The President's plan to balance the budget over 7 years, like his other economic policies, is designed to address the key economic question facing the nation: how to raise average living standards for the future. The plan builds on the President's earlier success in cutting the deficit, invests in education and training and other priorities, protects such vital programs as Medicare, Medicaid, and cuts taxes for middle-income Americans.
Among its other provisions, the plan calls for raising $28 billion by auctioning off spectrum; protecting pensions for poor veterans, compensation for service-connected disabled veterans, and other veterans' entitlements; making small changes in federal employee compensation; and accounts for a change that the Bureau of Labor Statistics is expected to make in the consumer price index (CPI) in January 1997.
Discretionary Spending: Investing in Our Future
The President's plan cuts discretionary spending by $250 billion over 7 years, while still finding the funds to invest more in education and training, the environment, science and technology, and other priorities to help raise average living standards and the quality of American life.
For non-investment programs, too, the President's plan makes choices. It limits cuts in the most important non-investment programs by eliminating others and applying recommendations of the National Performance Review on cutting red tape and bureaucracy. By contrast, Republicans are cutting discretionary spending across-the-board, even programs in which we should be investing more, not less.
Nothing is more important to future living standards than education and training. The workers of today and tomorrow will need the best education and skills they can get to acquire high-wage jobs in the new global economy. The President proposes a broad agenda of life-long learning. Over the next 7 years, the plan calls for $66 billion more than the Republican budget for education and training.
The President's plan boosts funding for Head Start enough to reach another 50,000 children by 2002 -- for a total of 800,000 per year -- and improve quality. The plan expands AmeriCorps, his national service program, enabling 325,000 young Americans to serve their communities and earn scholarships for higher education by 2002. It increases funds for Goals 2000 to help all States and school systems extend high academic standards, better teaching, and better learning to 44 million children in over 85,000 schools. It also increases funding for Pell Grants to cover more recipients and increase the maximum scholarship from $2,340 to $3,128 in 2002.
The plan protects the environment. It consolidates the Clean Water and Safe Drinking Water State Revolving Funds, giving States more flexibility to meet local priorities. It also increases funding for the operating program of the Environmental Protection Agency -- the backbone of our efforts to protect the environment; these funds address global climate change, promote the development and export of environmental technology, and protect sensitive ecosystems.
The plan also invests in science and technology, through a balanced mix of basic research, applied research, and technology development, much of it through cooperative projects with private industry. It adds funds for biomedical and behavioral research at the National Institutes of Health, for basic research and education at the National Science Foundation, for basic research at NASA (including Mission to Planet Earth), and for such important initiatives as the Advanced Technology Program and the Technology Reinvestment Project.
Medicare: Expanding Choice, Improving Quality
Medicare provides health care benefits to 37 million elderly and Americans with disabilities. The President's balanced budget plan maintains the 30-year national commitment to this program and makes it more efficient. It saves $124 billion in Medicare over the next 7 years, and would assure the fiscal integrity of the Part A Trust Fund through fiscal 2011. In addition, the President's health care initiative includes about $25 billion in new initiatives, such as grants to states for health insurance for the unemployed. Thus, combined with this new spending, the net savings are $98 billion.
The President's proposal provides:
Health Reform: Protecting Working Americans
Most working Americans get their health care insurance coverage through their employer, but the security of that coverage often depends on economic conditions and insurance rules that can exclude coverage for some people. There is strong, bipartisan support for reform of the group health benefits market to preserve and protect the coverage of working Americans.
The President's plan includes insurance reforms, along with measures to protect workers when they move from job to job or from work to unemployment and back to work.
The following are highlights:
Administrative Simplification, Privacy of Medical Records
The nation's health care system includes a huge amount of red tape and paperwork that often interferes with providing care to patients. The President remains committed to reducing these burdens. The plan adopts standards to simplify the use of electronic health information transactions and shared data systems. It also develops new, strong federal standards to ensure the privacy of individual medical records.
Frail elderly Americans and younger persons with disabilities frequently need home and community-based long-term care to help them carry out the routine activities of daily life. The plan improves access to such services in the following ways:
Medicaid: Preserving Coverage
Medicaid provides acute and long-term health care services to 36 million low-income women, children, families, older Americans, and individuals with disabilities. Nearly half of Medicaid beneficiaries are children, but about two-thirds of Medicaid expenditures are for care for the elderly and individuals with disabilities.
The President's proposal maintains the 30-year collaboration with the States to provide health services to low-income families, children, the elderly, and individuals with disabilities, while making Medicaid more effective and efficient. It would reduce Federal Medicaid spending by $54 billion over seven years.
Key elements of the President's Medicaid proposal are:
Welfare Reform: Encouraging Work and Responsibility
Student Loans: Expanding Access to Education
The President's plan gives schools "free choice" to participate in either of the Federal student loan programs that best meets the needs of their students. Any school can elect direct lending or guaranteed lending.
