[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
PRESIDENT'S 2003 BUDGET PROPOSALS FEATURING OMB DIRECTOR DANIELS
=======================================================================
HEARING
before the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 6, 2002
__________
Serial No. 107-56
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
79-697 WASHINGTON : 2002
________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania XAVIER BECERRA, California
WES WATKINS, Oklahoma KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona LLOYD DOGGETT, Texas
JERRY WELLER, Illinois EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
Allison Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of January 29, 2002, announcing the hearing............. 2
WITNESS
Office of Management and Budget, Hon. Mitchell E. Daniels, Jr.,
Director....................................................... 4
PRESIDENT'S 2003 BUDGET PROPOSALS FEATURING OMB DIRECTOR DANIELS
----------
Wednesday, February 6, 2002
House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to notice, at 2:12 p.m., in
room 1100 Longworth House Office Building, Hon. Bill Thomas
(Chairman of the Committee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
January 29, 2002
No. FC-12
Thomas Announces a Hearing
Featuring OMB Director Daniels
on the President's 2003 Budget Proposals
Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways
and Means, today announced that the Committee will hold a hearing on
the President's fiscal year 2003 budget. The hearing will take place on
Wednesday, February 6, 2002, in the main Committee hearing room, 1100
Longworth House Office Building, beginning at 2:00 p.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from the Honorable Mitchell Daniels,
Jr., Director, Office of Management and Budget. However, any individual
or organization not scheduled for an oral appearance may submit a
written statement for consideration by the Committee and for inclusion
in the printed record of the hearing.
BACKGROUND:
On January 29, 2002, President George W. Bush will deliver his
State of the Union address, in which he is expected to outline his
policy agenda. The details of these proposals are expected to be
released on February 4, 2002, when the President is scheduled to submit
his fiscal year 2003 budget to the Congress.
In announcing the hearing, Chairman Thomas stated: ``The Committee
looks forward to Director Daniels' appearance. His testimony will help
give insight into President Bush's budget and lay the groundwork for
the coming year's legislative business.''
FOCUS OF THE HEARING:
The focus of the hearing is to review the President's fiscal year
2003 budget proposals.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
``[email protected],'' along with a fax copy to
202/225-2610 by the close of business, Wednesday, February 20, 2002.
Those filing written statements who wish to have their statements
distributed to the press and interested public at the hearing should
deliver their 200 copies to the full Committee in room 1102 Longworth
House Office Building, in an open and searchable package 48 hours
before the hearing. The U.S. Capitol Police will refuse unopened and
unsearchable deliveries to all House Office Buildings.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to
``[email protected],'' along with a fax copy to
202/225-2610, in Word Perfect or MS Word format and MUST NOT exceed a
total of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, company, address, telephone and fax numbers where the witness or
the designated representative may be reached. This supplemental sheet
will not be included in the printed record.
The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press,
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman Thomas. Good afternoon. Director Daniels, thank
you very much for joining us. I am sure other Members will
continue to come in.
As we have said at all three of these hearings, that the
President clearly outlined that the 2003 budget is
significantly different than the 2002, in large part based upon
what occurred on September 11th, and that the budget for the
fiscal year 2003 is sharply defined. This is what the President
said: Win the war, protect the homeland, and revive the
economy.
We have been carrying on discussions with the Secretary of
the Treasury, Secretary of Health and Human Services (HHS), and
with the Director of Office of Management and the Budget (OMB).
It gives us an opportunity, I think, to examine the rationale
that put together the package that we currently have in front
of us. Oftentimes we focus primarily upon the policy in a
particular area, and I hope everyone appreciates the difficulty
of the timeframe of October, November, December, putting a
fundamentally different budget together for January, and I know
there were some very difficult decisions that had to be made.
And I compliment the Administration and the Director for
moving forward and making some very difficult decisions. In the
President's State of the Union, he addressed the need for a
stimulus package that may not be moot, depending upon how the
House reacts to decisions that have just recently been made in
the Senate. And rather than reiterate the particular aspects of
the budget as we have done in previous hearings, I will just
say that, Director Daniels, it is a pleasure to have you with
us.
And before I ask you to address the Committee, I will turn
to the Ranking Member, the gentleman from New York, to see if
he has any opening comments.
Mr. Rangel. Well, thank you, Mr. Chairman. I just want to
state for the record that this morning when Mr. Stark yielded
to Mr. Cardin when I had an opportunity given to me for an
opening statement, that I had not known that was going to
occur. Having said that, I am very anxious that all of the
Members have an opportunity to question the Director.
I just want to thank the Director for a review and a
withdrawal of the comments that he made as relates to the New
York congressional delegation attempting to secure the funds
that we believe will be necessary to rebuild lower Manhattan.
And I also want to thank him for his reiterance of the fact
that we should be getting more than the $20 billion that had
been promised, notwithstanding the fact that there was no
comment made in the President's State of the Union message
about the sacrifices that New York took for the Nation, nor did
there appear to be any provisions in the budget which earmarked
the funds that were promised. And even though you have said
that you regret that your comment was misconstrued when it
was--when you reportedly said that the New York lawmakers'
efforts to get Federal money for September 11th-related costs
was like a little money-grubbing game, accepting the fact that
it was misconstrued, could you share with me what you actually
meant? Because as the Senior Member of the delegation, we just
want to do the best we can to service our constituents
collectively and at the same time show our appreciation for the
response that has been given to us, not only by the Congress
but by the President. So I think we might use this exchange to
clear the air and to move on, and I would like to yield to you.
Chairman Thomas. I tell the gentleman that these were
basically opening statements, and I was going to have the
Director make his statement. And if the gentleman would allow,
he could at the end of his statement accept that as a question
and respond to that. So we might get on the record the
Director's prepared remarks and then respond to Members'
questions.
Mr. Rangel. The Director can place it in any manner in
which he wants in his response, but I do hope that he manages
to include a response to my question.
Chairman Thomas. I thank the gentleman. And any written
statement you have will be made a part of the record and you
may address this as you see fit.
STATEMENT OF THE HON. MITCHELL E. DANIELS, JR., DIRECTOR,
OFFICE OF MANAGEMENT AND BUDGET
Mr. Daniels. Thanks to you both very much.
Chairman Thomas. You need to turn that mike on and then
speak directly into it. It is pretty unidirectional.
Mr. Daniels. How's that? Better? Many thanks, Mr. Chairman,
many thanks Congressman Rangel. Let me show a little mercy and
summarize very briefly the written submission that I have given
the Committee. Then if I may, I would very much like to address
Congressman Rangel's questions and then move on as you direct.
It is certainly true that in many respects we submit a
different sort of budget this year. Much of that was already in
process and I won't dwell on it. But I do hope that Members
will find some time to examine ways in which this budget has a
different emphasis, quite apart from the new situation that it
addresses and the new priorities that it expresses.
And the novelty of this budget I would summarize under the
heading of ``accountability.'' We do try to take a long step to
respond, really, to acts of Congress and calls from Congress
for serious measurement of performance in government, at least
to begin down that journey, and therefore we do venture to rate
at least those few programs for which enough data exists. For
far too many, we just don't have enough evidence to declare in
either direction. And we also take very seriously the
President's order that we try to manage the Federal Government
as well as it can be, and there are rankings of the departments
in terms of their starting point on the five biggest problems
that we have embarked on trying to attack.
As to the content of the budget itself, the Chairman is
quite correct that it deals overwhelmingly in its emphasis with
the two-front war in which the Nation now finds itself and is
by now I think pretty well understood, concentrates new
resources overwhelmingly on the Defense Department where they
are charged, of course, with victory in the war against
terrorism as well as certain homeland defense assignments, and
on those parts of the domestic government most relevant to the
defense of Americans in their homeland. We double spending, a
little bit more than that, in that category.
We seek to avoid the guns and butter mistake of three
decades ago, and therefore apply these new tools of trying to
separate programs that work from programs that don't, with
special rigor, and have presented proposals that in the
aggregate allow only limited increases for the rest of
government; increases, I stress, but only at 2 percent. That is
less than has been customary in peacetime recently.
I would ask you, however, to look below the surface of that
number, because again, by separating carefully programs that
work from programs that don't, programs that are relevant today
from some that are--have seen their better days, there are some
major increases. Research and development, parts of the
education program and so forth come in for large increases,
even within an aggregate that is held to what we believe is the
maximum prudent level.
