EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
STATEMENT OF ADMINISTRATION POLICY
(THIS STATEMENT HAS BEEN COORDINATED BY OMB WITH THE CONCERNED AGENCIES.)
July 23, 1997
H.R. 2003 Budget Enforcement Act of 1997
(Reps. Barton (R) TX and Minge (D) MN and 63 cospsonsors)
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.