economy of this country, and ag folks all
across this country are in trouble right now. Nineteen ninety-
eight was truly a disastrous year.
We need to make some solid, long-term changes in
agriculture policy. The best way that we can do that, and
certainly I think the President agrees with us based upon what
he said in his State of Union Address, is to come up with a
good, solid crop insurance program. In order to do that, we've
got to basically throw out what we've got in place right now
and start over with a new program.
The President said in his State of the Union that he wanted
real crop insurance reform this year. Unfortunately, when I
looked at this budget, I see absolutely zero dollars in the
President's budget to be applied to crop insurance reform.
Would you address that question, and tell me exactly how you
plan to reform crop insurance and not pay for it?
Mr. Lew. Congressman, the budget, as the State of the Union
does, acknowledges the very important need to revisit our crop
insurance program and to reform crop insurance this year.
As you noted in your question, changing the current system
is part of what one will have to do to create a new crop
insurance system. Our experience in looking at this is that it
is necessary to engage in a bipartisan discussion. We propose
to engage in that discussion over the year, to make some of
those tough choices, which are tradeoffs within the agriculture
community and between different priorities of the agriculture
community. The budget is a tight one. The fees that you
described are the kinds of fees that we've been proposing for
several years now in order to enable us to make the important
investments that we need to make in areas like agriculture. The
fees we've proposed in agriculture haven't all been accepted,
which does make it difficult to provide the resources for new
programs. I think we need to work together. We need to look at
what our options are, and we need to make some touch choices.
It's clear, the President made very clear in the State of the
Union, and we made very clear last year in our response to the
agricultural crisis last year, that there was a need for
action. But these are tough choices, and they are choices that
I think really are better made in a process where we're working
together than when we're just putting competing plans out.
Mr. Chambliss. Well, I still don't understand why you're
not willing to fund crop insurance reform, but, be that as it
may, it's interesting that one of the user fees that you're
talking about is a fee that's going to be put on livestock
processors. Now, when Mr. Nussle's hog farmers take their
livestock to market, what's going to happen is that his farmers
are the ones who are going to wind up paying that livestock
processing fee. So, instead of helping agriculture in that
respect, you are going to be reducing income to farmers across
this country by the increase in the livestock processing fee.
The second area that I want to cover with you is in the
area of national defense. I think we all agree that we've not
been spending enough money in this area, and even the President
in the State of the Union said that he wanted to spend
additional monies in defense. He has come up with a figure of
$12 billion, which, frankly, is a lot of smoke and mirrors--
about $8 billion of that I think you would agree is just a
redirection of current funds and a change in projection for
inflation. So, we're really talking around $4 billion.
Of that $4 billion, if we're talking about a pay increase
of 4.4 percent, we're looking at roughly two and a half billion
dollars. If you pay for Iraq and Bosnia out of that, you're
talking about another $3 billion, so you're already over that
$4 billion in new money that the President is willing to put
into defense.
Now, when the service chiefs testified before the Armed
Services Committee they said that in order to bring every
service branch up to par, not put us where they'd like to be,
but to bring us up to par, it would take seventeen and a half
billion dollars this year, not including the two and half
billion for the pay increase. Why in the world, if the
President wants to make a real commitment to defense, doesn't
he listen to his service chiefs, who say we need $20 billion
just to bring our services up to par?
Mr. Lew. Congressman, the President has listened to our
service chiefs. We've been meeting regularly over the last
year. From the moment that they identified a growing readiness
problem, we took it very seriously. The President took it very
seriously. He met with the service chiefs back in September and
listened to what was really a very different kind of message
than he had gotten before. It was a message that said things
were changing. They were changing quickly. And it really
required a response.
We worked very hard from September until we put this budget
out first to add resources in the appropriations bill last fall
to get a head start, and then to put together a plan that would
take care of the highest priorities and all of the immediate
needs that they identified.
Yesterday, Secretary Cohen testified at the Armed Services
Committee at length on this issue, and I won't try to repeat
all the details he went through. But I think it's fair to say
that in his testimony and General Shelton's testimony, they
agreed that what we've put forward in this budget is the
program that we need to make sure that we take care of the
immediate problems in terms of retention of personnel and in
terms of readiness.
With regard to the arithmetic on the increase, I would beg
to differ with your analysis of it. The inflation savings are
very real savings. In a normal year, when the Defense
Department sees inflation coming down, the funds that they are
going to use go down because they are not spending a total
number of dollars. They are buying a certain mix of goods and
services. And if the cost of buying a helicopter goes down,
then that money would not stay in the Defense Department budget
in an ordinary year. By leaving that money in the Defense
Department budget, we are permitting them to buy more--to buy
more helicopters, to give a bigger pay raise. It's very real
money.
In the out years, there is an element of projection here,
and, as Secretary Cohen testified yesterday, we think the
projection is a fair one, a reasonable one, and it reflects a
commitment to policy. But we will follow it on a year-by-year
basis. We're committing here to a program, a policy level, and
if the inflation estimate for the future changes, we will have
to reconsider the total resources required.
As far as the composition of our increase goes, a quarter
of the increase in 2000 goes to personnel. That's to pay raises
and to retirement benefits for the most part. The rest of the
75 percent really goes into readiness in the first year--spare
parts, things like that. The procurement budget builds up as we
go through the 5-year period. It's a very aggressive program.
It's the largest defense increase in decades. We welcome the
debate about the composition of it. We have gone through a
process with the Pentagon and with the chiefs that has been a
very, very important in terms of making sure that we give the
best armed forces in the world the resources they need to
remain the best armed forces in the world going into the next
century.
Chairman Kasich. In the order in which people come in is
how we recognize them, and the gentleman from Nashville is
recognized.
Mr. Clement. Thank you, Mr. Chairman.
Jack, good to have you here today, and I want to say to you
on behalf of the American people, I think everyone appreciates
very much the Clinton administration being bold and courageous
in putting a lot of new ideas and new initiatives on the table.
I just hope--and I really say this in all fairness to all the
Republicans and the Democrats--I think we should give it every
consideration--those ideas and new initiatives. And let us not
have it dead on arrival simply because President Clinton
proposed these new ideas, because people are concerned about
the future of Social Security, the future of Medicare; about
new incentives on savings, a stronger national defense,
reducing the debt, education--all these are critically
important.
Now I had the opportunity last week to speak with Chairman
Greenspan, and I asked him about the tax cuts. And I know there
are many that want tax cuts, substantial tax cuts. And I've
sure voted for them in the past, and I am sure I'll vote for
them in the future.
But I asked him about the tax cuts, about the timing of it,
about right now. He responded to me, ``Congressman, I am a
Republican. Republicans like tax cuts. But our forecasts
haven't been real good in the past. As a matter of fact, we
should be still running hundred billion plus deficits rather
than surpluses. I think we should pile those surpluses up for
the future.'' You respond?
Mr. Lew. Congressman, when Chairman Greenspan testified, we
actually were very heartened by his comments, because we viewed
them as being really an endorsement of the basic approach that
we've taken, which is, buy down the debt first. The best thing
that we could do would be to buy down the debt and to be able
to pay the bills for Social Security and Medicare that we're
already going to owe for benefits that people have already
earned.
Now, I think when he was asked the question as between tax
cuts and spending increases, he gave the kind of answer that
you described. But he was very clear: the best thing to do
would be to buy down the debt.
By putting the money into Social Security and Medicare, we
think that that's the best way to lock the surplus up, to lock
it in for a good future, for an economic future and budget
future, that we all will be proud in 15 years to look back and
say we contributed to.
Mr. Clement. Jack, last year we had some major wins for
TVA, and our Chairman of the TVA Caucus, Zack Wamp, and Van
Hilleary, who's on this budget committee, too--but the fact is
we've been zeroed out, and a lot of us don't understand why
because if you're on the Ohio river system, the Mississippi
river system, Colorado river system, Missouri river system, you
get taxpayer dollars for flood control and navigation. And,
yet, here we're in the Tennessee Valley Area, and we're not
going to get a penny. We rate payers are going to have to pay
that.
Now I know there's a misconception that other parts of the
country are subsidizing our power rates, but nothing could be
further from the truth. Why should we be zeroed out in the
Tennessee Valley Area?
Mr. Lew. Congressman, last year when we addressed the
question of the Tennessee Valley Authority in the Omnibus
Budget bill, there was a long-term policy decision made which
we think gave lasting benefits to the Tennessee Valley
Authority, which made it unnecessary to have a direct
appropriation. There was a conversion of debt that the TVA owes
to the Federal Government that permits the Tennessee Valley
Authority to pay less interest because it rolled over loans
that were at a higher interest rate to be repaid at a lower
interest rate. If you look at the benefit over the period of
time, it year by year replaces the appropriation. And, in a
sense, it gave TVA benefit at least for the next 10 years, so
that it wouldn't be subject to the year to year appropriations
process. It was not actually meant to be zeroing out the TVA;
it was more of a conversion of the form in which the assistance
to the TVA is delivered.
Mr. Clement. My last question pertains to Medicare, and I
know your proposal is transferring 15 percent of the unified
surplus into the Medicare Trust Fund. In order to further
extend the life of the Trust Fund, the budget includes
additional cuts in Medicare payments amounting to $9.5 billion
over 5 years. I don't know about the rest of the country, but
in Tennessee, 38 of our 127 hospitals lost money in 1997. It
appears that 45 hospitals will lose money in 1998. And the
Balanced Budget Agreement of 1997 hasn't even been fully
implemented yet. What is the reasoning behind these cuts? Are
they really necessary?
Mr. Lew. Congressman, the Medicare savings fall into two
categories. A number of them are proposals that we've made in
the past to deal with some problems that we tend to generally
call fraud and abuse. They are to clamp down on overpayments
and things like that. I don't think that's the portion of our
savings that you are referring to. I think what you are
referring to are the reductions in the provider payments, which
are about half to two-thirds of our saving.
Nationwide, hospital profit margins have been very high,
even after the Balanced Budget Agreement. We understand that
there are pockets in the country--some rural areas and others--
where that hasn't been the case. We need to look at what the
impact of our proposals would be and to make sure that as we
work through the policy, we don't have unintended consequences.
It really was an attempt to put savings in the program so that
we don't have Federal reimbursement resulting in higher profit
margins than before the BBA, but at the same time, to put
resources back into healthcare programs, to increase benefits
so that people can buy into Medicare between age 62 and 65, to
make sure that HCFA has the kind of reform and stable funding
stream so that we can run a good Medicare program into the next
century.
We look forward to a debate on these issues. And I would
underscore that it is separate from this proposal on the 15
percent of the surplus. Regardless of what we do on the
proposals for immediate change in Medicare, we think it's
necessary to put the 15 percent of the surplus in because if
this is an indication of how difficult it will be to make the
program savings necessary to put $500 billion back into
Medicare, it means we better save the surplus, and we better
use the surplus to try and shore up the Trust Fund, because
we're talking about the concerns raised with $9 billion of
savings. Imagine what the concerns would be if we have $500
billion of savings.
Mr. Clement. Thank you, Mr. Chairman. Thank you, Jack.
Mr. Lew. You're welcome.
Chairman Kasich. Mr. Hoekstra.
Mr. Hoekstra. Thank you, Mr. Chairman. Good morning. There
are a couple of areas I'd like to ask some questions in. In the
State of the Union speech, the President talked about the $15
billion that the Federal Government invests in our public
schools, and he also talked about the need to support what
works and to stop supporting what's wasted.
In your budget proposal, have you outlined specific areas
where you believe we have been wasting Federal education
dollars and how we would reallocate those funds?
Mr. Lew. Congressman, the budget sets forth a general
statement of policy. We will be sending forward an Elementary
and Secondary Education Act legislative package that will be
more detailed.
What we have tried to do is put together a package that
would encourage schools to end the process of social promotion.