So let me close, Mr. Chairman, simply by pointing out that
we like the situation of a return to deficits probably less
than even the Members of this Committee. It is principally a
factor, of course, of the recession. With the costs of war laid
on top, we do find ourselves in a deficit position for the
first time in a few years. I would point out to you by way of
perspective, this is historically a very small deficit. It is
the smallest recession-time deficit in the post-war period, and
those other recessions did not bear the simultaneous burden of
warfighting--those recession budgets.
The progress to which this Committee has contributed so
much in recent years continues to pay real benefits, and we
shouldn't overlook them, even as we work and worry about the
deficits we have on hand. Just to cite an example, the interest
costs, the interest burden on the Federal budget continues down
and is below 9 cents on the dollar this year, and that is a
great achievement that this Committee had a lot to do with.
Just a few years ago, it was 16 cents, the first 16 cents of
every dollar going for carrying charges, so to speak. So I
think we have to keep some perspective.
We all seek an early return to balance, to surplus, to debt
reduction, and we look forward to working with this Committee
to do that.
Let me respond quickly to your question, Mr. Congressman.
The President's commitment to $20 billion in reconstruction aid
for New York City is inviolate. It is intact. And it is in
process. And in fact, it will be exceeded, I haven't the
slightest doubt. It will be exceeded before counting the
other--another unprecedented and I think extraordinary gesture
of support for New York, and that is the victims' compensation
fund that was attached to the airline rescue bill. So without
question, in my judgment, before we are done over $20 billion,
not counting that amount.
This has been a week in which I am sure I have spoken
several hundred thousand words in a whole variety of forums. At
least one of them was really poorly chosen, and I take it back
eagerly. What I meant and what I should have said was that the
exercise at some points has been a bean-counting exercise or a
numeric exercise in which people--it was hard to get people to
talk about what are we going to get done, what will we rebuild,
which buildings, which infrastructure, how fast and so forth.
People only seem concerned about ringing up a meter counting
the dollars out the door, and that is I think all I meant to
say. And I am sorry that I said it so poorly.
But we are working very hard to make sure the President's
commitment is fulfilled. More importantly, that the Federal
Government delivers on the unprecedented list of things that it
has already agreed to do in the case of New York, 100 percent,
not something less cost of--as you know, of payment for so much
of the--for all the damage that happened there and so many
other things.
I would mention specifically to this Committee, as I did to
two committees yesterday, a major piece of unfinished business
that we now have to figure out a new--we may have to figure out
a new way to accomplish, and that is the centerpiece of the
economic development program that the city and State have
requested. And that is the so-called ``liberty zone'' package.
It was to be part of the stimulus bill, which came so close to
passage before Christmas, and now is in real doubt,
regrettably. And we remain committed to that package,
Congressman, and would like your counsel and guidance about
alternative means of moving it if the vehicle it has been on
truly is stuck.
[The prepared statement of Mr. Daniels follows:]
Statement of the Hon. Mitchell E. Daniels, Jr., Director, Office of
Management and Budget
My colleagues at OMB and throughout the executive branch have
worked hard to present this Committee and our fellow citizens with a
very different budget for the fiscal year 2003. Before turning to the
traditional subjects of totals, balances, and specific policies, let me
recommend to the Committee's attention some new features which I hope
will now become part of your annual expectations and deliberations.
This budget takes seriously the assessment of government
performance, and its relationship to future spending. Activities where
effectiveness can be proven are maintained and often reinforced; those
that demonstrably fail, or can make no showing of effectiveness, in
many cases are looked to as sources of funding. The days when programs
float along year after year, spending taxpayer dollars with never a
showing of reasonable results or return, must give way to an era of
accountable government. This and all future budgets must no longer be
permitted to answer only ``How much?'' They must also address the
question ``How well?''
This innovation responds to decades of calls by good government
advocates. While long overdue, it is especially necessary at a time
when the physical safety of Americans requires that the Federal
Government take on many additional, expensive tasks.
In the interest of both accuracy and sound management, this budget
takes a major step toward full cost accounting of programs and
departments by assigning the costs of health and retirement benefits to
the places where those costs are created. At long last, the true cost
of these programs will be visible, and managers will have full
incentive to control the costs of additional personnel. Other disguised
costs, such as the future liability associated with hazardous waste,
remain and should be the object of further reforms.
The Unexpected Cost of the Recession
It has been clear for months--since September 11th to be precise--
that our fiscal picture had changed in a fundamental way. The weaker
economy erased $177 billion of revenues previously expected for 2002,
and $120 billion for 2003. Additional spending to respond to the
terrorist attacks in these years subtracted another $31 billion from
the surpluses we all had anticipated. Over a 10-year period, for those
still professing to find use in such numbers, changed economic and
technical factors reduced the surplus by $1.345 trillion.
The recession that began in the first quarter of 2001 was the
largest but not the only economic factor reducing estimated surpluses.
The revised outlook for near-term productivity growth reduced the level
of GDP--and hence the receipts base--throughout the budget window. Both
the recession and the impact it has had on budget surpluses took us all
by surprise.
As the Washington Post has noted, ``2001 was a nightmare for
economists,'' pointing out that, almost without exception, forecasters
failed to see recession or its effects coming. In our misjudgments, our
economists were in large and renowned company. The good people at the
CBO, and 51 of the 54 private forecasters in the Wall Street Journal
survey, all missed the recession even as it was well underway. The fact
that our assumptions were toward the conservative end of the
forecasting spectrum did not protect us from a very large misestimate.
May I add that when the Nation's economists are having nightmares,
budget directors lose sleep, too. We ultimately must choose assumptions
that we believe will be accurate, and it is no comfort later that the
rest of the world was in error, too.
The Administration stated from the outset that it would leave room
for error, particularly when it came to longer-term projections. In
mapping out long-term policy proposals, our Blueprint expressly marked
off over $800 billion (15% of the total expected) as a Contingency
Reserve in the event that the hoped-for surpluses did not materialize.
At least as far as one can tell from the latest 10-year estimate, even
this generous hedge was not enough.
The 2001 experience casts further doubt on the entire idea of 10-
year budget forecasts. The attempt to see ten years out began only six
years ago--prior to that time 5-year forecasts were the longest ever
attempted--but already enough evidence is in hand to convict. The
experiment with 10-year forecasts demonstrates that no one can reliably
predict budget levels this far into the future. In fact, despite all
the lamentations, this year's 10-year baseline surplus forecast is just
as big as that of 2 years ago; even after tax relief, it is the largest
ever except for last year's. If we had taken a one-year timeout from
10-year guesswork, no one would say that anything was ``missing.''
Our budget extends 10-year forecasts at the top-line level, for
those still determined to find them credible, but it drops them from
the rest of the document. There we return to the wisdom of our
predecessors by using five-year numbers, which are plenty uncertain in
their own right.
A Two-front War Against Terrorism
Mr. Chairman, we present this week a budget for a two-front war. It
proposes substantial increases, those the President believes necessary
to deliver on the paramount duty of the Federal Government, to secure
the safety of the American people.
Last year's budget began the reconstruction of a neglected national
defense base, and that project continues now with new urgency. The
President asks Congress to support a 12% growth in base defense
funding, part of this reflecting the new threats presented by a long-
term terrorist foe. He also requests an additional $10 billion, if
needed, for the costs of continued hostilities at today's levels.
Funding for the category of activities we now term ``Homeland
Security'' will double under the President's plan: airline security,
first responders, bioterrorism, border security and preventive law
enforcement, are all scheduled for major increases as recommended to
the President by Governor Tom Ridge.
We have worked closely with the Office of Homeland Security to
define and budget for these activities; an explanation of the
definition of the Homeland Security budget is attached at the end of my
testimony. We will guard against and oppose efforts to divert funds
from Homeland Security requirements or to misclassify unrelated funding
under Homeland Security's priority status.
Winning our two-front war is not optional, and will be expensive.
As in other times of national conflict, tradeoffs will be required.
Other priorities will have to stand aside for a time, lest we commit
the ``guns and butter'' mistake of the Viet Nam era. We propose a very
reasonable level that allows spending not related to the war or
homeland defense to grow by around 2%.
Within this ``Rest of Government'' category the President proposes
$355 billion of spending. It must be noted that the activities it
encompasses have enjoyed rapid funding increases during recent years,
growing by an average annual rate of more than 8% since 1998.
