Final Agreement Reached Clarifying Budget Deal

House Budget Panel Approves Budget Resolution

By Larry Jones

ljones@usmayors.org

After weeks of intense negotiations, the White House and Republicans leaders on May 15 finally agreed on the details of the balanced budget deal announced on May 2. The proposal would eliminate the federal deficit over the next five years and produce a modest surplus of $1 billion in 2002 and it would continue to produce a surplus for each of the next five years. In general, the agreement calls for significant savings, including $115 billion in Medicare and $13.6 billion in Medicaid, a major net tax cut of $85 billion and $35 billion to fund new initiatives supported by President Clinton, all of which would be accomplished over the first five years.

At an earlier press briefing, Lott said the Administration had assumed specific levels of funding for a number of programs but that the May 2 agreement reflected aggregate numbers and not specific funding levels for programs. For example, he reported that contrary to the Administration’s claims, Republican leaders had not agreed to increase Head Start by one million children by 2002, or to increase maximum Pell grants form $2,700 to $3,000, or to increase savings from spectrum auctions to $34 billion. House Speaker Newt Gingrich on May 11 also denied a White House claim that Republicans had agreed to obligate $35 billion from tax cuts for the President’s education tax credits. While acknowledging that he and Senator Lott had agreed to urge that $35 billion be used for education, Gingrich made it clear that the House Ways and Means Committee and the Senate Finance Committee are under no obligation to include the President’s education tax incentives in the tax bill.

Deficit Reduction

In light of a robust economy, the Congressional Budget Office (CBO) revised revenue projections shortly before the May 2 agreement was reached. Based on new projections, the federal government is expected to take in $225 billion more than earlier predicted. As a result, the deficit for 1997 is predicted to be $67.2 billion. Under the bipartisan agreement the deficit would increase to $90.4 billion in 1998, and decline to $89.7 billion in 1999, $82.4 billion in 2000 and to $53.3 billion in 2001. In the year 2002 there would be a slight $1.3 billion surplus. The planned increase in the deficit for the first few years may draw criticisms and possible opposition from members who have advocated adopting a budget that shows a continual decline each year.

Tax Cuts

Detailed information on the tax cuts was not available at press time; however, sources reported that a gross net tax cut of $135 billion would be provided over the next five years. In earlier reports it was announced that $50 billion of the tax cut would be offset by revenue increases and by extending expiring tax provisions. It was assumed that the largest portion ($30 billion) of the revenue offset would come from extending the airline ticket tax. The remainder would come from closing corporate loopholes, which may pose a problem later since House Ways and Means Committee Chairman Bill Archer (TX) and Senate Finance Committee Chairman Bill Roth have said it cannot be achieved. However the Administration and Republicans have agreed to a net tax cut of $85 billion over five years which would include a cut in the capital gains tax, a cut in the inheritance tax, a $500 per-child tax credit for families with children, an expansion of the Individual Retirement Account.

Entitlement Spending

The proposal calls for $115 billion in savings from Medicare through structural reforms that provide new incentives for managed care, new preventive care benefits and a gradual phase-in of Part A cost of home health care to Part B premium. The proposal also calls for $13.6 billion in savings from Medicaid by cutting back on spending for Disproportionate Share Hospitals (DSH). A controversial per capita cap proposal that would have shifted cost to state and local governments was eliminated.

New Initiative

A total of $32.2 billion was provided to fund new initiatives in the President’s 1998 budget request. Funds would be used to provide health insurance for up to 5 million low income children over the next five years and to restore medical and Supplemental Security Income (SSI) benefits for all disable legal immigrants who entered the country prior to August 23, 1996.

The proposal adds $3 billion to the Temporary Assistance for Needy Families (TANF) program in capped mandatory spending through 2001 for a Welfare to Work program. Funds would be allocated to states through a formula and targeted within a state to areas with poverty and unemployment rates at least 20 percent higher than the state average. A share of the funds would go to cities and counties with large poverty populations commensurate with the share of long- term welfare recipients in those jurisdictions.

Education

The proposal calls for $35 billion in tuition deductions and education tax credits for post secondary education over the next five years consistent with objectives in the HOPE scholarship and tuition tax proposal contained in the President’s budget.

Brownfields and Enterprise Zones

Although no commitment to funding levels was made, the agreement states that “...the House and Senate leadership will seek to include” in the budget package brownfields and enterprise zone proposals as well as a number of other proposals in the Administration’s FY 1998 budget.