We put a lot of money into after school and summer programs. We
need to create an alternative to the current cycle where
there's no choice but to either leave the kid back or to have a
social promotion, because they don't have an option that helps
them catch up and stay in grade.
We've tried to put incentives in for schools to encourage
the kinds of performance and excellence that I think we all
agree should be universal in the schools. Sometimes our Federal
programs help move things in the right direction. Sometimes
they don't. We've put a package forward, and, as you know, the
ESEA proposals will come forward in much more detail very
shortly.
Mr. Hoekstra. And that will include an analysis of the
programs and the types of approaches that have not worked in
the past so that we can better learn from those programs and
influence what we should be doing in the future?
Mr. Lew. Well, I think I've noted one of the major concerns
we have. We think social promotion has been a very big problem.
We think that the job of the schools is to make sure that we
promote kids and that they are able to perform at grade; and
when they graduate, they are able to go into the workforce and
take jobs. I don't think we disagree on the goal. We may
disagree on the mechanisms and that's what we hope to work
through in the process of ESEA reauthorization.
Mr. Hoekstra. Well, that's what I am trying to get at. I am
wondering if you've taken a look at the entire Federal role.
One of the things that we are concerned about is the multitude
of programs and the number of different agencies that are
dealing with the area of education. I am wondering whether the
administration has taken a look at whether creating a number of
new programs with additional strings is the most effective way
to improve education. At other times, the administration has
talked about more flexibility for local schools and more
discretion as to what they can do with Federal dollars. I am
just wondering as to the administration--which way are you
going to go--more programs with more strings or fewer programs
with more dollars and more flexibility back at the local level?
Mr. Lew. Congressman, this year is a little different than
other years because of the reauthorization of the major
education programs. And I think we will be proceeding both with
the funding of the initiatives that we have worked very hard
on, from charter schools to after school programs; and working
on the basic programs, to make sure that the basic programs are
reformed or changed in a way to make the education dollars that
we've put out more effective.
I think the question of either/or isn't the way we look at
it. We have a number of goals. We have specific goals that we
accomplish through these individual programs, and we have
broader goals in terms of the very large dollars that we've put
out through the basic education programs, which the school
districts themselves mostly control. And we're going into that
debate with the goal of preserving the independence of the
local schools. This is a partnership. This is not a case where
the Federal Government comes in and tells States, cities, and
local school districts exactly how to run their schools.
But it is fair, when so many billions of dollars of Federal
money are going into the schools, for us to ask some tough
questions, and for us to challenge the schools to do better in
certain areas.
We hope to do this in a cooperative way. We don't view this
as the Federal Government coming in and taking over. It's a
question of getting the balance right.
Mr. Hoekstra. I think that is exactly right: getting the
balance right. And our experience would say that there are many
at the local level who believe we might be getting out of
balance.
On a different front, have you included a projection of the
level of the gross Federal debt over the budget window in your
budget proposal. I mean, is the debt, the gross debt going to
increase or decrease?
Mr. Lew. We do have projections of both debt held by the
public and the gross debt. This gets into an area that is
complicated, and I apologize for using language that's more
technical than I like to. But the debt subject to limit is a
larger number than the debt held by the public, because all of
the dollars that are in the Social Security Trust Fund in the
form of Treasury bonds are subject to limit. The existing
accounting rules are confusing because we save money and we
call it debt subject to limit.
The important measure for the purpose of the economy is the
debt held by the public. The question of whether or not the
Federal Government is crowding out private investment really
has to do with what's happening to the debt held by the public.
We will be reducing the debt held by the public from 40 percent
to 7 percent of GDP over the next 15 years, which means we're
freeing up dollars for private investment and to lower interest
rates. And we think that is a very good thing for the economy.
Mr. Hoekstra. I am interested in the gross debt. I mean a
debt owed to Social Security is not necessarily a lot different
than a debt owed to the public. You and I may disagree on that,
so the gross debt does go up?
Mr. Lew. It does, but Congressman, the reason it is
different is that the benefits that Social Security owes--
that's the real debt. We have that debt today. It's not debt
subject to limit. But it's a moral debt. It's a promise that
we've made, and I believe it's a promise we will keep.
When we put assets in the Trust Fund and the debt subject
to limit goes up, the only reason it's going up is that we're
putting money behind the promise to pay the benefits that
people are already entitled to.
Mr. Hoekstra. But it's still debt?
Mr. Lew. Yes, technically, those Treasury bonds are debt.
Mr. Hoekstra. This budget still has gross debt increasing
during the time frame of your budget proposal, is that correct?
Mr. Lew. It's correct, but it's increasing for a good
reason, because we're holding on to those assets.
Mr. Hoekstra. Good.
Mr. Smith. Will the gentleman yield?
Mr. Hoekstra. Thank you. I'll yield for a minute, yes.
Mr. Smith. Just noting that I noticed CBO in their estimate
didn't have an increase in total debt.
Chairman Kasich. A compassionate man like I am. The
gentlelady from Oregon is recognized for 5 minutes.
Ms. Hooley. Thank you, Mr. Chair.
Chairman Kasich. For 5 minutes and 15 seconds.
Ms. Hooley. Thank you, Mr. Lew, for your presentation.
I want to go back to Medicare. We've talked a lot about
Social Security. I mean, I've read a lot in the paper about it
seems there's some agreement that we're going to put 62 percent
into Social Security. Medicare is a much more immediate
problem, and where we're going to run out of money much quick
in Medicare. And I, too, am concerned about some of the cuts
that are proposed in there. I mean, again, I was talking to
some of our hospital people yesterday and some of the small
hospitals because of the reduction they are already facing in a
6-month period ended up being in serious trouble. So I am
concerned about that.
But I am also concerned about what do we do if we don't put
this 15 percent into Medicare. What's our next step if that
doesn't happen? Do we increase payroll taxes? Do we decrease
benefits? What are some of the alternatives without that 15
percent?
Mr. Lew. Congresswoman, that is the important question,
because what we're proposing today is a budget that has many
choices in it. When we say put the surplus aside for Medicare,
we're looking at the alternatives. The alternatives are very
large increases in payroll taxes or very large reductions in
benefits.
Ms. Hooley. Tell me what you mean by large increases? What
are we looking at?
Mr. Lew. Just the Medicare portion of the payroll tax,
which is currently 2.9 percent. It would have to be 3.4 percent
starting in fiscal year 2000. That means raising payroll taxes
by .5 percent just to provide the kind of additional resources
that we're talking about here. That's an 18 percent increase.
We would be doing a bad thing to the economy if we put that
kind of a tax increase in place right now. No one has proposed
it, but if we don't set the money aside from the surplus, we
have to be honest with ourselves about the choices. The choices
are those kinds of payroll tax increases or benefit cuts or
reductions to providers.
And, as I said to Congressman Clement, we understand that
$9 billion of savings forces us to make tough decisions. It
forces us to ask questions about whether your healthcare
providers are being treated fairly or not, and we certainly do
want to treat them fairly. To come up with $500 billion would
require choices that are just enormously difficult. We saved
$130 billion in the Balanced Budget Agreement. This is much
bigger than that. And we think before we make any new
commitments, whether it's to a tax cut or to large spending
increases, we have to pay the bills that we owe. And that's why
we put this plan forward.
Ms. Hooley. Thank you.
Chairman Kasich. But let me ask you a question. You can
make no programmatic changes in Medicare, none, if you don't
raise the payroll taxes. You don't reduce benefits. What you do
is put a bunch of bonds in and say you've extended the live of
Medicare, isn't that correct?
Mr. Lew. Well, we have put more assets in the Trust Fund.
There's only three ways to extend the life of the Trust Fund.
You can raise taxes, you can cut benefits, or you put more
money. And we are putting more money in. We think that's the
right thing to do.
Chairman Kasich. You can put more money, but you put more
bonds in, which draws against the public. I mean you didn't put
any money in there. You put the bonds in there. We have to
honor Social Security. But we didn't put any money in there.
That's a bookkeeping entry.
Mr. Lew. What we're saying is that those bonds have first
call on Federal revenues, and that's the right thing to do.
It's the right thing.
Chairman Kasich. Right. But you've made absolutely no
programmatic changes in Medicare at all that would control any
of the spending. You just say we're going to have more bonds in
here, and so that can be drawn down on our kids. I mean----
Mr. Lew. Mr. Chairman, we agree that there's a need for
serious programmatic reform. What the President said in the
State of the Union and what he will be saying today again is we
need to start by putting 15 percent of the surplus aside. We
then need to go through the process that the Breaux Commission
is going through. We will need to go through together to make
the kinds of tough choices. And as we make those tough choices,
we need to find savings. We also need to look at some real
problems in terms of the benefit package. We need to have that
kind of a discussion. But this will only make it easier. Any
alternative has the burden of coming forward and answering the
question, how would you extend it for 10 years if you don't
save 15 percent of the surplus.
Chairman Kasich [continuing]. Right. But my only point is
you presume that there is an infinite drawing down on our
paychecks. And you have done nothing to make one single change
in the Medicare program. You're just saying I am going to put
bonds in here that our kids are going to pay, and we're going
to pay. And we got all these bonds in there on Social Security
that we're going to pay and we're going to draw down on. I
don't know if the Democrats understand this, but there is no
guarantee we're going to have enough money to pay all these
things down.
Mr. Lew. Mr. Chairman.
Chairman Kasich. But to say we're going to put more IOUs in
an account, and that extends the life of the program. I mean
that's what we're talking about. We're not talking about one
single choice that changes one crossed T or dotted I in the
program. We're just saying there's more obligations to
Medicare. And I agree with you, Jack, we're going to have to
get the point where this commission's going to have to come
through. But to say that we got more bonds in this fund, that
should make us more all feel better is--I don't think that's
leveling with folks.
Mr. Lew. Mr. Chairman, the real choice is what we do with
the projected surpluses. If we, for example, have a large tax
cut, that large tax cut will reduce revenue in the future.
We're saying that rather than reduce----
Chairman Kasich. Of course, now that's a matter of opinion.
Mr. Lew [continuing]. Well, that's what most economic
analysis shows: when you give a tax cut, you have less revenue.
Chairman Kasich. Well, that's not what is shown on capital
gains. It's actually generated a heck of a lot more revenue. In
fact, that's one of the reasons why we've had the big spurt in
Treasury collections.
Mr. Lew. The choice that we're suggesting is that rather
than have the revenue first be given back to a tax cut, we
should put the money aside so that the first call on the
surplus is to pay these bills.
Chairman Kasich. Right. Right.
Mr. Lew. And that is a choice. We understand there's a
choice. It's the kind of debate we should be having.
Chairman Kasich. It's a first call, but it's not the money.
Show me the money. I'll recognize the gentleman from New
Hampshire, Mr. Sununu.
Mr. Sununu. Thank you very much, Mr. Chairman. Thank you
for being here, Mr. Lew. I appreciate your taking the time. I
know it's not easy. You follow in distinguished footsteps. Mr.
Raines, I think always was very willing to enjoy the give and
take and be forthcoming with information, and I think you've
done the same.
You were very candid about the user fees and the tax
increases that are part of this budget proposal. And you talked
a little bit about some of its targeted tax relief, the very
narrow targeted tax relief. The summary that I've seen--the
total is for those taxes that are increased--it's about $82
billion in tax increases; about $26 billion in user fees over 5
years. I think the tobacco tax increase is one of the bigger of
the tax increases. What is the 5-year total of the tobacco tax
increase?
Mr. Lew. The 5-year total on the tobacco increase is about
$33 billion.
Mr. Sununu. OK. So, $33 billion in tobacco----
Mr. Lew. Excuse me, $34.5 billion.
Mr. Sununu [continuing]. Thirty-five billion in tobacco tax
increases is obviously a big chunk of the total tax increase.
And the ranking member of this committee doesn't think that tax
increase is going to go anywhere. Now, I am sure the
administration feels very good about its ability to change
minds, but I submit that when the ranking member of the Budget
Committee doesn't think that the biggest part of your tax
increase proposal is going to go anywhere, then you might have
problem moving this budget package forward. What's your
reaction to that?