Within this enormous sum, it is both possible and desirable to
increase high priority programs of proven effectiveness, and this
budget recommends many such increases. Dozens of programs across the
government are scheduled for growth based on demonstrated results.
Measuring Performance and Delivering Results
For decades, good government advocates have called for systematic
measurement of government's performance, and its reflection in the
allocation of resources. In 1993, Congress passed the Government
Performance and Results Act (GPRA), which was intended to implement
this reform, but this mandate has been virtually ignored. The
President's budget for 2003 responds to Congress' instruction,
differentiating where the facts are available between programs that
work and those that do not.
Many programs of proven effectiveness are strengthened, by shifting
funds from those which can make no proof of performance. NSF, WIC,
Community Health Centers, and the National Weather Service are among
the best performers, based on clear targets they have set and hard data
that says these goals have been met or surpassed.
A serious attitude toward performance is long overdue, but takes on
special urgency at a time when the demands of national security assert
a heavy claim on our resources. We hope the findings of this budget
will trigger interest in performance assessment, and bring forth much
new information about that large majority of programs for which we have
no useful data at all.
Restoring Economic Growth
This budget funds a two-front war, but takes aim at a third
priority as well, the struggling American economy. The President urges
the Congress to act, and act quickly, on a jobs and growth package like
that which passed the House but was blocked in the Senate just before
Christmas.
There are some encouraging signs of recovery, but the President is
not satisfied to leave matters to chance. Government cannot ``manage''
the economy, but it should do what it can, and the President wants to
act on a stimulus measure that might accelerate and strengthen
recovery. While adding this action to his other budget proposals would
likely make 2003 a year of a small deficit rather than a year of small
surplus, the President favors the tradeoff in favor of jobs and growth.
Past the short term, it is only rigorous economic growth that can
restore surpluses in any event.
Conclusion
In sum, we should count our national blessings. Despite
simultaneous war, recession, and emergency, we are in a position to
fund the requirements for victory, plus a stimulus package, and still
be near balance. The deficit we project will be the Nation's smallest
in times of recession since the early 1950s.
Interest costs to the Federal Government will continue to decline;
interest payments will fall below 9 cents of each budget dollar for the
first time in 22 years. Despite everything, the outlook is promising
for balance in the year after next, and for a return to large surpluses
thereafter.
The President's proposals thus do what must be done, while
protecting our fiscal future. It is a privilege to submit them for the
Committee's review.
______
[GRAPHIC] [TIFF OMITTED] T9697A.001
------
[GRAPHIC] [TIFF OMITTED] T9697A.002
------
[GRAPHIC] [TIFF OMITTED] T9697A.003
------
[GRAPHIC] [TIFF OMITTED] T9697A.004
------
[GRAPHIC] [TIFF OMITTED] T9697A.005
Mr. Rangel. Well, let me thank you for the clarification,
but are you suggesting in the bean counting that the delegation
is involved in, that----
Chairman Thomas. The gentleman from New York is recognized.
Mr. Rangel. Thank you so much, Mr. Chairman. That my Mayor
and Governor has not given you the blueprint that you feel
comfortable with in terms of allocation of additional funds?
Mr. Daniels. No, sir, not at all. In fact, I think the
blueprint is pretty clear, and it is an exciting one. I only
mean on some occasions it has been hard to talk about the
blueprint, the ``what will we do,'' because people seem to want
to stop and start with what will it cost. And my view is it
will cost what it costs. Let us get the job done, and I am
confident when we do count the beans later on, we will see that
it was well in excess of $20 billion.
Mr. Rangel. I look forward to working with you toward that
end. Thank you, Mr. Chairman.
Chairman Thomas. Thank you, Mr. Rangel. And it is somewhat
melancholy now to look back on those days in December when we
were over working with Senator Schumer on a package that was
absolutely completed but did not move because the stimulus
package at that time did not move. My understanding is in the
Senate now, the package is down to unemployment insurance. That
may not be enough room to place a vehicle, and I would be
interested in working with the gentleman from New York, if in
fact we might be able to put that as part of our contribution
on a package going back. There may not be that many vehicles
moving back and forth.
And I would invite, Mr. Director, your response, and I
realize that the Administration perhaps hasn't sat down and
examined the decision over on the Senate to send only
unemployment insurance (UI) over as the best they could do for
a stimulus package, and whether or not we might want to
embellish that a little bit over here with what would be
considered on a bipartisan basis worthwhile additions.
One of the questions that I want to ask you, and I will
provide in written form, was one that I presented to Secretary
Thompson, because it is difficult to understand. Sometimes when
you are looking at the budget to fully reconcile how pieces go
together, and the concern that this Committee has, given its
major responsibility on Medicare, is that, one, we commend the
Administration for placing $190 billion in the budget. That is
the same number that was in there last year. Last year it was
$190 billion in the surplus environment, and now it is $190
billion in a potential deficit environment. Those aren't the
same $190 billion. The ones this year are much dearer, and we
appreciate that. But we have also looked at a program that is a
low-income Medicaid convertible to Medicare drug program that
has, I believe, costs in the vicinity of $77 billion over 10
years. Additionally, the Administration has said they want to
up--to enhance the Medicare+Choice by about 6.5 percent.
When you add all of those dollars and subtract them that
are in the budgetary structure, you are down around $115
billion available. When you look at the MedPAC or Medicare
Payment Advisory Commission, the group that recommends to us,
updates for physicians, for example, which over a decade
ballpark at about $80 billion, assistance to hospitals,
dialysis facilities, the home health, $115 billion left over
from previous statutory language, we are looking at almost $100
billion coming out of providers. And what we could get out of
the Administration's budget was that those adjustments will
come from providers. And that is fairly difficult when the
whole pot, as people are looking at it, is somewhere around an
additional $100 billion. And the ones who receive the largest
amounts, the physicians in the hospitals, are the ones who are
out front in terms of augmentation of current amounts.
So when you put those two together, it makes it very
problematic to figure out how we can get where we need to go.
So we will submit that in written form and would request--and
we will coordinate with HHS that you would give us just a
little bit of guidance in terms of the directions as to where
we may go.
[The information follows:]
Question: The President's budget provides $190 billion to modernize
the Medicare Program, add a prescription drug benefit and take steps to
strengthen the existing Medicare+Choice program. Meanwhile, MedPAC's
recommendations for provider payment changes would cost over $100
billion, but the budget says that any changes to Medicare provider
payments need to be done in a budget neutral manner across providers.
How is the Congress supposed to pay for MedPAC's recommendations?
Answer:
LThe President's priorities for Medicare are to:
Lquickly phase in a drug benefit for low-income Medicare
beneficiaries, that will transition to the comprehensive benefit
available when the entire program is modernized;
Lsustain and enhance the options available to
beneficiaries in Medicare+Choice; and,
Lmodernize the Medicare Program in order to provide a
comprehensive prescription drug benefit and improve health insurance
plan options, consistent with the principles the President outlined in
July 2001.
LThe $190 billion included in the FY2003 President's
Budget is dedicated to providing funding for the President's priorities
discussed above. This money is not meant to be used for increasing
payments to fee-for-service Medicare providers. In fact, the Budget
also states that the Administration believes any changes to fee-for-
service payment policy must be budget neutral in both the short and
long term, across provider payment updates.
LThe Administration recognizes that Medicare's current
administrative pricing system creates extremely complex provider
payment systems that do not always function smoothly or equitably. In
fact, these shortcomings of the existing payment systems further
underscore the need for fundamental reform of Medicare.
LHowever, a modernized program cannot be implemented
immediately; therefore, the Administration is willing to work with the
Congress to look at short-term modifications to provider payment
systems in order to address payment issues.
LFurthermore, as we consider changes to payment systems,
we need to be cautious and recall that any increases in spending will
be borne in part by beneficiaries in the form of higher premiums and
coinsurance payments.
LThe Administration is willing to consider any needed
adjustments to payment systems and to work with Congress to develop a
package that is budget neutral across providers. To this end, we point
out that some provisions in law that have held downpayments in the past
are about to expire, and extension of these provisions is one means
available to ensure a budget neutral package of reforms.
Chairman Thomas. The Chair would say that we have a current
vote on, but the Chair plans to proceed directly through the
vote in exchanging chairs, and would begin calling on Members,
with the agreement of the Ranking Member, on those who did not
have the ability to participate in the last questioning period.