Also, the President's plan saves $3 billion through cuts in payments and subsidies to lenders, guaranty agencies, secondary markets and post-secondary institutions, and cuts in Federal administrative funds. It establishes a competitive framework that requires all program participants to operate with greater efficiency.
The Republican plan virtually eliminates direct lending, in favor of the more costly, inefficient guaranteed loan program, by "capping" direct lending at 10 percent of total loan volume, terminating participation of 1,300 institutions of higher education, and denying access to direct loans to 2.5 million students in 1996 alone. The Republican plan makes it difficult for students to adjust loan repayment based on their ability to pay and to take community service jobs without fear of default.
In addition, the Republican plan cuts spending by $5 billion by reducing some subsidies to lenders, but also by reducing the Secretary's authority and resources to manage the loan programs. In addition, tax provisions in the Republican plan permit non-profit secondary markets to move the benefits of non-profit status into for-profit entities, generating a substantial windfall for them.
Lastly, to help banks and other intermediaries, the Republican Budget Resolution directs CBO to change scoring for this loan program only, raising the deficit by $5.9 billion. The President's plan deletes this directed scoring, eliminating the increase in the deficit.
Agriculture: Preserving the Farm Safety Net
The President's plan preserves the essential safety net of farm programs, and includes key reforms to ensure that farmers can adapt to rapidly changing markets. The plan gives producers much more planting flexibility, enabling them to plant for the market, not for government programs. It maintains spending for agricultural export programs to ensure that U.S. agriculture remains competitive in crucial export markets when facing subsidized competition. The plan enhances the Administration's commitment to a strong Conservation Reserve Program (CRP) by continuing to extend contracts of existing acres, authorizing new CRP enrollments, and targeting new enrollments to acres with higher environmental quality.
The President's plan cuts spending by $5 billion over 7 years by:
By contrast, the Republican plan eliminates the farm safety net by decoupling most payments from market conditions, providing windfall payments to producers when prices are high and no increase in payments to family farms when prices are low. Republicans reduce farm income and environmental benefits by blocking new CRP enrollments, permitting any acres to exit the CRP on short notice, and preventing permanent easements from being offered to farmers under the Wetlands Reserve Program. In addition, they reduce funds for export programs, potentially undermining recent record gains in U.S. agricultural exports -- the most promising market for future increases in U.S. farm income.
The President's plan continues the delay, to April of each year through 2002, in paying federal retiree cost-of-living adjustments. The Omnibus Budget Reconciliation Act of 1993 had delayed the effective date for cost-of-living adjustments in Federal employee retirement benefits from January until April for fiscal 1994, 1995 and 1996. Republicans also proposed extending this policy in their reconciliation bill.
The President's plan modifies the pensions of Members of Congress and congressional staff to conform their contribution rates and benefit formulas to those of other federal employees. Under this provision -- identical to one in the Republican reconciliation bill -- the new rules apply to all service performed on or after January 1, 1996.
The President's plan ends the federal reimbursement to the U.S. Postal Service for workers' compensation costs associated with employees who were injured while employees of the Post Office Department. This provision, too, is identical to one in the Republican reconciliation bill.
The President's plan does not include the Republican reconciliation provisions that increase employee retirement contributions or agency contributions for employees under the Civil Service Retirement System (CSRS). Federal employees are already being asked to accept less than full pay raises in January; the Administration does not believe it would be fair to require employees to pay more for their retirement. In addition, the Administration does not believe agencies should have to divert much-needed resources from discretionary programs to pay more for the retirement costs of employees under CSRS.
Veterans: Honoring Our Commitment
The President's plan protects pensions for poor veterans, compensation for service-connected disabled veterans, and other veterans' entitlements, such as education and home loans. At the same time, the plan maintains responsible program management by extending policies to improve efficiency and ensure payment integrity that have already proved successful, and would otherwise expire.
The plan ensures that only veterans who are eligible for benefits receive them. It extends VA's authority to verify income eligibility data with the Internal Revenue Service and Social Security Administration. It mitigates the effects of a recent Supreme Court decision that dramatically increased the VA's liability to pay compensation for damages incurred in VA hospitals, even if the VA is not found to be at fault.
The President's plan also:
The President's plan saves $4.3 billion from veterans' programs over seven years. Republicans, by contrast, cut $6.7 billion. The Republican plan increases out-of-pocket expenses for certain beneficiaries and decreases benefit payments to others.
Spectrum: Protecting Taxpayers
The President's plan and the Republican reconciliation bill both propose the auction of non-broadcast spectrum by the Federal Communications Commission (FCC), generating $15.3 billion over seven years. The President also proposes an FCC auction of broadcast spectrum, raising another $13 billion in 2000-02.