Mr. Lew. My reaction to that is really to go back to what
the purpose of the tobacco policy is. We feel very, very
strongly that the tobacco policy is the right policy for the
country. If we want to reduce smoking, if we want to improve
public health, we know that the most effective way to do it is
to raise the price. We also know that the tobacco companies
have been raising prices on their own and increasing their
profits, and that that's wrong. We shouldn't be raising the
price for the benefit of the producers of cigarettes. We
understand it's a debate that is going to be tough, but we're
anxious to get into that debate. We think it is the right
debate to have. And we think the American people will be well
served if we prevail.
Mr. Sununu. You think you're going to win. You think you're
going to be able to increase tobacco taxes this year.
Mr. Lew. We're going to try hard.
Mr. Sununu. You also included some money from the tobacco
settlement with the States. I take it, you've run that idea
past the States' governors?
Mr. Lew. Well, we were very careful with regard to the
States to try and lay out a framework for working together with
the Congress and with the States. There's nothing in the fiscal
year 2000 budget that presumes an agreement on our proposal for
using the Federal portion of the States' settlement. What we've
said is we want to work with the States and with the Congress
to identify a list of common Federal and State priorities so
that we will identify Federal costs that the States would pick
up as part of the settlement. Now, obviously, that would reduce
the burden on the Federal Government, and it would free up
resources for other purposes. We think that that's only fair.
Medicaid is a Federal Program. Half of the Medicaid dollars are
Federal dollars. The tobacco settlement gave all those dollars
back to the States. We understand it's going to be tough, but
we think it's the right thing to do.
Mr. Sununu. Once again, I think you're going to have a very
tough time getting the support of the Nation's governors who I
think have taken the lead on this issue; but, moreover,
probably feel very strongly about keeping those funds to spend
or to invest locally. And certainly, we've seen that a lot of
local governments, States, municipalities tend to be more
efficient than the Federal Government in whatever kinds of
investments they make.
Mr. Lew. I should point out, though----
Mr. Sununu. I don't have much time. It's just a comment.
That's not a question. And I would like to talk about the user
fees, because you've got a few, quite a few.
And Mr. Chambliss began to read through the list, but I
think it bears repeating because it is a lengthy list. There
was a suggestion earlier that the tax increases in this budget
represent a redistribution of wealth. And I think that's
accurate. I suppose the assumption is it's a redistribution of
wealth from the good taxpayers to the bad taxpayers; or, from
the bad taxpayers to the good taxpayers. And that suggests I
guess that some people, Americans, wouldn't be affected by the
tax and fee increases. And I'd like to read through those user
fee increases that are in your budget proposal: food safety
inspection fees; animal-plant health inspection fees; grain
inspection fees; Forest Service fees; navigational fees;
fisheries management fees; patent and trademark fees; trade
promotion fees; healthcare financing fees; Food and Drug
Administration increased user fees; physician fees; managed
care fees; provider certification fees; claim submission fees--
all of these are user fees of the Medicare program--bankruptcy
filing fees; alien certification fees; Coast Guard fees;
hazardous material transportation safety fee--we're all for
safety; customs air and passenger fees; customs access fees;
commercial accident investigation fees; rail safety inspection
fees; pesticide registration fee; analog spectrum fee; Social
Security claimant fee; Federal Aviation fee. This is an
interesting one. We changed the harbor fee to a harbor tax; or,
rather a harbor tax to a harbor fee. I am not sure what the
impact there is. We have bank exam fees, and finally Medicare
premiums.
Have we left anyone out? It seems there can't possibly be
anyone in America that's not impacted in one way or another
from an increase in a user fee on an activity that they might
rely on weekly, monthly, or everyday of their life.
Mr. Lew [continuing]. Let me, if I can, distinguish between
three different categories. There are certain loophole closers
which--I don't want to use ther terms ``good'' and ``bad''--are
closing down loopholes that shouldn't be there. I don't think
that we would have a disagreement if we identified a sham----
Mr. Sununu. These aren't loopholes.
Mr. Lew [continuing]. No, no, I understand.
Mr. Sununu. These are all user fees to be clear.
Mr. Lew. I am just trying to identify the different
categories. I don't think any of us would want a tax incentive
for a sham transaction. We do have the tobacco tax----
Mr. Sununu. I didn't mention the tobacco tax, either. These
are all user fees.
Mr. Lew [continuing]. I am trying to separate----
Mr. Sununu [continuing]. These are not taxes.
Mr. Lew. I am trying to separate the categories.
Mr. Sununu. They are not loopholes.
Mr. Lew. The user fees--which I think you have sort of
merged with these other proposals in terms of the total numbers
you've used--are really different in kind. And we believe that
when the Federal Government provides a service, whether it's at
a port of entry or at a food inspection station, that the
industry that gets the benefit of the service should pay for
it.
You use the example of the harbor fee. I realize that no
one who represents a port city will be grateful that there's a
harbor service fee proposal. But the Supreme Court struck down
the former harbor fee that Congress passed because it was
technically flawed. What we've put forward is a proposal that
is technically not flawed, which reflects the policy that was
already there. They are not all new fees. That's one of the
larger ones. Many of the ones you used as an example are very,
very small. That one is quite large. User fees are not popular
by the users. Users would like to get services for free.
Industries would like to get corporate subsidies. Chairman
Kasich has taken the lead in identifying the need to close
corporate loopholes and to do all that we can to make the
government not provide unwarranted benefits.
The user fees mostly fall into that category. And, when you
take them one by one, I think we probably could agree on more
of the policy than we could the politics.
Mr. Sununu. Well, I appreciate your answer very much. I've
tried to be clear, and the user fees there represent $26
billion. And you are right to distinguish that from the tax
increases that are separate and above that $26 billion. Thank
you very much. Thank you for your patience, Mr. Chairman.
Chairman Kasich. You're very welcome. The gentleman from
Pennsylvania is recognized for 5 minutes. Mr. Hoeffel, yes.
That would be you.
Mr. Hoeffel. Thank you, Mr. Chairman.
Chairman Kasich. Where are you from in Pennsylvania?
Mr. Hoeffel. I am from the suburbs of Philadelphia, which
is what I want to ask my question about. Many of us from the
suburbs are interested in the livability proposal that the
administration has come forward with. Some say that the
proposed spending would be helping social planners save or get
involved with buying up open space. And the critics of the
program seem to think that it's not an effective way of
managing resources, controlling growth, or actually improving
economic opportunities. Could you address some remarks to how
the funding mechanism, which seems to be a Federal tax credit
for investors in local and State bond issues that would
generate the funding, would be used for open space and growth
management programs. Could you address how that's going to
actually improve the quality of life in the suburbs and improve
the economic growth in the suburbs?
Mr. Lew. Congressman, we have a number of initiatives in
the area of lands, what we call the Lands Legacy and the
Livability Agenda. The green bonds that you are referring to
are one component which would provide additional access to
capital at a lower rate for environmentally sensitive
investments, both in preserving open spaces and in improving
the use of existing spaces that are not open spaces. We think
that if you look at the combination of the initiatives in terms
of preserving large public spaces, the Lands Legacy,
encouraging the process of local planning to preserve open
spaces, and providing access to capital so that the
preservation of open spaces and the cleaning up of spaces that
are currently used really answers a need that many Americans
feel strongly about as we enter the new century.
Around the country, there is a growing concern that we're
living in pretty good times right now. We have an obligation to
take a view that's a little bit longer, and ask what are we
going to do to leave behind cleaner waters, more open spaces,
cleaner air. And we've tried to put together a program that's
not big government; that doesn't say we're going to come in and
tell local communities what to do. We're not going to come in
and tell industry what to do. But we're going to give
mechanisms, broad mechanisms, so that the grassroots movement,
which is very strong--this is us responding to the American
people, not the American people responding to us--has the tools
to do more of what they are doing already.
And we're hopeful that this is an agenda that will have
bipartisan support. It does seem to me to respond not just to
the interest of suburban Americans, but urban and rural
Americans as well.
Mr. Hoeffel. You seem to be addressing the problems of
sprawl, of unregulated growth that sort of leapfrogs out from
the urban centers and replicates new infrastructure and new
schools and new highways. And we keep building and building
further and further out without reinvesting in the already
populated areas, and, in the process, we use up a lot of open
space and farmland and spend a lot of time in traffic gridlock.
This has never before been viewed as a Federal problem, and
I applaud the administration for recognizing the role that the
Federal Government can play in promoting some funding
mechanisms but also elevating the problem to a national level.
Mr. Lew. You've actually pointed out one element that I
left out, which is using our transportation programs to
encourage the kind of planning that really is important. We
have to be able to get to and from the places we need to do
business and live without encroaching on our remaining open
spaces.
Mr. Hoeffel. On another subject, just quickly. You
mentioned Chairman Kasich's proposal for corporate welfare
reform in the last Congress. And I recognize the administration
has identified unwarranted tax benefits in this budget
proposal. I used a number of the Chairman's proposals in my
campaign. I thought they were right on target. Have you
reviewed what he called for, and is there some common ground
there?
Mr. Lew. Well, we've had more ability of reaching agreement
on the concept than on the details. [Laughter.]
There are some items on that list that I think we do agree
on. There are other items where I think we consider it
important investments in technology, where he would put it on
the list as a corporate subsidy. There are important questions
to ask. If you look at our user fees, if you look at the
loophole closers, I think there's a shared objective of trying
to make sure that we don't squander government resources with
subsidies for private interests that don't need them. The devil
is in the detail.
Mr. Hoeffel. Right. OK. Thank you very much. Thank you, Mr.
Chairman.
Chairman Kasich. Just for the information of the committee,
we do intend to have a hearing on corporate welfare before we
do anything with the budget. It will be coming up, and it
should be interesting. I don't know who all will be there, but
I know that Mr. Nader will be there, so it should be
interesting. And I'll bet we will have a few press people in
attendance for that one. Jack, you can come, too, if you want.
Mr. Lew. I'd be delighted.
Chairman Kasich. OK. Anyway, my--I think one of my heroes,
Jim Ryun, is recognized for 5 minutes.
Mr. Ryun. Thank you, Mr. Chairman. I want to go back to a
subject that was discussed a little bit earlier, but I'd like
to get into it in a little more detail with regard to national
security. I appreciate the President's interest in increasing
pay as well as the benefits. And yet, I want to read a quote
from the House Armed Services Committee regarding the military
personnel and their concerns. Two top reasons that they are
leaving: number one, I am tired of working extended shifts due
to lack of help; and I am tired of being away from my family.
Now, while we recognize that there's a need for pay increases--
just this morning General Reimer recognized that he needs as
much as $5 billion, but he's going to do well to have $2.4
billion. And part of the reason he needs that money is that a
lot of these people have left; a lot of his NCOs have left, and
it's weakened our military forces. In part, I want to send a
message to the President to urge him to consider increasing the
amount of money that is being set aside now for military,
especially recruitment, because we are at a point where
retention is very, very difficult.
But part of my question is going to go back to base
closures. Robert Bell said earlier this year that he felt that
there could be billions of dollars saved as a result of base
closures, and yet the DOD has indicated that it would actually
be a net cost of roughly $2.4 billion. Does this administration
really think that they can save money through base closures
that would contribute to the budget in some way?
Mr. Lew. We very much believe that base closures do
contribute to long-term savings. The problem in terms of
bringing the budget and the policy together are that in the
short term base closures cost you money. In the long term, they
save you money.
If we start with the premise that when the military
identifies resources they don't need--bases that are not
serving a useful purpose--we all worry about the dislocation,
and whether we will need those resources in the future. We need
to go through a careful process to balance these
considerations. But once the decision has been made--once a
BRAC-like process has concluded that a facility is no longer
needed--if we spend the money to do it right in a short term,
10 years from now, the savings will be very substantial.