So with that, I would turn to the gentlewoman from
Washington and ask her if she has any inquiries.
Ms. Dunn. Thank you, Mr. Chairman. I do have some questions
I would like to ask. I am a little concerned about the time
left on the vote.
Chairman Thomas. We have 5 minutes. And if you want to go
over and vote, the other two Members can go. I was anticipating
some Members coming back so we could continue. And if the
gentlewoman has not yet voted, I would suggest that she
probably wants to go over and vote and then come back and----
Ms. Dunn. If I could trade my time, I would sure appreciate
it.
Chairman Thomas. And we will pick up the Members in that
order. Have you voted?
All right. Tell the Director that as soon as a Member comes
back, that we will begin the questioning, but we are inside 5
minutes on the vote. So the Committee stands in recess until a
body arrives.
[Recess.]
Mr. Houghton. [Presiding.] Okay. We can reconvene the
meeting. As the Pro Tem Chairman, I would like to ask a
question. Most economists thought that there would be sort of a
minus 1 percent drop in the gross domestic product (GDP) and
were surprised by the figure that came out that was sort of
modestly on the plus side, and a big, big shrinking of
inventories.
So I think with that as a backdrop, the question that I
would like to ask you, Mitch, is this: How do you see the
overall stimulus package in this context? Should we do it?
Should we not? Does it help the economy? Doesn't it? Where do
you come down on this?
Mr. Daniels. First of all, it is important that any
stimulus package stimulate. And from the beginning of this
debate, the President has made the point that it is very
important that any package Congress agrees on, that he would
sign, would have to have as its principal purpose generating
jobs and economic growth, and a lot of ideas can travel under
the same flag.
And so I will simply want to reaffirm that the content of
the package is very important; that while it needs to help
dislocated workers, for example, to merit the label and to
merit his signature, it is going to have to show some
possibility of really making a difference of some kind in the
timing and the strength of a recovery.
Now, the President's position remains that the promising
signs we see are encouraging but not sufficient to persuade him
that we have done all we need to do. And I think he was very
disappointed at the apparent inability of the Senate leadership
to follow the House's example and pass a satisfactory package.
And he remains hopeful that we will find a way yet to do this.
In our budget, we took our cue from the Council of Economic
Advisers, which believes that a package along the lines of the
one that passed the House would add perhaps a half a point to
economic growth, and that is perhaps 300,000 jobs at the
margin. And that is certainly something worth doing and still
worth doing, even though there are some signs of recovery
already around.
Mr. Houghton. Well, one of the arguments, of course, is
that if--and I don't necessarily hear this--that if you have an
economy which is doing better than you had thought, is on the
way up, and you don't have a stimulus package, you actually get
back into budget balance much sooner. How do you feel about
that?
Mr. Daniels. It is certainly true that a bigger stimulus
package would add a little bit of red ink. In the near term,
very likely would--if it was effective, would reverse that
effect and would produce more black ink over the long term. The
President is prepared to make that tradeoff, but the people
holding the view you just mentioned are generally accurate on
the OMB baseline, which is slightly different than CBO's or
Congressional Budget Office. The 2003 budget we have presented,
in view of everything, in view of the recession, in view of the
war costs, in view of the extra needs for homeland defense and
so forth, is in balance, before taking the step of an economic
package. The President's choice was to go ahead and act. He had
always said that in normal times the budget should be balanced;
but a recession, along with war and emergency, was an
acceptable reason for a deficit. And that is precisely the
choice that he made in presenting this budget.
Mr. Houghton. Let me just ask you one further question, and
then I will pass it along to the others. So it looks like the
Senate is virtually going to do nothing except pass over
unemployment insurance. If there were one or two other things
you think are essential that we ought to be considering as a
throwback to the Senate, what would those be?
Mr. Daniels. The Administration hasn't made a decision as
to rank-ordering the elements. The President liked the elements
that were in the House-passed bill. The rate reductions in the
middle brackets would probably be very high on our list. We
think those have both the best near- and short-term--I am
sorry, near- and long-term effectiveness. Immediate aid to
consumers even at the lower income brackets, and of course
investment incentives. But for the moment we haven't given up
on the idea we could do all of those things, or things like
them, and so I am not able to tell you yet that the President
would pick just one out of--or which one he would pick if he
was limited.
Mr. Houghton. Thank you very much. Mr. Crane.
Mr. Crane. Thank you, Mr. Chairman. Director Daniels, quite
simply, I am thrilled with the President's budget. It strikes
the right balance between necessary spending on national
security and continuing the tax policies that were begun last
year. However, allow me to suggest there may be one thing that
might improve the accuracy of this budget. You recognize we are
locked into a revenue estimating scheme that does not take into
account the real-world effects of tax policy. We act as if
there is no budgetary benefit from sound tax policies like
reducing marginal rates or capital gains or increasing
incentives for savings. Yet we know these changes have a
positive effect on the economy. And I just got a report here of
the effects of the stimulus bill passed by the House, and the
stimulus bill was estimated by the White House to raise GDP by
five-tenths of a percent in 2002 and create 300,000 new jobs.
And without the positive economic growth effect of the stimulus
bill, the 10-year surplus, 2002 to 2011, would be $175 billion
lower. And the estimated 10-year costs of the stimulus bill
passed by the House in December is $157 billion. Therefore, by
killing the stimulus bill, we lose an estimated $18 billion in
receipts over 10 years and prevent 300,000 jobs, about half the
size of a congressional district.
Mr. Director, what suggestions do you have to improve the
revenue estimating process so we can get a real-world
assessment of the tax cuts included in the President's budget,
and would you consider these process improvements when writing
the 2004 budget plan?
Mr. Daniels. Now, this is a very important and longstanding
question, Congressman. You are absolutely right that we need a
better way, that today by convention we are not at liberty to
break from presently, unilaterally at OMB. We make the one
assumption that we know is wrong. That is, that lower taxes
have a zero effect, and honest people can differ about how big
the effect of any given measure might be, but the answer we
know is wrong is the one we use. And I am hopeful that some
progress will be made. I know that professional economists have
worked very hard in these last decades to try to get to some
accuracy about this, and there are models around that I think
we could use. It does take the agreement of various parties,
including the Congress, the CBO and so forth. And I think maybe
the current situation reminds us again we ought to get serious
about it.
Mr. Crane. Well, I would hope that we could get serious
about it sooner rather than later, because unfortunately it
becomes a political game. And who is in charge--oh, you are
back. Okay. I yield back the balance of my time. Thank you.
Chairman Thomas. [Presiding.] The gentleman from
Massachusetts wish to inquire?
Mr. Neal. Thank you, Mr. Chairman. Mr. Daniels, you have
referenced twice the stimulus bill that came from the House. Do
you favor repeal of the corporate alternative minimum tax (AMT)
retroactively?
Mr. Daniels. It could be acceptable to the President in an
otherwise adequate package. You said just corporate--repeal
prospectively?
Mr. Neal. The first stimulus package that passed the House.
Mr. Daniels. Well, the first one, as I recall, included a
refundability provision that we did not embrace; no, not that.
But the notion that at least looking forward, the corporate AMT
left as it is would moot or vitiate the job creation effects is
something that we--that the Administration did find persuasive.
Mr. Neal. But did you favor it or not favor it?
Mr. Daniels. As originally passed in the House?
Mr. Neal. Yes.
Mr. Daniels. Never took a position on it, but it was not a
part of the principles--a part of the principles that the
President had laid down for stimulus. And I want to say that I
personally felt it was not going to be and probably shouldn't
be part of any final package.
Mr. Neal. No. Fair enough. And, look, I appreciate it. You
have got a tough job. You have run into a buzz saw a couple of
times by comments that you have offered. And some of the
comments, at least as it related to the appropriations process
here, I thought were kind of interesting in the sense that we
ought to have maybe a truth-in-spending bill around here that
everybody signs onto, and the same people that preach fiscal
austerity on the House floor typically load up. And it is not
the Republican appropriators, incidentally. It is other Members
of the House that typically send more letters seeking more
funds for more projects than anybody else does. At the same
time, they have the opportunity to rail against excessive
spending on the House floor.
