Final Agreement Reached Clarifying Budget Deal
House Budget Panel Approves Budget Resolution
By Larry Jones
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.For the past two weeks Senate Majority Leader Trent Lott (MS) and House Speaker Newt Gingrich (GA) met continuously with White House Chief of Staff Erskine Bowles and White House Legislative Affairs Director John Hilley to clear up misunderstandings about the details of the budget deal reached on May 2. Almost immediately after the agreement was announced, both sides provided conflicting information about what the budget deal meant in terms of funding for new initiatives, savings in entitlement programs and specific tax cuts.
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 Administrationís 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 Presidentís 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 Presidentís education tax incentives in the tax bill.To resolve these differences the Republican leaders worked out an addendum to the agreement with White House officials outlining in some detail what both sides finally agreed to. In the end, it appears the Administration won on getting a commitment from the Republican leadership to support a number of priorities supported by the President. These included an agreement to use a portion of the tax cuts to fund the Presidentís education tax credits and tuition deductions, to support the Administrationís welfare-to-work tax credit program and a capital gains tax break for home owners. The President also won support for an increase in Pell grants for low income college students and $32.2 billion for a number of new spending initiatives. Republicans also scored several victories including getting the Administrationís support for a broad-based permanent cut in the tax rate on capital gains, a significant reduction in the inheritance tax, a $500 per child tax credit for families with children and an expansion of the Individual Retirement Account. After final agreement was reached on the budget deal, Republican leaders in Congress quickly adopted an ambitious schedule for passing a budget resolution by May 23. The resolution, once adopted, will establish broad revenue and spending targets and be used as a guide for congressional panels that write tax and appropriations bills later in the year. The House Budget Committee approved its version of the budget resolution on May 16 by a vote of 31 to 7. House floor action is scheduled for May 21. The Senate Budget Committee plans to consider the measure on May 19 and the full Senate on May 20. Leaders in both Houses would like to pass similar proposals and avoid the need for a conference to resolve any differences between the two versions. In any event, Lott and Gringrich are aiming to complete action on the resolution before members leave for the Memorial Day recess which starts on May 24. Most Republicans and Democrats in both Houses are expected to support the resolution. The following is a summary of key areas in the bipartisan agreement based on documents provided by the by the House Budget Committee.
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.
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.
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.
A total of $32.2 billion was provided to fund new initiatives in the Presidentís 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.
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 Presidentís budget.
Brownfields and Enterprise Zones
Although no commitment to funding levels was made, the agreement states that ď...the House and Senate leadership will seek to includeĒ in the budget package brownfields and enterprise zone proposals as well as a number of other proposals in the Administrationís FY 1998 budget.
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