Defense is not a 1-year kind of budget. The defense budget is
done over 6-year periods of time. They take very seriously the
year to year and multi-year impact of the decisions. There are
only about three or four places in the government where multi-
year planning is so important. I think because of that, looking
at BRAC not as a contributor to savings this year or next year
but perhaps as a cost and as a contributor to savings for the
next decade for the first decade of the next century is really
the right way to do it. By 2008 or 2010 the savings are very
real.
Mr. Ryun. I am not totally convinced of that because if we
are already in a spot, in a real problem with the number of
people that we're sending out, we're deploying so often our
troops are weary--if we're going to reduce the number of bases,
and I am still not convinced it's going to be savings. I would
just like to simply express my concern over that and ask the
President to reconsider that. Mr. Chairman.
Chairman Kasich. Well, I want to thank you, Mr. Ryun. I
wanted to let you know, I want to congratulate you on being the
second American to break the 4-minute mile. I was actually the
first one. I did it in a school-yard behind my house. Mine
wasn't ``finalated.'' I just didn't tell anybody, Jim.
[Laughter.]
OK. Oh, Mr. Price from North Carolina is now recognized for
5 minutes.
Mr. Price. Thank you, Mr. Chairman. Mr. Lew, let me add my
welcome and ask you to elaborate on a couple of aspects of your
testimony.
In some ways, this first question picks up on the line of
questioning Mr. Hoekstra was pursuing. It has to do with the
debt reduction, which I think most people agree is one of the
strongest features of your proposal--the great strides that
you're proposing to make in paying down the publicly held debt,
from $3.7 trillion to $1.2 trillion, or from 42 percent of GDP
to 7 percent by 2015, under current assumptions.
Why have you chosen the mechanism that you have of
transferring 77 percent of the surplus over the next 15 years
to these trust funds--to the Social Security and Medicare Trust
Funds--in order to accomplish this purpose? Why do you choose
that? I understand that part of the reason is the political
appeal, of course, of addressing the long-term trust fund
shortfalls, but I think we do need some elaboration on exactly
how this is going to work, because you are essentially moving
that debt into the trust funds. As you said, the debt subject
to limit is going to remain, but I also understand you to say,
and now your--the last chart you showed a moment ago about the
implications, those two kinds of debt have very different
implications for annual interest outlays and thus for our
capacity in the future to meet those obligations to those trust
funds when those bonds come due. So could you elaborate on
that, because I do think there's some confusion on the point of
exactly what this debt reduction entails.
Mr. Lew. Congressman, I would be happy to elaborate.
Usually I start with the substance, and then I go to the
politics. But I think in this case, it may make sense to start
with the politics.
It's very important that we actually accomplish the debt
reduction. The notion of reducing the public debt is a
difficult concept, but a very important one. And in the past,
when the choice has been presented to pay down the debt held by
the public or spend money on a tax cut or on other popular
programs, it has been very hard, very, very hard, to sell debt
reduction as a policy against a tax cut or a spending increase.
So the politics is very much connected to the substance. To get
to the debt reduction, I think we need more than just a passive
debt reduction. We need to have a reason to do it.
The substance is very important as well. Debt reduction
doesn't really do anything to extend the life of the trust
fund. Yes, it means that we can pay the trust funds what they
are currently due, and that's very important because it really
is the first part of our plan--to make good the promises we've
already made, the Treasury bonds that are in the trust fund now
will be paid more easily just by simple debt reduction. But we
want to increase the assets in the trust fund. We want to say
that come 2020, there should be more Treasury bonds in the
trust fund, and there should be more dollars being committed to
Social Security rather than losing those dollars to a tax cut
or spending increases. That is a substantive difference of
great importance. That's why our plan goes from 2032 to 2055 in
terms of trust fund solvency. The Social Security actuaries
have looked at it. They've written a letter, which I would be
happy to submit for the record; that it has that effect; that
our plan would extend solvency to 2055. And that would not be
true of simple debt reduction. Debt reduction is not bad, but
we think that what we propose is better.
[The letter referred to follows:]
Office of the Deputy Chief Actuary,
Social Security Administration,
Woodlawn, MD, January 26, 1999.
Harry C. Ballantyne,
Chief Actuary
Long-Range OASDI Financial Effects of the President's Proposal for
Strengthening Social Security--Information
The President's proposal, presented in the State of the
Union address on January 19, would require that transfers be
made from the General Fund of the Treasury of the United States
to the Old-Age, Survivors, and Disability Insurance (OASDI)
trust funds for each year 2000 through 2014. The amount of
transfer for each year would be specified in law as a
percentage of the OASDI effective taxable payroll. In each year
2000 through 2014, 21 percent of the transfer would be used to
purchase stock and 79 percent would be used to purchase special
interest-bearing obligations of the Treasury. All dividends
would be reinvested in stock until the market value of all
stock held by the OASDI trust funds reached 14.6 percent of
total OASDI trust fund assets. Thereafter, the percentage of
total trust fund assets that is held in stocks would be
maintained at 14.6 percent.
The proposal would extend the estimated year in which the
combined OASDI trust funds would become exhausted by 23 years,
from 2032 to 2055. It would reduce the size of the estimated
long-range OASDI actuarial deficit by over one half, from 2.19
to 0.76 percent of taxable payroll. (Due to interaction among
provisions, a complete elimination of the actuarial deficit
will require additional OASDI changes that would reduce the
present law deficit by up to 1.0 percent of taxable payroll.)
These estimates are based on the intermediate assumptions of
the 1998 Trustees Report and other assumptions described below.
If transfers were invested only in government bonds, the
estimated year of trust fund exhaustion would be extended by 17
years, from 2032 to 2049. The estimated long-range OASDI
actuarial deficit would be reduced from 2.19 to 1.20 percent of
taxable payroll. This result also provides an indication of the
sensitivity of the estimates to variation in the expected yield
on stock. If, for example, the actual yield on stock over the
next 50 years is no greater than the expected yield on
government bonds, the estimated year of trust fund exhaustion
would be extended from 2032 to 2049, rather than to 2055 with
expected stock yield.
Stock investments would be managed by several brokerage
firms, selected by competitive bid. Stock investments would be
required to reflect the composition of all publicly-traded
stock in the United States (for example, the composition of the
Wilshire 5000 index).
Transfers from the General Fund of the Treasury would be
made each year 2000 through 2014. The estimated amount of
transfer for each year is shown below, based on the
intermediate assumptions of the 1998 Trustees Report.
Estimated Amounts To Be Transferred to the OASDI Trust Funds
Billions of Current Dollars
----------------------------------------------------------------------------------------------------------------
2000................................ $81.4 2005................... 117.4 2010.................. 256.4
2001................................ 67.2 2006................... 148.6 2011.................. 280.0
2002................................ 88.3 2007................... 174.8 2012.................. 300.0
2003................................ 87.2 2008................... 203.2 2013.................. 316.0
2004................................ 105.6 2009................... 232.5 2014.................. 324.4
Amounts transferred would indirectly reflect values for
years 2000 through 2014 that are about 62 percent of the
expected unified budget surplus estimated by the Office of
Management and Budget for the President's Fiscal Year 2000
Budget. Actual transfers for each year would be specified as
the product of (a) the values computed under these budget
projections, expressed as a percentage of OASDI effective
taxable payroll, and (b) the then-current estimated taxable
payroll at the beginning of each year of transfer. Revisions in
amounts transferred each year would be made as estimates of
taxable payroll for the year are finalized.
OASDI Trust Fund Assets in Stock
The 1994-96 Advisory Council on Social Security requested
estimates assuming that the total annual real yield on stock
investments would ultimately average about 7 percent,
approximately the average (geometric mean) yield on stocks so
far this century. (Total yield includes dividends as well as
capital growth.) Estimates for this proposal are based on a
more conservative assumption for the average ultimate total
annual real yield of stock at 6.75 percent. The nearly four-
percentage-point difference between this assumed ultimate real
stock yield and the Trustees' 2.8-percent assumed ultimate real
yield on government bonds held by the trust funds is assumed to
be maintained throughout the 75-year projection period.
The table below provides the estimated percentage of OASDI
trust fund assets that would be held in stock at the end of
each year 2000-14. The stock holdings are estimated to reach
the level of 14.6 percent of total trust fund assets at the end
of 2014, after which point this percentage would be maintained
under the proposal.
Percent of OASDI Trust Fund Assets in Stock, End of year
----------------------------------------------------------------------------------------------------------------
2000................................ 1.7% 2005................... 6.6% 2010.................. 11.2%
2001................................ 2.8% 2006................... 7.6% 2011.................. 12.1%
2002................................ 3.9% 2007................... 8.5% 2012.................. 12.9%
2003................................ 4.8% 2008................... 9.4% 2013.................. 13.7%
2004................................ 5.7% 2009................... 10.3% 2014.................. 14.6%
If the average yield on stocks is greater or less than
assumed over the period 2000-14, the year in which the
specified level of 14.6 percent of assets in stock is reached
would be sooner or later than the end of 2014.
The portion of the total value of publicly-traded stock in
the United States that is held by the OASDI trust funds will
depend not only on the yield achieved in the market, but also
on the rate of growth in the total market value of all stock.
The total value of stock represented in the Wilshire 5000 index
(a fair representation of all publicly-traded stock in the
United States) was $9.3 trillion at the beginning of 1998.
Assuming that the total market value of publicly-traded stock
will rise generally by the rate of growth in GDP after 1998,
the trust funds would hold less than 4 percent of the total
market value, on average, over the next 40 years.
Average Percentage of Total Stock Market Value Held by OASDI
------------------------------------------------------------------------
2001-14........................................................ 1.9%
2001-20........................................................ 2.9%
2001-30........................................................ 3.7%
2001-40........................................................ 3.7%
2001-50........................................................ 3.4%
Stephen C. Goss,
Deputy Chief Actuary.
Mr. Price. Now, you are paying interest on the debt held by
the trust funds as well as on the debt held by the public.
Mr. Lew. That's correct.
Mr. Price. But as I understand it, the interest payments
have vastly different implications for year-to-year outlays.
Can you explain that?
Mr. Lew. In the Federal budget, we usually look at net
interest. That is, the interest paid to the public. And if you
look at the path of a dollar, I think it is crystal clear what
the difference is. If a bank owns a Treasury bond and cashes it
in, then the Federal Government will pay the bank interest on
the Treasury bond. If the Social Security Trust Fund owns the
Treasury bond, then the Federal Government will pay the Social
Security Trust Fund the interest on the bond.
Now, I think the difference between a dollar of interest
for the private holder of a bond and a dollar interest for the
Social Security Trust Fund is the difference between night and
day. The Social Security Trust Fund will take that dollar and
pay a benefit that is currently owed. We're not increasing
benefits. All we're saying is make sure the dollars are there
to pay the benefits that we've already promised. I think if we
have a choice to look back 15, 20 years from now and ask
ourselves, are we paying more debt to private holders of
government bonds, or are we paying more debt to pay Social
Security benefits? We will feel a lot better if the dollars are
there to pay the Social Security benefits and we don't have to
make the cuts in benefits, and we don't have to increase taxes.
That's a choice. It's a choice which I think is made crystal
clear when you look at the alternative of what you do with the
unified surplus. A tax cut or large spending increases lead you
one way. Paying down the debt and putting the money into the
trust funds lead you a very different way.
Mr. Price. Thank you. My time is about to expire. Let me
ask you one further, quick question about the tax cuts that are
contained in your proposal. I understand that there are a
number of tax cuts. I think we all think, one way or another,
when we're in surplus we should take advantage of that to
return money to the American people. There is significant
disagreement about exactly how we do that. But you're talking
about childcare tax credits for stay-at-home parents. You're
talking about incentives for employers to provide childcare on
site. You're also talking about school construction. A lot of
people don't understand it. That is a tax provision--the school
construction. The long-term care tax credit. And then finally
these USA accounts.