And so when I watched you a bit caught off guard with those
comments that you made, I thought it was kind of interesting
that you might be speaking to an issue around here that has
gone on for a long time. And I am told by friends on both sides
of the aisle that the biggest letters that they get in terms of
requests for expenditures oftentimes come from those who preach
fiscal sanity on the House floor. And maybe just releasing some
of those letters around here at some point for the things that
they ask--and you might want to be part of that, Mr. Daniels.
You are not going to get them any madder at you than they were
then. I mean, it is as simple as that.
But let me get back to the questioning. The reason I raised
that question with you about corporate alternative minimum tax,
in the budget request it didn't address individual alternative
minimum tax, and I have been on this for a long time. Mr.
Thomas has said it is his desire to take the issue up at some
point. Well, we are into another setting, another budgetary
cycle, and the problem is really getting worse for a lot of
people. It is suggested that it will rise from 5.6 million
people in 2004 to 13.4 million people in 2005. Would you deem
this to be a tax increase on 13.4 million people?
Mr. Daniels. Well, I would certainly deem it to be a large
problem, and I think you are to be commended for advocacy on
this issue for a long time and for keeping it in the forefront
of people's attention. It deserves to be. The tax relief
measure of last year did, you could say, buy us some time, I
think to 04, but this needs to be addressed. The Treasury
Department at the President's direction is working right now on
a study of tax simplification that very likely will--it will
have to treat with this issue and very likely I think will come
up with ideas for resolving it while we--during this interval.
But it is certainly a problem that I think most parties agree
needs to be taken care of.
Mr. Neal. I appreciate your candor. I had a chance to sit
next to Andy Card recently, and we discussed that whole notion
of tax simplification, which we have had a pretty good bill I
think that has been hanging out there for a while, and I would
be happy to join the other side here in, because----
Mr. Daniels. Well, we would value your ideas.
Mr. Neal. That is the kind of issue that I think would
really help the American people as opposed to much of the
endless debating we do here.
So you weren't in favor of the repeal of the corporate
alternative minimum tax, but you think we ought to do something
about individual alternative minimum tax?
Mr. Daniels. That is correct.
Mr. Neal. You couldn't give me a better answer. I
appreciate that very, very much. Thank you, sir.
Mr. Daniels. Yes, sir.
Chairman Thomas. The gentleman would tell the gentleman
from Massachusetts, although it has been characterized as the
corporate alternative minimum tax, even in the initial effort
of the Committee--and I appreciate the gentleman from
Massachusetts staying away from the second offer, which was not
the repeal but significant reduction and a virtual appeal for
those who fit the category--in both of those instances, there
were individuals who would have been relieved of the
alternative minimum tax. It does, of course, carry with it a
majority of corporate structure, but there are individuals who
do pay through that tax structure. And since the gentleman
mentioned the Chair's interest in the individual alternative
minimum, as the gentleman well knows, it stems from the last
tax package from the majority--then-majority, in terms of
moving the regular tax depreciable schedule away from the
alternative. And the gentleman is correct. It continues to
grow.
To me, the fundamental hurdle in resolving it is the fact
that it is now going to require about $500 billion, half a
trillion dollars, to address a problem that had his party, when
they had been in the majority addressed it, for a very modest
amount would have corrected it. But the goal of seeking revenue
overruled the appropriateness and fairness of modifying or even
eliminating that alternative minimum tax.
I appreciate now the gentleman's late coming to the need to
resolve that issue, but this is truly one which is going to be
very difficult for us to embrace. I want to underscore the
gentleman's initial comments about it being only for corporate
was simply not true, either in the first version of the
stimulus package that passed the House or the second.
Mr. Neal. Mr. Chair, would you yield for a question?
Chairman Thomas. Certainly.
Mr. Neal. I think the point that I tried to raise here was
that there was a certain enthusiasm here for repealing
corporate alternative minimum tax. Well, we have kind of danced
around the issue of alternative minimum tax for individuals.
And all I am suggesting is that time--and again I think the
Committee and I think that your comments have been entirely
sincere as they relate to doing something about alternative
minimum tax--but in the closing moments of last year, we were
able to rush through a package which the Administration
apparently, on corporate alternative minimum tax, didn't
support; and we would have had an opportunity here, I think,
even in increments, to address the individual alternative
minimum tax.
And I hear it all the time from accountants. I hear--and
incidentally, the accountants that I hear from are almost all
Republicans--that their employees and the people that work with
them and the people they work for are all complaining about
this issue. And think that I accept your word, and have
entirely, and I would like to get to that at least in some
measure if we could this year.
Chairman Thomas. Once again, to make sure that the record
is correct, the Director responded to your question on the
initial stimulus package which was passed in October, which did
have the repeal of the alternative minimum and the
redeemability of the credits, which was not retroactive. I
believe the President has gone on record, including most
recently in the State of the Union, that he was in support of
the second stimulus package that passed the House, which did
not repeal the alternative minimum tax but rather made
fundamental revisions to it. So if the gentleman is referring
to the December-passed stimulus package as the one that we
rushed through the House, that question was never asked of the
Director, and I believe if that question were asked of the
Director, he would say that the Administration supported the
December stimulus package. Is that correct, Mr. Daniels?
Mr. Daniels. That is correct. And if I misunderstood the
question, I apologize, but that is correct, and I think the
earlier question did refer to the first version.
Chairman Thomas. That is correct.
Mr. Neal. Mr. Chairman, could I prolong this for a bit? My
point is simply this--and if I could just go back to it. We
have talked about it here, time and again, and the problem only
gets worse. All I am suggesting is that a good sit-down with
the minds in an attempt to address this in a fair-minded
fashion.
Chairman Thomas. The Chair will underscore, and then move
to the next questioner, that the Chair has no problem with the
gentleman stating his position. It is when the record is made
which is factually inaccurate that the Chair feels the
necessity to intervene. The Ranking Member has indicated that
the Chair seems to intervene fairly frequently. If the comments
were more accurate, the Chair would not feel that need as
frequently as he does.
The gentleman from Pennsylvania wish to inquire?
Mr. English. I do, Mr. Chairman, and I will keep my remarks
accurate and within 5 minutes. Thank you.
Mr. Daniels, it is a privilege to have you here, and I
first of all want to associate myself with the remarks at the
beginning of the hearing by the Chairman when he raised the
point that because of the funding stream that you have outlined
for Medicare, whereas you have I think provided adequate
funding for hospitals. You have addressed many of our immediate
needs. We are concerned that there are still some legacy issues
left from the Balanced Budget Act that we would like to address
and that we don't have the revenue to do it. And I would simply
like to say I hope we are going to be able to work with the
Administration to find a way of addressing some of those
issues, whether it--whether the approach is budget-neutral or
not. And, again, I realize you have to--you have to be very
concerned about the bottom line. We also have to be very
concerned about some of the reimbursement policies that are
currently enshrined in law and need to be revisited.
On an entirely different issue, Mr. Daniels, I wonder did
the President's budget envision any change in the earnings
limit for the nonblind who are on Social Security?
Mr. Daniels. I've got the answers to at least 10,000
questions in my head, but I think that is 10,001. Can I answer
you on paper?
Mr. English. May I simply leave it with you and suggest
that the President has the capacity to raise the earnings limit
for individuals who are on Social Security, some of the most
vulnerable in our society. Under the last Administration, I
think in 8 years they only raised the earnings limit once. That
earnings limit no longer provides what it once did, and there
are some workers who are working, notwithstanding their limited
capacities, who are unable to work full time on the minimum
wage because of the current very low threshold. And I think
from a standpoint of compassionate conservatism, giving these
people an opportunity to work, giving them an opportunity to
become self-sufficient, is in everyone's interest and probably
won't yield the costs that perhaps a revenue estimate would
suggest. So I simply will leave that with you.
On an entirely different issue, I am very----
Mr. Daniels. Before you move on, Congressman, let me say if
I interpret accurately the mumbles behind me, the answer to
your question is no, but I appreciate your bringing it up, and
we will have a look at it. I suspect, as you, that in some
state, this will seem both fair and affordable.
Mr. English. And I am grateful to you for that indication.
I have been reviewing your unemployment insurance proposal. I
want to salute you for lowering the trigger for the extended
benefits program, but I am concerned about the phasing out of
Federal financing for unemployment insurance and employment
service operations. My concern is this--and if I
misunderstand--I understand you are providing full
discretionary funding for 03 and 04, and then you are providing
matching funds for 05 and 06, and after that participation by
the Federal Government in funding these vital operations would
be phased out.