This proposal codifies FCC plans to reclaim unneeded "analog" broadcast spectrum after broadcasters have migrated to a new digital channel that the FCC is giving them for free. The FCC has set aside this "digital" spectrum for the broadcasters to use in providing advanced TV services.
Broadcasters will get the new "digital" spectrum for free, allowing them to modernize their systems while retaining the ability to use this public resource for private use. We should not double their windfall, with no taxpayer benefit, by allowing broadcasters to retain the "analog" spectrum while getting the "digital" for free.
Auctions have been an extremely effective and profitable mechanism to allocate spectrum. To date, the FCC has raised $9 billion, and it estimates that the "analog" auction could raise up to $132 billion. Accordingly, the Administration's estimate of "analog" receipts is highly conservative.
Auctioning the "analog" spectrum will provide incentives to high-tech companies across the nation to begin developing new ways to utilize this spectrum resource and market new communications services. These new industries, in turn, will add thousands of good, high-tech jobs to the economy and enhance the U.S.'s competitive advantage in telecommunications technology over the rest of the world.
Corporate Subsidies: Eliminating Unwarranted Benefits
The President's plan saves $28 billion by eliminating unwarranted benefits received by corporations and other taxpayers through accounting manipulation or over-generous tax provisions. Examples include:
Taxes: Helping Middle-Income Americans
The President's plan cuts taxes for middle-income Americans, giving them the tools they need to help raise their living standards in the future. It helps them raise their children, save for the future, and pay for postsecondary education.
By contrast, the Republican reconciliation bill provides a huge tax cut whose benefits flow disproportionately to those who are already the most well-off, and offers new tax breaks to special interests. At the same time, it raises taxes on millions of working families by slashing the Earned Income Tax Credit (EITC). The plan also creates new fiscal pressures, with revenue losses exploding after 2002 for provisions that primarily benefit upper-income taxpayers.
The President's plan includes the following elements:
The Republican plan gives over 47 percent of its benefits to families with incomes over $100,000 -- the top 12 percent. By making capital gains cuts retroactive to January 1, 1995, it gives a $13 billion windfall in about the first 9 months of 1995 alone to taxpayers who already have sold their assets. It cuts the corporate alternative minimum tax (AMT), so that it no longer adequately ensure that profitable corporations pay at least some federal tax. And it encourages businesses to avoid taxes by stockpiling foreign earnings in tax havens. The plan also lacks an important provision in the President's plan to close a loophole that allows wealthy Americans to avoid taxes by giving up their U.S. citizenship.
The Minimum Wage: Providing a Living Wage
The President's plan to raise the minimum wage is among several important steps to improve the living standards of low-skilled, low-income workers, and a necessary one to make work pay -- if we are to truly reform the welfare system. As everyone agrees, work is better than welfare. The President's plan gives Americans the opportunity to lift themselves and their families out of poverty.
The plan raises the minimum wage from the current $4.25 in two 45-cent steps -- to $4.70 next July 1 and to $5.15 on July 1, 1997. This is the same plan that the President sent Congress last February, except for a change in effective dates, and is modeled on the last increase to the minimum wage, which passed Congress with broad bipartisan majorities and was signed by President Bush in 1989.
If Congress does not act now, the minimum wage will fall, in real terms, to its lowest level in 40 years. Such a result would dishonor one of the great promises of American life -- that everyone who works hard can earn a living wage. Under the President's plan, over 11 million workers benefit, with a full-time, year-round worker getting a $1,800 raise -- the equivalent of 7 months of groceries for the average family.
A rise in the minimum wage helps families that are working hard but struggling to make ends meet. Most workers who earn the minimum wage are adults, and the average minimum wage worker brought home over half of his or her family's earnings. A minimum wage increase of the magnitude of the President's proposal would not reduce employment levels, according to numerous studies. What it would do is ensure that those who work hard and play by the rules can live with the dignity they have earned.
The President proposes a simple extension of the current Continuing Resolution until January 26, 1996.
The President's plan includes an increase in the debt ceiling to $5.5 trillion, which will provide sufficient authority for the Treasury Department to meet government obligations through the end of fiscal 1997.
The President's seven-year balanced budget path is based on OMB economic and technical assumptions. These assumptions reflect our best information and judgment about how the economy will perform over the next seven years, and are somewhat more conservative than those of private forecasters. The Administration expects that this agreement to balance the budget over seven years, as have recent deficit-reduction agreements, will include appropriate enforcement mechanisms to ensure that we reach balance in 7 years.
In addition, the President's plan proposes that the President be given line-item veto authority. As budgets grow tighter, it is increasingly important that the President have the power to eliminate wasteful spending and tax provisions -- and critical that this power apply to all years of an agreement, including fiscal 1996 spending and tax legislation. The Administration wants to work with Congress to resolve any remaining details and concerns pertaining to this important matter.
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