Since we are about out of time, perhaps the two you could
focus on would be the school construction and the USA accounts,
because I don't think it's generally understood that those are,
in fact, tax incentives. How would they work?
Mr. Lew. Well, they are very different. The tax provision
for the school construction program would make the investment
in bonds that would finance school construction treated
preferentially for tax purposes so that the interest wouldn't
be subject to tax. It would make it easier to raise capital and
would leverage the Federal investment, so that every dollar
that we put into the tax expenditure for a school construction
bond would bring many more dollars into school construction.
It's a very efficient way to bring a lot of dollars into school
construction that we probably couldn't do in a direct Federal
appropriation.
It's fully paid for. We have offsets of $33 billion in our
budget, of loopholes closers and other unwarranted benefits.
That would be a paid-for proposal that we could go forward on
today before we deal with Social Security.
The USA account is part of our framework for Social
Security and the surplus. And we very much believe the USA
accounts are the right way to give tax relief, but first we
have to fix Social Security. So, first we have to put 62
percent aside for Social Security. Second, we want to put 15
percent aside for Medicare. And we think it does come first:
keeping our obligation to Medicare comes first, even before the
USA account.
Then, after we've done that, after we've taken 77 percent
of the surplus and dedicated it to paying the bills for Social
Security and Medicare, we think there should be a tax cut. And
the USA accounts would be an incentive for individuals to save
for their own retirement. Moderate- and low-income individuals
would get a Federal tax credit, which would start them off in
savings. Any dollar above that amount would be matched. Middle-
income taxpayers, higher-income taxpayers would get less of a
credit and more of a match. It would be very progressive. It
would be a way to bring everyone into retirement saving so that
it's not just something that the few have, but it becomes a
basic, standard part of planning for the future.
It has several very important effects. It would increase
national savings, whereas many tax cuts would not. It would
help individuals get into the habit of saving and hopefully
save more than the amount that we help them save through the
USA accounts. And most importantly, it would give the kind of
tax relief that I think there is a broad consensus that we need
to think about in a very targeted way that would benefit the
economy and benefit working Americans, as opposed to
squandering it or spreading it in a way that might be less
fair.
Mr. Price. Thank you, Mr. Chairman.
Mr. Chambliss [presiding]. We want to give as many members
as possible an opportunity to ask questions. So, if you will,
let's abide by the 5-minute rule. And, Mr. Lew, when you see
the red light come on if you would please speed up your answer.
The gentleman from New Hampshire, Mr. Bass.
Mr. Bass. Thank you. I am sort of in the never-never land
between microphones. Thank you very much, Mr. Lew, for
appearing here today. And I want to make a general comment that
I think I personally believe that the President has moved
forward, especially in the area of Social Security, to begin a
bipartisan dialogue toward dealing with the issues of both
solvency as well as structural reform of the system that does
give Americans the--a little more say over their retirement
plans. And we do have some major disagreements. But I think
it's a major start--or a significant start.
I share Mr. Sununu's concern about the issue of user fees,
not only the idea that the user fees on aviation will have a
significant impact, in my opinion, on aviation safety, but also
on another area: on the concept that taking it--trying to loop
what is, in effect, a settlement for tobacco--damages that
occurred between States Attorneys General and the tobacco
companies and the Federal Government somehow would try to grab
a portion of that for its own damages, I think is wrong.
I guess my question--I've been a long-time advocate of
special education. And reading in the budget here, you have a
significant decrease in special ed. Now, I understand that you
advance fund in the fiscal year 2001. I was just wondering if
you could explain to me why you cut special ed funding from
$5.1 billion to $3.1 billion, and then advance fund it back in
fiscal year 2001, $1.9 billion, calling that the academic year.
Is it not true that ultimately what you're really doing is
taking money in the year 2001, in the very beginning and
putting back into the year 2000 in order to make it look like
you're staying within the budget caps, and, in effect, what
you've really done is cut special education by $2 billion.
Mr. Lew. Congressman, what we've done in special education
mirrors what the appropriators did last year with Title I. Last
year, I believe it was a total of $6 billion of advanced
appropriations, and we've said in the area of special
education, in order to make room for the kinds of increases
that we think are necessary in 2000, we should do the same
thing. It doesn't do what I think you suggested in the question
which is cut special education. Just as we're providing the
full dollar of program benefits in the Title I program, we
would be providing the full dollar of program benefits in the
special education program. It's an accounting issue as to what
year you attribute it to, and by attributing it to the portion
of the fiscal year that matches up with the school year, it
does give us the ability to spread it over 2 years, and then
continue that going forward.
Mr. Bass. But the academic year begins in September, not
October. I am going to quibble with you on a month there. And
what you're really going to have to do--I understand that this
is an accounting gimmick. But why don't you just put the money
in the proper fiscal year, which begins on September 1 and
admit the fact that what you're really trying to do is to
redirect priorities to your other spending programs at the
expense of special education and use a--I--sometime the
chickens are going to come--I hate using cliches--they are
going to come back to roost here. And then the next fiscal
year, you're going to have another advance. You're going to do
the whole budget with advanced--I am not going to support or
give credit to advance appropriations. I don't agree with it in
Title I, either. But the reality of it is why not just put the
money in special ed and not cut it by $3 billion, $2 billion?
Mr. Lew. As I said, Congressman, we're not cutting it. What
we're doing is we're financing it in a different way. So it's
not a cut.
As far as the advanced appropriation question goes, it's a
fair question to ask. And there have to be limits on how much
of it we do, and I agree with you that it can't be done
infinitely.
Last year, the House Appropriations Committee faced
spending limits that were very difficult in the area of Labor-
HHS. The House never passed a Labor-HHS appropriation bill.
What the House committee did, I believe, was eliminate
programs. I believe it eliminated the Low-Income Home Energy
Assistance Program. It eliminated the Summer Jobs Program. And
that was something that we had a pretty heated political debate
about.
The Senate took a different tack. The Senate did put these
advanced appropriations in, and it was a way to accommodate a
broader set of priorities within the budget rules. It's not a
perfect solution to tight caps. But it is a solution that works
under the budget rules as long as we do it in a careful way.
I would argue, as with many of the choices we're discussing
in terms of the surplus, it's compared to what. And we think
that the advanced appropriation has no programmatic effect. I
wouldn't reduce a penny of benefits in the year that they are
needed. And that is the important programmatic issue.
As far as budgeting goes, I agree that we have to be very
careful. And we are being very careful.
Mr. Bass. I appreciate. We will not only say that I believe
that special education--that an increase in funding for special
education should be a priority before we start discussing the
new spending bills, the new spending proposals which, not only
in new programs but in existing programs, equal well over--all
right, I'll make it up--$1.5 to $2 billion in the next fiscal
year. And I yield back, Mr. Chairman.
Mr. Chambliss. Thank you. The gentleman from New Jersey,
Mr. Holt.
Mr. Holt. Thank you, Mr. Chairman. And it's good to see you
here this morning. Thank you.
Mr. Lew. Thank you.
Mr. Holt. What particularly pleases me about the budget
you're proposing is the emphasis on the long term. And you, I
would say, have resisted the temptation for immediate
gratification in order to invest in things that will be with us
for a longer period of time, or so that they can be with us for
a longer period of time--Social Security, environmental
protection, and so forth.
I'd like to look for a moment, though, at what we need in
order to maintain our long-term productivity growth, and that
would be education and research and development. And I am
particularly pleased to see that you're talking about employer
provided educational assistance as well as workplace literacy
and that sort of thing.
I wanted to get a sense of how many people will be affected
by these programs? What long-term effect this will have on the
quality of our workforce?
Mr. Lew. It's difficult for me to give an exact number of
the people affected, but the goal behind our literacy
initiative is twofold: first, there is a big problem that we
have a lot of people who have graduated high school and come
into the workforce without the basic skills that they need. And
that's not fair to them. It's not fair to society. We need to
address that. We need to address it in terms of adult
education. We need to make sure our schools produce results so
that we don't have that problem in the future.
We also have an awful lot of immigrants who are here as
legal immigrants, who deserve the same chance that many of our
parents and grandparents got to learn English and to get into
the workforce and make the contributions that we've always
relied on immigrants to make in this country. And we've been
very, very fortunate. Generation after generation has. Our
adult literacy initiative really deals with both of those
challenges. I'd be happy to get back to you with the exact
numbers.
[The numbers referred to follow:]
According to the Department of Education, 5.712 million
adults would be served under the adult literacy program if it
were funded at the fiscal year 2000 budget request level. This
is an increase of 1.249 million over the fiscal year 1999
appropriation.
Mr. Holt. But just to get a sense, I would appreciate
further information on how much of our workforce this could be
expected to help.
And on the question of research and development, what do
you see the effect of your budget having on our overall
research and development effort.
Mr. Lew. Yes, we've had a very aggressive funding
commitment to research and development for a number of years,
and we've reached the point where, in some areas, we have
gotten ahead of the schedule that we set out. We're now ahead
of the schedule to double NIH.
We've tried in this year's budget to have a balanced
approach, to make sure that basic science gets the funding
increases in areas like NSF, and the Department of Energy,
where some of the core theoretical science is done. There are
slightly larger increases in those areas than in NIH, not
because we don't support NIH, but because it was time to have a
little bit of catch up on that kind of basic science. NIH
benefits greatly from the basic science research done at NSF.
And I think the percentage increase is about 7 percent in NSF,
and we've kept NIH equal with inflation. That is ahead of
schedule to getting to the doubling of NIH that we proposed
over the last few years. We think it's a very important
commitment and it is an investment in the future.
It's very difficult in the area of science to predict very
accurately what you're going to get for each dollar you put in.
We've worked very hard with the departments and the agencies
that do science research to focus their dollars well, but to
leave them the room through the process of peer review panels
that they use to choose the best recipients for research
dollars, not to micromanage and think that we know what
breakthroughs they are going to find. We haven't been
disappointed. The pace of scientific discovery only increases,
and we're proud that our investments have been part of that.
Mr. Bass. Thank you, Mr. Lew. I yield back the balance of
my time. Thank you, Mr. Chairman.
Mr. Chambliss. Thank you. The gentleman from California,
Mr. Herger.
Mr. Herger. Thank you very much, Mr. Chairman. And thank
you, Mr. Lew, for being with us.
I'd like to take just a little bit different tack. One is
to compliment the administration on at least what in general
we're hearing that would at least on the surface give the
impression that we're not spending wildly; that we are being
responsible; that, to use the terminology of the previous
inquirer, that we're not seeking immediate gratification.
But my concern is when we look at the fine print of
President Clinton's budget. And I am reminded of an editorial
that was in one of our city newspapers here just a couple of
days ago, which shares my concern. It had tax and spend, tax
and spend, tax and spend. Now that's very, very different than
the spin than we seem to be hearing. We're talking about these
large surpluses that we have. But yet, under these large
surpluses, looking at your document that you've put, put out by
the Executive Office of the President on Management and Budget.
And we look at even with these projected surpluses, we look at
what happens to the national debt. And I notice that you try to
differentiate between government and public debt as though
somehow there's something different there, but most of us out
in--at least where I come from--a debt is a debt is a debt--and
it's something that someone someday will have to pay for--
probably our children or grandchildren. But just looking at
your numbers on page 389 of his document, where it shows what
our debt will be. For 1998, $5.4 trillion, to 1999, $5.5
trillion; 2000, $5.7 trillion. I could continue reading for
each of the next 5 years, not only with our projected surplus;
not only does this debt not come down, it goes up. And it's
increasing each and every year by your own document, despite
what you may be saying, to the tune of $1.3 trillion increased
debt over the next 5 years.
Now, I am concerned about that. When I go to my town hall
meetings, the people I represent in northern California are
concerned about this. And I notice that you have attempted in
the last couple days--over in the Senate and here as well--to
somehow make a different--to differentiate between the debt we
owe out to the public and what the government owes; that
somehow that differs.
And I'd like to have you explain to me how it's different?