What kind of an impact do you expect that to have on the
commitment of States to provide these functions; and, two, once
the Federal funding is gone, how much standardization is there
going to be nationally in how these services are provided?
Specifically what I am curious about is will employment
services still be provided by all of the States? What guarantee
do you provide of that?
Mr. Daniels. Congressman, you ask what impact I expect. The
answer to that is a highly favorable one. We are living with a
legacy issue, to take another of your terms, here that has been
hanging around a long time. It is a very antique, I have said,
sort of jury-rigged affair, and we think it ought to be
reformed in a methodical and gradual way. The proposal here, of
course, would not touch benefits at all, only the
Administration.
Right now, States see dollars, really excessive dollars,
taxed away from their businesses. They come to Washington. They
are held in a fund. Occasionally we leak out a few back. And
this proposal that Secretary Chao and our people have come up
with we think will enable States first of all to have more
resources or at least have control of the resources. We would--
part of this would be to disburse $9 million of Reed Act money
to the States. As the Federal tax is lowered, it makes room for
the States at their discretion to replace those funds if they
need them.
We think in the end you would see more attention to
administrative efficiency, more flexibility in the States, and
frankly, to get to your last question, the employment services
would probably become a bigger and then more effective part of
our unemployment system than they are today. So I do commend it
to the attention of the entire Committee. This--I really think
this has the prospect to be a reform that could have a lot of
bipartisan enthusiasm. It is complicated, and fortunately you
have at least one of the Congress' genuine experts on this
subject among your number. Congressman McCrery can do a better
job than I of explaining it to you.
Mr. English. Well, I don't have Mr. McCrery's expertise and
my time has expired, but I look forward to seeing your
legislative language and working with you if I can.
Mr. Daniels. Thank you, sir.
Chairman Thomas. Thank the gentleman. Does the gentleman
from Tennessee wish to inquire?
Mr. Tanner. Thank you, Mr. Chairman. Thank you, Mr.
Director for being here. It comes as a disappointment that we
are in, I would say as a country, a markedly less financial
position of strength than we were last year. Would you agree?
Mr. Daniels. Yes, but I think we are all disappointed.
Mr. Tanner. Last year the budget surplus at CBO estimated
for this year was $313 billion. OMB was $284 billion. This year
that has been revised, and there has been a $333 billion
reduction in the projected surplus this year. CBO gives three
reasons for this: legislative action, nondefense discretionary,
defense, June tax cut and so on, economic adjustment and
technical adjustment. But to say if you put all of these into a
percentage--and I want to ask you if you agree--about 72
percent of this total of $333 billion reduction in the
projected surplus for this year due to economic changes, 11
percent for defense spending and 9 percent and so on, would
that be a----
Mr. Daniels. Yes. Those are either exactly or very, very
close to any numbers that I have seen. The economy and the
recession that we are in has had the effect that recessions
have always had, and that is to take us into the red.
Mr. Tanner. I agree. Now, the 10-year projections CBO also
has made--I didn't find it in your document as a 10-year, but
that shows a total reduction of $4 trillion, and again they
give the same three reasons for this change: legislative
action, economic adjustment, in this case $653 billion, and
technical adjustments, $453 billion. But if you add up the
legislative changes that CBO says are the reasons for this
adjustment of $4 trillion from $1 trillion--or $5.6 trillion to
$1.6 trillion, what one finds is that it only adds up to $3
billion in terms of the changes.
The other $3 trillion--the other trillion, of course, comes
from increased interest costs. Would you--to make the $4
trillion, according to CBO.
Mr. Daniels. Right. And if you believe we have any ability
to see that far into the future, which I am skeptical of.
Mr. Tanner. Well I am, too, and that is what I said last
year when you were here telling us there was money as far as
the eye could see and that we had plenty of room to do
everything. But 70 percent of the surplus that we talked about
last year, this $5.6 trillion, wasn't supposed to show up till
the last 5 years, 10 years. And I couldn't agree with you more.
That is what we said last year, and we said we were ``banking
on the come'' too much. But anyway, that is a different story.
What my point is, is that if one looks at these 10-year
numbers, one can readily see, according again to CBO, that
legislative action has accounted for in their numbers about 60
percent of the change of this $3 trillion, with the tax cut
being 42\1/2\ percent of that 60. This is what they say based
on what--the same sort of protocol that they did.
The only point to all of this, Mr. Director, is we are,
short term, in a recession and, short term, in a war. I think
we know that that has had a dramatic impact on this year. The
same can't be said for any of these 10-year projections. The
same can't be said for your 5-year projection in terms of what
we are doing. Nobody expects the recession to last for another
5 years. At least they haven't said so.
So my point is, when we on this side are criticized--and
have been for the last 2 hours--about saying that everything
ought to be on the table when they turn around and our
financial outlook is this dramatic, that everything ought to be
on the table, we are criticized as saying we want to raise
taxes because some of these tax cuts that are supposed to take
place in the outyears that have not yet become law, if we do
anything to stop that or otherwise hinder it, defer it, or
anything else, we are tax-raisers.
Now, do you believe, given this financial outlook, that
everything ought to be on the table in this hole we find
ourselves in?
Mr. Daniels. Well, sir, a couple comments. One is that I
haven't given up at all on the possibility that we will be back
in surplus and back to reducing debt very soon. I have got a
chart here somewhere.
Mr. Tanner. I don't either. But I am saying, don't you
think we ought to put everything on the table if we see next
year that we are still in this sea of red ink?
Mr. Daniels. It is perfectly within the rights of Congress
to look at these things all the time. I would say to you that I
share your skepticism about long-term numbers and said so 100
times last year, too. As your question pointed out, the revenue
associated with the tax relief bill of last year phases in
very--the revenue change phases in very, very gradually. It is
the position of this Administration that this is not an
undertaxed society. We are taxing the American economy at rates
well above the post-war average, even after tax relief, and I
think we have to be very careful raising that level of taxation
any higher. But----
Mr. Tanner. I am not talking about raising taxes. I am
talking about putting everything on the table.
Mr. Daniels. Really, I am not here to engage in the
semantics game of whether--you know, a repeal or postponement
is an increase and so forth. Just personally I don't think that
gets us too far. There is a legitimate debate, however, between
higher rates--higher total taxation and lower. And I am just
saying, even after tax relief, I believe 19 cents on the dollar
across this time period, the taxation of the economy is pretty
high. We ought to be--it might be very counterproductive to let
it become higher.
Mr. Tanner. I agree.
Chairman Thomas. The gentleman's time has expired.
Mr. Tanner. May I have 30 seconds?
Chairman Thomas. You get one more bite at him.
Mr. Tanner. Here is the only point I am trying to make, Mr.
Director. We already are $3 something trillion of money we pay
interest on every year. We are going to be borrowing some more
in the short term. Now, it seems to me to be almost--reach a
moral question when we send young people in uniform to fight
for this country in Afghanistan and then ask them and their
children to pay for it because we are borrowing the money to do
it, while we take a tax cut; that we are accused of trying to
raise taxes if we say, wait a minute, we are borrowing money
that they have got to pay back, and they are doing the fighting
and we are taking the tax cut now in my generation. That seems
to me that that makes a strong statement that we ought to put
all of this on the table if we find ourselves this way next
year. And that is all I ask you to agree to.
Chairman Thomas. The Chair believes the gentleman's
question was rhetorical. The gentlewoman from Washington wish
to inquire?
Ms. Dunn. I do. Thank you very much, Mr. Chairman. And
welcome, Mr. Daniels. We are happy to have you here. I wonder
if we could put that chart back up that you put, the chart
before--no, with the bar graph. I think that is a very
important chart. I can't see it right and clearly from here,
but it looks like it is the chart that says we will be in
deficit for 2 years and we will work our way out of deficit to
end up with a $1.6 trillion surplus after 10 years. Is that
correct?
Mr. Daniels. Your statement is correct, although that is
not what the chart says. You are pretty far away from it over
there. You mind if I tell you what it says?
Ms. Dunn. Go ahead.
Mr. Daniels. It simply shows how wildly these 10-year
forecasts vacillate. Because everybody understandably has
focused on last year--the second one from the right, versus
this year--and saying, notice that the projected surplus, still
a surplus, has come down. Most people haven't noticed that--
except for last year, this is the best outlook we have ever
had. It is the biggest 10-year surplus we have ever projected.
