The Administration is committed to enactment of meaningful budget enforcement.
Consistent with the bipartisan budget agreement, both the House-passed and
Senate-passed reconciliation bills include effective budget enforcement
mechanisms: (1) establishment of statutory discretionary caps through 2002,
enforced by the current law sequester mechanism; (2) extension of PAYGO
restrictions on new mandatory spending and revenue losses; and (3) protection
of the reconciliation savings by reducing PAYGO balances to zero. We strongly
support these important budget enforcement provisions.
However, the Administration is unable to support H.R. 2003 because it would
impose an unworkable and unadministrable system of constraints and automatic
triggers on the Federal Budget. The bill calls for a complicated series of
projections and findings that could result in automatic entitlement cuts and
tax cut suspensions that would be unprecedented in the Federal budgeting
system. Following are a few of the practical difficulties raised by the bill.
We recognize that the sponsors believe these effects will not occur in practice
because of the expedited procedures for Congressional action contained in the
bill. However, the Administration believes that the policy choices inherent in
the bill as written are very problematic.
- Automatic suspension of tax cuts. The automatic mechanism proposed
by H.R. 2003 is unworkable. The bill would call for certain tax cuts over the
next five years to be suspended depending on year-to-year revenue estimates.
This would hinder orderly tax planning. Moreover, the automatic tax mechanism
is arbitrary -- it does not affect all taxes, or even all tax benefits, but
only those tax benefits that happen to be coming into effect at the time the
revenue estimate is calculated.
- Automatic Benefit Cuts. Slight changes in demographic factors would
cause benefits to change for millions of Americans. For example, if the
actuaries of a retirement program change their projections of earned benefits,
based on revised earnings histories of new retirees, that estimating change
would trigger a sequester of that retirement program.
- Unworkable Entitlement Cuts. The bill would create complicated,
unintended interactions. For example, the bill requires that a sequester in
Medicaid be accomplished by reducing Federal matching payments to States.
However, the bill does not change the Medicaid entitlement, and States would
therefore be required to provide the same services with less Federal funds --
which might be considered a new unfunded mandate. Another example: one-half of
the sequester for Medicare Parts A and B would come solely from increasing
premiums on beneficiaries under Part B.
- Inconsistent treatment of taxes and entitlements. Baseline tax
revenue is given allowance for growth and inflation, but entitlement spending
may increase for inflation and beneficiaries only for programs enacted prior to
July 1, 1997. Further, spending sequesters are permanent; the tax cuts
suspensions end no later than 2002.
- Undermines PAYGO. The bill would prevent Congress from making
changes in current tax or entitlement law, even if those changes were fully
paid for under the pay-as-you-go provision of current law. Entitlements could
not be expanded, even if paid for by tax increases, nor could new tax cuts be
paid for by reductions in entitlements.
- Further cuts discretionary spending levels. The bill would, in
effect, cut spending under the discretionary caps by one percent, approximately
$27 billion over five years, to establish an emergency reserve. It also
assumes zero growth in spending after 2002.
- Sequesters or tax suspensions could occur even if there is a surplus
. Finally, the bill does not address the relationship between its requirements
and actual deficit or surplus levels. Under the bill, even if there is a
surplus in a particular year, sequesters could be imposed on entitlement
programs, and tax cuts could be automatically triggered off.
For these reasons, the Administration cannot support H.R. 2003 and urges the
conferees to include in Reconciliation, the extensions of PAYGO and
discretionary caps as provided for in the bipartisan budget agreement.