Is it not true that this debt is something that future
taxpayers, i.e., our children and our grandchildren, at some
point down the line will have to pay for? And isn't it very
disingenuous to be talking about how we're really taking care
of things when, in essence, we are increasing the debt on the
heads of our children each and every year over the next 5 years
by a total of $1.3 trillion?
Mr. Lew. Congressman, I have been trying to distinguish
between debt held by the public and the debt subject to limit,
because I think it's a distinction that really does make a big
difference. A dollar of interest paid on debt held by the
public is a dollar that is going to an investor in a bond, and
that's fine. It's a good thing to pay investors----
Mr. Herger. A taxpayer out--they are receiving some money
for that?
Mr. Lew [continuing]. Yes, a bank, a corporation, an
individual. I don't mean it as a pejorative. It's going to
someone who's invested in a Treasury bond and we're paying it.
But the dollar is gone as far as the Federal Government is
concerned.
Mr. Herger. Into the hands of a real, live person.
Mr. Lew. A dollar paid to the Social Security Trust fund is
going to pay a dollar of benefits that's already owed. When we
calculate the debt, we don't add into that calculation all of
the Social Security benefits that are going to have to be paid
that aren't already funded.
We're not increasing the moral debt of the country by a
dollar when we put a dollar in to the trust fund and say that
we're going to pay that dollar of benefits that we already owe.
And because of government accounting, the debt subject to limit
does go up when we put those assets aside. But our moral
commitment is there.
The fact that we put a bond in the trust fund is the second
step. The first step is we've made a promise, generation to
generation, and unless we plan to break that promise, we're
going to need the dollars in the future to keep it. What we've
said is you can't keep that promise if you also spend the money
today, on either a tax cut or a spending increase. And yes, it
does commit future dollars. It says the first call goes to
Social Security. The second call goes to Medicare. Those are
promises we've already made. Before you make any new
commitments, let's keep the promises we've already made.
Mr. Herger. OK, in other words what you're saying--let's
follow your reasoning through. Right now, I think about two-
thirds of our Federal budget is going to some type of
entitlement. People are entitled to this. It's already by law
spoken for. So, in essence, what you're saying is that we're
just going to increase that percentage so that our children
some day, who are the only ones who are going to pay for this--
I mean, this isn't funny money. It doesn't somehow come out of
thin air. Someone is going to pay for it, and the real
difference is, as I hear you explaining this in real world
terms, is that the difference is that rather than give somebody
this interest today, some real world individuals out here, what
we're going to do is indebting our children and grandchildren;
and yes, it would first call, but still we are an indebting--a
debt is a debt is a debt--we're indebting somebody to pay this
taxpayer somewhere down the line. Isn't that--well, let me just
make a statement. In my mind, that is immoral what you are
doing. That is basically lying to the American public at a time
when we have surpluses and leading them to believe that
everything is OK. We're taking care of your problem. When, in
reality, just exactly the opposite is true.
Mr. Lew. If I could just respond briefly, Congressman. We
think exactly the opposite. We've already made a promise. We've
made a promise, and all of our projections in terms of the
share of the Federal Government that goes to Social Security
and Medicare assume that we're going to keep the promise. We're
just putting the money behind the promise and saying let's not
make new promises until we put the money aside----
Mr. Herger. As long--you're--a debt you're putting behind
it. You not putting money. You're putting something that will
be paid by some future taxpayers, is that correct?
Mr. Lew [continuing]. Well, if we don't spend----
Mr. Herger [continuing]. Isn't that what it is. Isn't that
what a bond is?
Mr. Lew. If we don't spend the money on a tax cut or a
spending program today, those dollars will be there in the
future.
Mr. Herger. A piece of paper written up in West Virginia
will be there. OK, thank you. I think the point's made.
Mr. Chambliss. I want to recognize my friend from
Massachusetts for his questioning. And let me just say that
we've still got a number of members here. We've got three
votes. So it's probably going to take us 25 minutes for these
votes. If you all want to come back and ask questions of Mr.
Lew, if you're available, we'd like to have that option if
members want to come back. Or, we can submit written questions.
What's the preference of the committee?
OK, we got some that would like to come back. Can you stick
around?
Mr. Lew. I would be delighted to stay if members would like
to come back.
Mr. Chambliss. OK. Great. I recognize the gentleman from
Massachusetts, Mr. Markey.
Mr. Markey. Thank you, Mr. Chairman, very much.
Mr. Lew, as we look at your pie chart over here, 62 percent
of the pie chart is dedicated to Social Security?
Mr. Lew. That's correct.
Mr. Markey. Now the way that I understand it is that the
Republican 10 percent across the board tax cut would consume an
additional 38 percent, is that correct?
Mr. Lew. That's my understanding.
Mr. Markey. Now, the way I've heard it on television in the
last couple of days, Mr. Archer and Mr. Domenici have both said
that the 62 percent now up for Social Security makes some sense
to them. I think that I've heard that. If that's the case, that
means that the Republican 10 percent across the board tax cut
consumes all of the money that would be expended for Medicare,
all of the money for the universal savings accounts, all of the
money for defense, all of the money for education, all of the
money that's left on that pie chart. So the 10 percent tax cut,
obviously, is something that threatens every other program,
except to the extent to which I guess I would say that I am not
worried that the money will be found by the majority for the
defense budget. I think they are finding that one. But that
puts even more pressure on Medicare, even more pressure on
education, even more pressure on the universal savings account.
And here's the problem that I have. In 1997, as part of the
last budget deal, there was a $115 billion cut in Medicare,
which almost exactly matched the huge tax cut--huge, however,
only in 1997 terms, not huge when compared to a 10 percent or a
9 percent or an 8 percent across the board tax cut in
perpetuity.
So here's my problem: there was a $17 billion cut out of
Medicare for home health services in 1997. We have 4,000,000
people with Alzheimer's in America. We have millions more with
Parkinson's and other neurological diseases, cancer, diabetes.
They are at home. And husbands are caring for wives, and wives
are caring for husbands. Then we cut that program by $17
billion. All they got was a daily visit from a visiting nurse
to give them a break. This just gave them a couple of hours
where they could take a nap.
Now, these people are the biggest heroes in our society.
Twenty-four hours a day with their wife or their husband in a
condition that is almost impossible for anyone in our age group
to even consider. But they do it. And they are the real heroes.
But heroes need help. And the way this debate is now
structured, following on what happened in 1997, is that we're
guaranteeing that that generation of people who built this
country are going to be left with a smaller and smaller and
smaller share of the help which they need to be heroes. And I
think that if this tax cut debate continues as it has, that
we're going to wind up with a tremendous confrontation in this
country--between the legitimate needs of this older generation
that can only be served if the revenues are there. And they are
there. And by the way, I think when we did that tax cut in
1997, if that has produced this surplus, we cut home health
care in order to do the tax cut. Now, we've got the surplus,
let's give back the money to the program.
Now, Mr. Lew, can you help me with this. I know you've made
an effort to increase somewhat the program for home health care
in your legislation, but it still is far short of the money
that was cut out in 1997, or of this growing need which has
been identified in our society.
Mr. Lew. Congressman, the choice that you've put forward is
a very real one. If 38 percent of the surplus is dedicated to a
tax cut, I believe that that will mean cuts in Medicare in the
future, and I believe that those are going to be very, very
difficult and painful decisions. We have to deal with Medicare.
We have to go beyond this 15 percent and make the kinds of
long-term reforms that require tough choices. The President, in
the State of the Union, said that that would give us the
opportunity to make some tough changes and also perhaps expand
some benefits like the prescription drug benefit so that the
program meets more of the needs of people. But if we don't
start by putting 15 percent of the surplus aside, we are
setting the bar very high. And we are probably going to have
difficulty reaching bipartisan consensus. And we're going to be
faced in a very short period of time with very difficult
choices. We think the most prudent thing to do is to take the
good fortune we have, that we've gotten because we made tough
decisions on Medicare, we made tough decisions to reduce the
deficit. We now have a surplus. We should put some of it back.
That 15 percent would really be putting money where we should
put it, to keep the promise we've made to pay benefits.
Mr. Markey. Thank you, Mr. Lew. Thank you, Mr. Chairman.
Mr. Chambliss. We will stand in recess until 12:45 p.m.
Mr. Lew. Thank you.
[Whereupon, at 11:57 a.m., the committee recessed, to
reconvene at 12:45 p.m., the same day.]
Mr. Chambliss [presiding]. All right, why don't we resume,
and we will take members as they come back in the order that
they are on the list, and if we have to skip somebody, we will
try to get back to them. But the gentleman from Pennsylvania,
Mr. Toomey, is recognized for 5 minutes.
Mr. Toomey. Thank you, Mr. Chairman, and thank you, Mr.
Lew.
Just a couple of questions for clarification purposes. The
courts have clearly stated, I believe, that workers have no
ownership per se, no property rights to the payroll taxes that
they pay into the Social Security system, and that implies and
really means that all future benefits are, therefore, entirely
subject to the whims of politicians. Is it true, is it fair to
say that the President's proposal does nothing to substantively
change that feature?
Mr. Lew. I think that it is true that individuals don't
have a right to their contributions. But I think that it is not
correct to say that they don't have a right to the benefits. It
would require a change of law to take the benefits away from
them.
Mr. Toomey. Exactly, which could happen by a majority vote
of Congress----
Mr. Lew [continuing]. Yes, it could.
Mr. Toomey [continuing]. And passage by the President at
any time.
Mr. Lew. It has not been an easy thing to do in the past,
but, yes, theoretically it could happen.
Mr. Toomey. Right.
In your opening comments, I believe, if I understood you
correctly, you suggested that one of the important features
that the President feels must be retained in Social Security is
that the benefits are guaranteed, there be a guaranteed
defined-benefit program. But, in light of the previous
question, isn't it really impossible under the current
structure to guarantee them because the political process could
always reverse that guarantee?
Mr. Lew. Well, I would say that the history since 1935 has
been expanding, not contracting, benefits. In 1983, there was a
bipartisan effort to deal with the Social Security financing
problem. Tough decisions were made. It was very, very difficult
to get agreement on any benefit reductions. And I would suggest
that benefit reductions will be very hard to make for good
reason. People work their lives and plan on receiving the
benefits, and they do have a right to them.
Mr. Toomey. Right, but we also are in a situation now as
the system has matured and there are no longer ever-increasing
numbers of workers paying for an increasing number of retirees,
it is going to be much harder to make those payments. So, I
would suggest that the ability to honor those payments under
the current system is increasingly in jeopardy.
Mr. Lew. And we agree that we need to work together to get
75-year actuarial solvency, which would require some of those
tough decisions. We think that this is a good first step.
Mr. Toomey. OK.
Second question is, in a system in which workers were free
to direct and actually own, actually have property rights to a
portion of their payroll tax, invested as they see fit, perhaps
with restrictions and guidelines, if such a system included an
explicit government-minimum guarantee in it, would that not
fulfill that objective, and would the President, therefore, be
willing to consider such a system?
Mr. Lew. We have said for the last year that we would look
at alternatives, specific alternatives, as they are proposed. I
am a little reluctant to respond to a hypothetical. The
principles that the President laid out through the past year of
discussion about Social Security reform have been very clear
about guaranteeing the benefits, about making sure that there
is progressivity in the system, making sure that we don't
somehow do something that undermines the benefits available for
someone when they become disabled, for a survivor.
In order to answer a question about a specific plan, one
really has to look at it in its entirety. We think that
preserving the core benefit as we have it today is the safest
way. But we will look at alternatives. We have said in recent
weeks, and I have said this morning, that our view is that the
entire payroll tax should remain dedicated to the traditional
Social Security benefit.
Mr. Toomey. OK. Let me try to ask it a different way.
Would it be fair for me to conclude, then, that if the
design of the system met certain conditions that you feel are
important, then there would be a possibility that the President
would agree to a system in which workers would own and control
a portion of that payroll tax?