And what that says to me is we can't rely very much on these
things. They are interesting to look at.
I have every hope that if the economy should come back
strong, we could be back here next year looking at another sort
of outlook that Congressman Tanner regrets that we don't have
anymore. But your point is a correct one, and we are looking at
substantial surpluses, even given the circumstances.
Ms. Dunn. And I think that is an important thing to keep in
mind, because the way I have heard this reported through the
media is that we are in dire straits and we will never be in
surplus again. And in fact we have been in deficit for many,
many years up to about 4 years ago, in which we had 4 years of
surplus. Now we are looking through 10 years of ending up with
a surplus of $1.6 trillion. I think that is a very, very good
goal and as tight-fisted as this Administration appears to be,
I think it is a goal that we could hit.
But I did want to go back to the one point that I heard
that Mr. Tanner made and just ask you a question. You have
often objected to the long-term revenue projections that we had
to make in the Congress. I don't remember doing this until a
few--couple years ago, when the Senate brought us over to their
side of the street--because it seemed to me we had usually
projected in 5-year increments. I am wondering if you could
comment on that. Is there some economic theory behind this,
other than the unpredictability of the longer term prediction?
Mr. Daniels. No. Your recollection is correct. For most of
American history, we didn't look out further than 3 years, and
from the early seventies to 6 years ago--5 years--and this 10-
year, I would say experiment, is of pretty recent vintage. And
when you look, again, at how erratic these numbers are, I think
that at a minimum it means that we have to not rely too heavily
on them or trust them too much. And I understand the reasons
why the experiment was begun, but I think that we have learned
how problematic they can be and how they can sometimes lead us
into some long and not very useful arguments.
Ms. Dunn. Yeah. And I think the problem is just what you
say. All of a sudden the projections become the battle, and
even when they are not accurate and probably wouldn't be
accurate, depending on changes in behavior, we still seem to
hook onto them. Is there any effort to change us back to a
shorter term scoring system?
Mr. Daniels. We certainly need to secure the agreement of
Congress to do that, but in the budget we have submitted, we do
show at the top-line level the 10-year numbers, because we know
it is expected, and we didn't want to obscure at all the
difference between last year and this year. But we didn't waste
our time or the reader's time with the rest of the budget. We
stop at 5 years.
Ms. Dunn. Okay. Let me ask you one more question, because
scoring has been a consistent problem. I have been working for
years on trying to repeal the death tax. We have had many
different scores. It is incredible how many different scores we
have had on this. I applaud your effort, Mr. Daniels, to go for
permanency in all the tax relief provisions that were signed by
the President last June. I hope we can work toward that.
I did notice that there was a huge score on the repeal of
the death tax. I think it was like $130 billion, far greater
than I had ever seen before. And I wonder if you happen to know
about that, where that came from, or if I can get some
information on how that score was put together.
Mr. Daniels. I would want to talk to the Treasury people
who prepared that. I didn't notice that it was that big a
discrepancy, but I would be happy to answer you quickly in the
aftermath of the hearing on that.
Ms. Dunn. Okay. And let me just say that Mr. O'Neil
suggested that when we do such scores, it might be wise to have
a static score and a dynamic score for these items. I think
that might be a way to go. What do you think about that?
Chairman Thomas. I think the Director is mulling over that
question.
Mr. Daniels. Just making a note to myself.
Ms. Dunn. Do you think that would be a possibility of doing
the two different sets of scores?
Mr. Daniels. Again, I would want to talk to Treasury about
it. If the Secretary thought it was a good idea, I suspect I
will, too, but I would want to talk to him about it, and I
would want to talk to the--our fellow scorekeepers and make
sure that they thought it had integrity.
Ms. Dunn. Thank you.
Chairman Thomas. Thank the gentlewoman. The gentleman from
California, Mr. Becerra, wish to inquire?
Mr. Becerra. Thank you, Mr. Chairman. Mr. Director, thank
you very much for being here. I would like to just focus a
little bit on where we are today given where we thought we
would be a year ago. And I know that no one could have expected
9-11, and certainly we hope that we don't have to foresee
anything like 9-11 again, and we will do everything we can to
prepare ourselves to meet that risk. But it seems to me that
much of what we did last year, this Congress did--because I did
not support the tax cut--was predicated on those assumptions.
And I know that the President, and you in many statements, made
it very clear that you were trying to achieve certain goals.
The President had said back in his Joint Address to
Congress in February of 2001, quote: ``We owe it to our
children and grandchildren to act now, and I hope you will join
me to pay down $2 trillion in debt during the next 10 years. At
the end of those 10 years we will have paid down all the debt
that is available to retire.''
Now, I understand that was a principal goal; and you
indicated that back in March of 2001 you stated that a
principal goal of this President and his budget is dramatic
reduction of the national debt. I hope a goal universally
shared, you said. The President's budget over the next 10 years
will lead to an increase in the national debt, not a decrease
and certainly not a dramatic decrease. Does that mean that the
President has abandoned his goal at dramatic decrease if not
elimination of the national debt as we know it?
Mr. Daniels. No, not for a minute; and I--every word you
read is as true today as it was then.
Let me say a couple of things. One is, the reason for my
previous chart, we really don't know how many resources we will
have. It depends entirely on economic growth, if it comes back,
if it comes back perhaps more strongly than we can see in
prospect right now. We have pretty conservative economics in
our assumptions. No one would be happier than I or the
President if we could pay the bills associated with defending
our country, meeting our needs, and return quickly to paying
down debt.
Mr. Becerra. But this budget doesn't pay any of the
national debt, does it?
Mr. Daniels. Well, it would pay--yes, over the long term on
these projections it would, but not what we are hoping to pay
and still hope to pay.
Let me just point we could pay down debt in the year ahead
of us in spite of everything, and I can show you that. This is
the composition of the deficit----
Mr. Becerra. I understand, but let me make sure. Our debt
is what, somewhere around $3.5 trillion?
Mr. Daniels. About $3.3 trillion right now. That is the
publicly held debt.
Mr. Becerra. Publicly held debt, putting aside Social
Security, just the national debt as it set--the raw budget
debt, $3.3 trillion. At the end of the 10 years under the
President's budget, it is at least $3.3 trillion, is it not?
Mr. Daniels. Actually, no. Again, on these numbers that the
convention requires us to produce, we would still run after
everything a trillion dollars of surplus over the timeframe. So
it would come down but not nearly as far as we had hoped.
Mr. Becerra. So then the numbers that you provided and CBO
provided us are wrong because they say--those numbers say that
the debt will be at least the $3.3 trillion that it is today?
Mr. Daniels. Well, you don't know and I don't know and CBO
doesn't know because----
Mr. Becerra. Right. But we are doing things based on
projections. We passed a tax cut bill last year where----
Mr. Daniels. That is an interesting point, though. If you
are, like I, a skeptic dubious about our long-term clairvoyance
about these things, you probably ought to be feel good about
the tax relief of last year, whether you liked it or didn't
from this standpoint. It was more backloaded than the surpluses
we hoped to see. Therefore, you have got many, many chances to
revisit it if you think that is good policy.
Mr. Becerra. I think what I hear you saying is, because of
the hits, the costs of the tax cut last year won't hit for a
few years. We may have a few years to prepare. But if the
economy doesn't improve, those big hits are going to be pretty
big hits. Let me ask----
Mr. Daniels. Let me just say it is only a hit if you are
sitting in Washington. If you are a parent who has a child, who
would like a child deduction or if you are a married couple and
would like to get out of the marriage penalty, if you are any
taxpayer hoping for a little tax relief, you probably don't
think of it as a hit.
Mr. Becerra. Director, I would love to do that as well, but
I would love to tell my parents that I won't be using their
money for Social Security, and I would love to tell my children
that I won't charge them because I am using the government
credit card to pay for the debt that I incur today so that I
can retire and then my kids will then have to pay for my
retirement.
I want to strike on one last point and that is that in your
budget, as much as we are going into deficit spending and
because we are having to borrow money from Social Security, it
seems to me unfortunate that the President's budget also cuts
all the money from two particular programs that are so
essential to so many places, especially Los Angeles where I am
from, and that is school construction dollars and classroom
size reduction dollars. I hope that the President will rethink
that because certainly in places throughout the country we need
to provide our kids with an opportunity to learn so they don't
have to depend on government and can work and get this economy
rolling again.