Mr. Lew. I think that I have indicated very clearly what
our view is. You are asking me to draw hard lines about it, not
even having a discussion. We have tried very hard, on an issue
where it is difficult to keep lines of communication open, to
keep lines of communications open. So, I am trying not to draw
the kinds of arbitrary hard lines. But at the same time, I am
trying to be very clear about what our view is and what our
position is. And we are not wavering from that. I am not
wavering from that today.
If there is a specific plan that you would like us to look
at, I would be delighted to look at it. I would be delighted to
have our Social Security team look at it. And I think that the
five principles that the President outlined over the past year
speak for themselves, and that is what will guide our view of
any proposal. Our view is that the Social Security payroll tax
should remain dedicated to the traditional benefits.
Mr. Toomey. OK. Thank you Mr. Lew.
I will yield the balance of my time, Mr. Chairman.
Mr. Chambliss. Thank you.
Mr. Minge.
Mr. Minge. Thank you, Mr. Chairman.
Mr. Lew, as I understand it, in fiscal year 1999, to talk
about a surplus requires that we focus everything on the
unified budget, and if we were to simply look at the Federal
budget without Social Security--as I believe the budget
legislation requires us to do on the congressional side--we
would have a deficit of $38 billion. Does that square roughly
with the numbers that you have been working with?
Mr. Lew. Yes, it does.
Mr. Minge. And, as I understand it, that would mean that if
we were to have a tax cut this year, we would be borrowing
money, essentially, from the Social Security Trust Fund in
order to fund that tax deduction, and similarly, if we were to
expand programs this year, we would be expanding them by
borrowing that money from the Social Security Trust Fund.
Mr. Lew. Technically, we are leaving the assets to the
Social Security Trust Fund, but the entire surplus this year is
attributable to the contribution of Social Security through the
off-budget calculation to the surplus.
Mr. Minge. Now, I would like to take this one step further
and look at the 15-year proposal which you have outlined, which
I think is admirable because it really challenges Congress and
the country to plan in the long term.
If we were to simply insist that as long as we must rely on
the Social Security Trust Fund to balance the budget that we
would devote all of the surplus, so to speak, which is really
all of the Social Security Trust Fund money, to the Trust Fund
and not have any program expansion or tax reduction that was
not otherwise offset within the budget, wouldn't we be doing
better by the Social Security Program by such an insistence, at
least during the next couple of years until we have a surplus
in the nonunified budget?
Mr. Lew. Well, I think that we would have to look at the
Social Security Trust Fund, and the question of the unified
budget a little bit more broadly, looking at a longer term. The
Social Security Trust Fund will build up assets from now until
2012. Until 2012, Social Security revenues will be equal to or
greater than the benefits paid. After 2012, the Social Security
Trust Fund will start getting drawn down, and under current law
it will expire in 2032, and we have proposed to extend it until
2055.
The question of the unified budget, as much as what do we
do today, is what condition will we be in in 2012 through 2055?
And at that point we will need a non-Social Security surplus of
substantial magnitude to pay back these bills to Social
Security.
So, the discussion of ``on budget-off budget'' becomes a
very different one once those lines cross and Social Security
starts needing to have its bonds paid back as opposed to paying
them in. And we----
Mr. Minge. But for the next couple of years the lines
haven't crossed----
Mr. Lew [continuing]. Correct.
Mr. Minge [continuing]. And we are dealing with truly a
deficit in the nonunified budget, and what we are trying to do,
as I understand the President's proposal, is to look at this
15-year period of time and saying, ``If we can maintain the
course for 15 years and devote 62 percent of the unified
surplus to Social Security, we are going to be ahead.'' Do you
have any estimate as to how much we would be ahead by doing
that as compared to simply insisting that all of the Social
Security Trust Fund cash flow surplus be reserved for Social
Security purposes?
Mr. Lew. Well, roughly speaking, if you looked over the
next 15 years, the 62 percent that we are putting in over 15
years is roughly equal to the off-budget Social Security
surplus. If you look at the Medicare component, that is all
additional debt reduction. That is all additional savings for
the future. And it is a rough proxy. It is really when you get
beyond the 62 percent that the question starts to come in.
On a year-to-year basis, our proposal would not be exactly
as what you have described, but over 15 years, it would be a
little bit more.
Mr. Minge. It would be a little more, but it would be
roughly the same. It is when you look at Medicare that you are
really making a dramatic improvement in savings.
Mr. Lew. That is right.
Mr. Minge. Now, to take this one step further, it troubles
me that here, at least for the next 2 years, we would be only
using 62 percent of that Social Security Trust Fund surplus
that is being generated each of these 2 years for the Social
Security Program and we would be counting on future Congresses
and future administrations that show the self-restraint and the
discipline to stay the course on that 62 percent thereafter,
when, of course, it will be a future Congress and a future
administration.
Is there anything that you see that we can do during this
year and next year that would truly commit future Congresses
and the future administrations to this course, or is it
somewhat like what we faced back in 1994 or 1993 when we
adopted a 5-year budget plan, but when the next year rolled
around and the next Congress rolled around, that budget plan
was just gathering dust? That was history. And people again
wanted to plan and look to the future.
Mr. Lew. I think that there is a very big difference
between a budget plan and a promise to make certain
contributions to the Social Security Trust Fund. I would hazard
the political guess that, if we put into law scheduled
contributions into the Social Security Trust Fund, that we will
keep those promises and that it will be very difficult for
future Congresses to change that. It is not impossible. Our
constitutional system does give future Congresses the right to
change the law, but I think that it is highly probative how
difficult it has been to cut Social Security, and I think
correctly so. I think that it is very unlikely that we would
see a substantial backing off of commitments that we make this
year to put money into the Trust Fund.
Mr. Minge. Thank you.
Mr. Chambliss. My good friend and colleague from Georgia,
Mr. Collins, is recognized for 5 minutes.
Mr. Collins. Thank you, Mr. Chairman.
Mr. Lew, I want to go back to a comment by Mr. Minge, when
he referred to tax relief as having an effect on Social
Security.
Under current budget law, tax relief would not affect
Social Security unless the benefit structure of Social Security
was changed. Is that not true?
Mr. Lew. I am not sure that I understand the question.
Mr. Collins. You do nothing to Social Security, and you
give tax relief, it has no effect on Social Security.
Mr. Lew. Well, it wouldn't reduce the benefit that we owe.
Mr. Collins. It would not even affect it.
Mr. Lew. But, it would reduce our ability to pay the
benefit.
Mr. Collins. The question, though, it would not affect--tax
relief would not affect Social Security unless you change the
benefit structure to match the tax relief also?
Mr. Lew. But we have no way now to show how----
Mr. Collins. Yes or no to that?
Mr. Lew [continuing]. I don't think that it is a simple
yes-or-no question.
Mr. Collins. Sir?
Mr. Lew. I don't think that it is a simple yes-or-no
answer, Congressman.
Mr. Collins. Yes, it is.
Mr. Lew. Then the answer is, yes, it would affect Social
Security.
Mr. Collins. It would not affect Social Security at all.
Mr. Lew. Yes, it would.
Mr. Collins. I only have limited time. You seem to want to
skate around the answer there. Let's don't do that on some of
the others.
Lots has been said about Mr. Greenspan and some of his
comments. When he testified before the Ways and Means Committee
the other day, he had several recommendations. One, he said,
run the surpluses. I am very reluctant to use the word
``surplus''; I like to use the words ``positive cash flow''
because it is all over in the Trust Funds today, the positive
cash flow. And I understand, too, by running those positive
cash flows into the Trust Funds and having public debt offset
by government bonds will help in the area of interest rates.
Second thing, though, he said, is if you do look at tax
reduction, look at marginal rates, and also look at capital
gains tax relief. We know that some of the changes that have
taken place in the last 4 years have been through the
cooperation of the Congress and the administration in a year of
taxation, and one of those was capital gains tax relief.
But what he did caution about was no new spending, no
increase in spending. Now, he did not say no new programs, and
no one else will say no new programs. But if you are going to
look at new programs, you look at them within the structure of
your existing budget where you make your move around your
budget caps.
Another thing that he cautioned us about, and it is in an
area of Social Security, and that is in the pay-as-you-go
system--in other words, current workers are paying current
beneficiaries' checks--but what I see that the President has
offered is not an end to the pay-as-you-go system but an
extension of it from some 30 to possibly 50 or 75 years. Is
that not true?
Mr. Lew. Well, it is a change in the sense that it is
committing resources in a different form. Pay-as-you-go refers
to the payroll tax, and this is a bit different.
Mr. Collins. But it doesn't change the pay-as-you-go system
from that of social income insurance to that as vested interest
retirement.
Mr. Lew. That's correct.
Mr. Collins. And a debt is a debt. And as you have said,
each year the national debt increases. Now I understand your
difference between the public sector portion of it versus the
government portion of it, but it does increase. And at some
point in the future--I don't see the chart there now--you
estimated that the interest portion of the budget would be 2 to
3 percent?
Mr. Lew. That was 2014, that projection.
Mr. Collins. Now, using that 2 percent or 3 percent--and I
believe that you answered this when Mr. Price was questioning
you--that does not include the interest accrued of interest
owed that particular year to the Trust Fund. Is that not true?
Mr. Lew. That was net interest, correct.
Mr. Collins. That's right. So, that is true; it does not
include it. If you use the word ``debt interest,'' that means
that you have excluded that portion.
Mr. Lew. That's correct.
Mr. Collins. OK.
Once we get to the point of having to redeem those
government-held securities, how do you plan to do that? You
said that you have to have discipline in the budget and have
resources beyond the unified budget.
Mr. Lew. Our current forecast shows surpluses--I forget if
it is through 2045 or 2046; it is way, way out into the next
century. If we are running surpluses in the non-Social Security
budget, we will be able to pay those bills back, and that is
exactly the point in terms of fiscal discipline. If we are not
running those kinds of surpluses in the non-Social Security
budget--we already have the debt. The Social Security benefit
is a promise. If I were to promise you that I was going to give
you $100, that is a promise. If I then write up a note, that
doesn't make it more or less of a promise. That records it.
When you record it, it shows up as increasing the debt subject
to limit. But the promise is every bit as much there today
without that note.
Mr. Collins. But it you are increasing the debt year after
year based on new spending, that is not very good fiscal
discipline, is it not?
Mr. Lew. I actually think that it is very good fiscal
discipline, and most of the comments that Alan Greenspan----
Mr. Collins. An increased spending and increased debt year
after year?
Mr. Lew [continuing]. Alan Greenspan, when he testified
before the Congress, made a number of points. He said that the
President's approach to Social Security reform is a major step
in the right direction and that it would ensure that the
current rise in government's positive contribution to the
national savings is sustained. The reason that he said that is
that we reduce the debt held by the public.
Mr. Collins. That's right.
Mr. Lew. And that is the reason that we have the virtuous
cycle which reduces the net interest cost. I would argue that
there is a very big difference between a dollar of interest
that is being used to pay a current commitment for Social
Security benefits and a dollar of interest used to pay a
privately held bond. A dollar is not a dollar in this case. One
dollar is keeping a promise to Social Security; the other is
not.
Mr. Collins. In the area of accounting you use the same
dollar twice the way you are using it. And that----
Mr. Lew. No, we actually haven't used the same dollar
twice.
Mr. Collins [continuing]. Yes, you are. And also--I am
going to close with this because my time is up--I think that
the greatest threat to this Nation is the national debt. At one
point in time--at some point in time in the future it will
bankrupt this country if we don't get this thing under control
and keep it under control.
Thank you, Mr. Chairman.
Mr. Chambliss. The gentleman from Minnesota, Mr. Gutknecht.
Mr. Gutknecht. Thank you, Mr. Chairman, and I appreciate
this opportunity to visit with you, Mr. Lew, and I appreciate a
lot of the things that you have said today. In fact, I
probably, at least on this side, am going to be more
congratulatory perhaps than some of my colleagues, because it
seems to me that there are three questions that this committee
and ultimately the Congress has to answer. The first question
is, how much do we want to spend? The second question is, how
much surplus will that create? And the third, and perhaps the
biggest, question that we are going to have to resolve is, what
is the highest, best use of that surplus?
Now we can argue--and I have found, and I will let my
colleague pass here--I have found in my townhall meetings, and
when I meet with my constituents, one of the most difficult
questions to really respond to and to define is this whole
Social Security system because it seems to me that it is a
hybrid between a defined-benefit plan with a Trust Fund and a
pay-as-you-go system. And that is how we sort of wind up
speaking out of both sides of our mouths about the unified
budget, and it does get very difficult. And I don't have a
perfect answer for it either.
But let me come back to the central question: how much do
we want to spend? And that is where I really want to give the
administration a tremendous amount of credit because, as I read
through the budget, as my staff looked at it and as I looked at
the numbers, and so forth, the first thing that really did
strike me is that you are talking about a total spending
increase for the next fiscal year of only $39 billion. Now am I
correct in that?
Mr. Lew. I don't remember the exact number, but it is very
close, if that is not right.
Mr. Gutknecht. And if I remember correctly, and I have been
one who has felt very strongly that it is important for this
Congress, for a whole variety of reasons, to keep faith with
the spending caps which have been set in the past, and with at
least the spirit of the balanced budget agreement that the
President signed a couple of years ago, and many of us went
down to the Rose Garden to join in the signing. And as I read
your budget request, you are actually talking about exceeding
those spending caps by only $17 billion.
Now, I think that within that framework there is at least
an opportunity for us to agree--the Senate, the House,
Republicans, Democrats, Independents, and people in the
administration--to agree to some kind of a spending cap that is
somewhere at least within the spirit. And starting with your
budget document, I must say that the average family, to the
best of my knowledge, the average family budget today in
America will probably increase about 2.5 percent. So, to your
credit, for the first time in my memory, we are talking about
increasing the Federal budget at a slower rate than the family
budget, and you deserve a tremendous amount of credit for that.
That is the good news. The bad news, it seems to me, is
that we look through the document and begin to sift through
it--Mr. Chambliss has raised the issue of the agriculture
budget and crop insurance. Others have talked about veterans'
benefits. Mr. Bass talked about special education. I am
extremely concerned about what ultimately this means for
Medicare reimbursements, particularly in rural America. The NIH
budget, it seems to me that there is a good deal of shifting,
or however we want to describe it. And then there is the big
issue of the defense budget. Where it strikes me that in some
respects the administration is saying, OK, we're going to hold
the limit at a lid at 2.3 percent, but in a way we're going to
do a little jostling so we can fund our new programs.
Let me just ask you this question: Does the President's
budget reflect the requirements that the administration and the
Defense Department and others are going to need in terms of our
commitment to Bosnia, to Iraq, and perhaps even to Kosovo? Are
those reflected at all? Are those within the budget? In other
words, the real question is this: Do you anticipate coming back
to this Congress sometime before we adjourn or go home this
fall with some kind of an emergency supplemental to fund those
requirements?
Mr. Lew. Congressman, the answer is in some cases
different, so let me go through the items.
In the case of Bosnia, we did include funding in our
budget, in the body of our budget----
Mr. Gutknecht. So, you will not be coming back to Congress
for more money for Bosnia?
Mr. Lew [continuing]. That is certainly my expectation. I
would just caution that we are talking about situations that
are inherently fluid. But this budget is for the full year,
correct.
Mr. Gutknecht. Assuming that nothing changes, you will not
be back for more money?
Mr. Lew. Right.
Mr. Gutknecht. OK.
Mr. Lew. With regard to Iraq, we are working with the
Defense Department on whether or not there is a need for a
supplemental, and we haven't reached that determination yet.
The one supplemental that we do know that we are going to be
presenting is for Central America, and we hope to do that very
shortly. With regard to Kosovo, I can't answer that question
until policy decisions are made.
The budget includes an allowance of $3.25 billion in
anticipation of, at a minimum, the Central America supplemental
and the possibility that there may be others. We put in a
number that was consistent with last year's budget. It was not
consistent with last year's final action. And I think that we
share the concern that many here share that it got a little too
large last year. We think that the emergency authority remains
an important one. If things happen between budgets, as a
country, we have to be able to respond, but a real emergency is
different than other circumstances that may test the
definition.
We hope to work with the Congress to make sure that the
emergency authority remains available, but we don't currently
have any immediate expectations except for the Central America
supplemental.
Mr. Gutknecht. Well, the fear of this Member is that there
is the temptation already to say, well, you know, Congress is
probably going to plus-up the crop insurance program. Congress
is probably going to do something with veterans' benefits. We
certainly need to do something to change the special education
formula and live up to our commitments there. Medicare, you
know, I don't know what is going to happen with Medicare. NIH,
Defense, all of that--the danger I see happening is that we
start off with this number 2.3 percent, but by the time it is
over, the deal at the end of the day could be significantly
larger than that.
Mr. Lew. Congressman----
Mr. Gutknecht. And it seems to me that it is the
responsibility of this committee to set the overall spending
limits and to do what we can to make certain that we enforce
them, and that is where we need your help.
Mr. Lew [continuing]. Well, we certainly hope that we reach
agreement on a broad basis, so that we move beyond the
discussion of 2000 to the multi-year context.
In the case of 2000, we have a number of offsets in there,
and if they are not adopted, we understand that it is going to
be a difficult process working through the year.
Last year, when we got to the end, the President's class
size initiative, which was a very important priority, was
included in the final Omnibus with an offset. It was an offset
that we worked through with the two Budget Committees to make
sure that it scored. And we hope that we can work together both
on a multiyear basis to have a resolution to the question of
the surplus, because we do believe that there is a need for
more discretionary resources going into the out years, but
after we do Social Security first. Hopefully we will get to the
point where we do Social Security and this gets a little bit
easier.
But I agree with you, there is a need for discipline. There
is a need for caps. There is a need for pay-as-you-go rules. We
know where we go when we don't have any rules. We know that it
is a lot easier to spend money and to give tax cuts and then
afterwards see the result. We need to use the opportunity of
the surplus to make some very wise decisions now and then have
discipline going forward.
Mr. Gutknecht. Thank you, Mr. Chairman. My time has
expired.
Mr. Chambliss. That was a very good question, Mr.
Gutknecht, and being a little bit more definitive, Mr. Lew.
And now with respect to Bosnia, the administration has
Bosnia funded in the fiscal year 2000 budget, fully funded
there. You have only got 6 months budgeted in the fiscal year
2001, so I am assuming that you are planning that we are out of
there in 2001; otherwise we have got no money in there for
Bosnia; we've got no money in there for Kosovo. So, we need to
be--everybody needs to thoroughly understand that as we move
into this.
Mr. Wamp.
Mr. Wamp. Thank you, Mr. Chairman, and thank you, Mr. Lew,
for the relationship that you have with our chairman, and just
carrying forward in a positive way. I want to say that I think
Congressman Clement is onto something that this budget, from
our side of the aisle, should represent a good starting point.
I think that it raises the right questions, and I think that it
does include some good ideas, and I would think that my friend
from Minnesota is correct there.
A couple of points that I would like to make because I have
learned--this is my fifth year--that you have to clear things
up. You talked about the NIH funding being ahead of schedule,
and let's be candid, the Republican Congress has really carried
a lot of that weight over the last 4 years to increase NIH
funding. As a member of the Appropriations Committee, I just
want to point that out.
Also, earlier, when Chairman Kasich questioned you on the 2
percent payroll tax, I have also found that out there are
across the country regular people who think that that means
somehow that money would be turned back over to the
beneficiary. But it needs to be pointed out every time that we
talk about it, so they will understand, that the government
will still control that money. The beneficiary will just direct
that money. And I hope that somehow we can come to an agreement
much like Chairman Kasich said, like the Thrift Savings Account
for Federal employees, where you can direct where it is
invested, but the government keeps the money. The government
controls the money. That money doesn't go back to the
beneficiary. It stays in a fund, but it can continue to grow.
There is another thing that I am a little dismayed about. I
am one of the Republicans that for the last 4 years has said
let's be more broad-based in our approach to tax relief, so
that they can't say that we're trying to help the wealthier
Americans. I am a little frustrated that, after carrying that
mantra for the last 4 years and for us to propose more broad-
based tax relief and then you still say that it benefits more
wealthy Americans. The only way that you can really take that
position is that you think everybody with a job, or everybody
that is working, or everybody that is doing OK out there
represents wealthier Americans. At some point we need to come
together on broad-based tax relief. And I concur that the more
broad it can be, the more it can affect every working American,
the better off it is.
But my one question is this: On education funding, will
there--and this kind of presses you, like Chairman Kasich
pressed you about ever agreeing to a 2-percent payroll tax that
is self-directed by beneficiaries--is there any way that the
President can agree to block grant the education dollars?
Because, during the Great Society the intent was to eliminate
poverty. It didn't work. We created Federal program after
Federal program after Federal program, and ultimately the
Governors have cried long enough and loud enough for us to
start block granting those same dollars, and that is working.
And I just wonder if we've got to go back throughout this
entire exercise over a generation of creating programs--in
terms of trying to improve education, that motive and intent is
all the same. We all agree that we need to improve education.
But do we have to go through this same cycle again, or can't we
just go ahead and block grant the money right back to State and
local governments and let them spend it in a more efficient
way. And is there any way that you will agree with us on that
approach over the next few months?
Mr. Lew. I think that over the last several years we have
made very clear how strongly we, the administration, the
President oppose block granting all of the education funds. We
have worked with the Congress to provide greater flexibility in
many areas.
When it comes right down to it, the argument comes down to
what do you want the Federal education policy to be? Do we want
to be promoting the kinds of standards that the President has
spoken to? Do we want to be promoting policies that are aimed
at specific objectives like reducing the social promotions?
This is an important part of our policy.
The question to block grant or not to block grant sounds
like it is an accounting issue, but it is not. It is really a
policy issue, and the President has very strong convictions in
a lot of these areas. So, I think that you can expect that our
opposition will be consistent with our past position.
Mr. Wamp. Let me just say one thing: If you go to a PTA
meeting, you get on talk radio, you go out there where parents
are involved today, they will say, please, no more mandates;
please, don't create any more education programs that tie our
hands--we've got people doing paperwork instead of delivering
education because of the Federal programs we have created in
education.
I would just submit to you, please try to work with us on
this, so we can have fewer programs but more money flowing back
to the schools to let them spend it as they see fit without all
these mandates that seem to flow every time we come up with a
new education bureaucracy in Washington.
Mr. Lew. Hopefully, we will be able to work through the
Elementary and Secondary Education Act amendments to achieve
some of our common goals and to reduce the paperwork. Our goal
is not to be paying for administrators and paperwork. Our goal
is to improve the quality of education. And on that, I think
that we can agree.
Mr. Wamp. I think, Director Lew, the glass is half full and
not half empty. So we have got a good starting point.
Thank you, Mr. Chairman.
Mr. Chambliss. Jack, let me thank you again for being here,
and I particularly thank you for having patience with us and
hanging around to give everybody an opportunity to ask
questions.
I hope that everybody that wanted to ask questions has come
back to do so. But let me just say that if there are any
members who have additional questions, we would like to submit
them to you in writing, and I assume you will answer them
within about 30 days or so.
Mr. Lew. It would be my pleasure.
Mr. Chambliss. And we, obviously, have a lot of things that
we agree on. There are a lot of things that we have a
disagreement about with respect to particular issues and
philosophically, but we look forward to working with you and my
friend John will be in touch and dialoguing, and, hopefully, we
will come up with something that is beneficial to the American
people here in short order.
Mr. Lew. Thank you.
Mr. Chambliss. Thank you very much.
[Whereupon, at 2:50 p.m., the committee was adjourned.]