So, Mr. Chairman, I thank you for your time; and, Director,
I thank you as well.
Mr. Daniels. Thank you.
Chairman Thomas. Did you want to briefly respond?
Mr. Daniels. Oh, very brief.
Those two categories were hotly debated last year and
didn't--and were I believe consolidated with other education
activities by the Congress, and we did not--we agreed with
that, by the way. We think that under more flexible--more of a
block grant approach communities can make their own best
decisions about whether they need--what they need most to
improve their schools. So we did not seek to start up in this
year's budget what Congress agreed to close out in last.
Mr. Becerra. But----
Chairman Thomas. The gentleman's time----
Mr. Becerra. But, Mr. Chairman, just to clarify----
Chairman Thomas. He answered the question.
Mr. Becerra. Mr. Chairman, if I could just clarify the
record, though. Those were programs that Congress agreed to
pass back in the year 2000, and there was a commitment as a
result of a compromise to fund that along with other education
programs that Congress agreed to. So to kill the program is to
go back on a commitment made--at least if Congress kills it, to
go on back on a commitment this Congress made to fund school
construction and classroom reduction.
Chairman Thomas. Thank the gentleman. The gentleman from
Georgia, Mr. Collins, wish to inquire?
Mr. Collins. Thank you, Mr. Chairman; and thank you, Mr.
Daniels.
You know, you made a comment a while ago that you and the
Administration, particularly the President, doesn't think that
we are an undertaxed society. Well, I can assure you that the
majority of the people in the Third District of Georgia don't
think we are undertaxed. In fact, the majority of the people in
the Third District of Georgia think that we overspend and that
is the real problem in this town.
Now, having said that, the real problem, too, is that we
have a tendency with the party that is in majority, no matter
which one it is, and today we have both on each end of the
hall, a separate majority, we have a tendency to enhance
programs and enhance spending which just creates more problem
with the fact of taxation. And until we can control our
spending habits, we will have a hard time controlling the tax
problem that we face.
I was reading a quote the other day from the Chairman of
the Federal Reserve when he testified before this Committee a
year or so ago when asked about taxation. His response was, the
lower the tax, the better. He has always been an advocate for
reduction in marginal rates and for reduction in capital gains
because he felt like, if you could reduce those, those were the
incentives for people to enhance their income and to better
their position, which also enhanced the Treasury of the United
States.
Last year when this same gentleman testified before the
Budget Committee, he was asked the question, do you think you
raised interest rates too quick and too high? Of course,
naturally, he said no. His goal in doing so was to slow down
corporate capital investment. He was successful, very
successful. In fact, today, after reducing the interest rates
11 times, which I think is a record number of reductions, Mr.
Greenspan says that the problem today is a lack of capital
investment because capital investments are what create jobs. It
is marketplace activity. It is people buying what comes off of
an assembly line or else it is purchasing or constructing which
entails jobs.
So I think to even think about going back and reviewing or
putting back on the table and reversing the trend of reducing
the marginal rates would be entirely wrong, and I think for
anyone in this town who thinks that the problem with
unemployment is insufficient unemployment benefits or insurance
are just plain-out dumb. The problem with unemployment is the
lack of a job, and there are things that we could be doing,
things that this body has done, this Committee has done, and
the things that the President has promoted that would encourage
investment and create jobs.
I hope that those who seek to use this situation of
unemployment, recession, war and emergency as an enhancement to
their political progress in November of this year fall flat on
their face, particularly by stopping and obstructing things
that will help citizenry at home.
I said yesterday and I will say it today and I will say it
tomorrow, the problem in this town is we focus on the cash flow
of the Treasury instead of the cash flow of individuals in
business where the cash flow of the Treasury comes from. Until
we change our view and support our constituency and their
livelihood, we are just absolutely off base; and to think that
we continue to put in place programs that increase the number
of people who are dependent upon the government is going to
help this Republic to stand too are dumb, because that is what
leads to the demise of a democracy or this Republic. Because
the definition of such is, once--the definition of a democracy
is, once people learn of the benefits that they can receive
from this Treasury, they elect people who will enhance those
benefits and leads to the demise of the democracy which will be
the end of our Republic. That is not doom and gloom. That is
truth.
I hope that the President will hold the line on spending
more so than we have on this budget. I hope that the President
will take a look at measures and issues that are being
presented or will be presented that transfer more payments of
one taxpayer to another, because that is wrong. Thank you, Mr.
Daniels.
Mr. Daniels. Thank you, sir.
Chairman Thomas. Thank the gentleman from Georgia. The
gentlewoman from Florida wish to inquire?
Mrs. Thurman. Thank you, Mr. Chairman. Welcome, Mr.
Director. Glad to have you here.
Mr. Daniels. Thank you.
Mrs. Thurman. I want to go back in history a little bit,
because I am very concerned that we are kind of doing a deja vu
here and just kind of remind us of what happened in--first in
1981, when the Reagan tax cut came in. And it was done. I
wasn't here at the time but remember it.
Then I have had some conversations with people over the
years to see what happened after 1981 and actually have pulled
together kind of a list of things that did take place; and, by
the way, they were revenue--trying to raise revenue after the
1981--so we had things like the Tax Equity and Fiscal
Responsibility Act. We did the Highway Revenue Act of 1982.
Then we did the Social Security amendments of 1983. If I am
correct, that might have been the time that we first taxed
Social Security at 50 percent.
Then there is--we go on, and we have budget reconciliation
and omnibus budget reconciliation, all of which were revenue
raisers because of what happened under the 1981--and if I
remember correctly, Senator Dole was one of the architects of
that.
Then I know recently when we have had some of the Social
Security debate, we had Senator Dole come in and talk to us
about what happened in the Commission in 1986, and in fact we
had to raise the retirement time for somebody to retire. I
believe payroll taxes were increased.
Then in 1990 we had another revenue raiser because we were
also in some problems of deficits. Then in 1993 we all know we
came in and we did it again; and at that time we also put
another 30 percent, raised the rates on Social Security, put
those dollars in the Medicare trust fund.
Then in 1997 we did the Balanced Budget Act, which, by the
way, we cut millions--actually, billions of dollars out of
Medicare.
So part of my concern is that I see kind of this pattern
that potentially happens, and that is when we start doing some
of these tax cuts, some of which have not given us exactly what
we thought it was going to do to the economy, and it has
created some deficits in some of our social programs such as
Social Security and Medicare. Those two programs are the ones
that end up having to have changes and are targeted for changes
so that we keep them solvent.
Well, we thought we were doing pretty good because by
2000--you know, we moved out that Medicare solvency was going
to 2025, Social Security was going to go out to 2039. I am very
concerned, and I know we don't have those numbers yet, at what
the actuaries are going to show when we come back in here as to
solvency of those two, at what age or what date the solvency of
those two trust funds are going to be as compared to where we
are today and what kinds of potential concerns or changes we
might have in these programs.
We had Secretary Thompson in here this morning. I had
several questions because, obviously, I am from Florida. As you
can imagine, Medicare is a huge issue for us. But we had
several questions of what was going to happen in nursing homes,
about 17 percent cuts that are a very big concern to them and
are very unstable. Government pays for about three to four--
three out of every four beds.
It looks to me like the prescription drug benefit
potentially is being shifted down to the States through their
Medicaid program basically or at least some standards set for
them to be able to do this, maybe covering over about 3 million
people in the country.
But, you know, it is nice to hear about all of this, but
there are people that have offered some alternatives like the
trigger. I understand Ellen Tauscher offered that in the Rules
Committee yesterday or last night to try to fix some of this.
So I guess, Mr. Director, what I am really trying to get
at, if in fact--because we have all said the assumptions didn't
work. They have done this. They have done that. We couldn't
rely on them. You know, things have changed. We had a
recession. We had the terrorist attacks. We have all these
things going on. What is your plan based on knowing that we
have got that bloated tax cut? If these things don't work, if
this economic package that you are trying to do, what hope can
you give to the American people that you are willing to come in
and make some of those tough issues and tough ideas that might
have to be presented without continuing to touch the same
programs that have been cut over the last several years, being
Social Security and Medicare?
Mr. Daniels. Well, thank you, Congresswoman. You raised a
lot of important points, and I am going to try to center on
what I think was the core of your question.
The first thing to say is that surpluses are a very
important goal. They are not the end of government. In fact,
they are not--they are at least behind three other objectives,
all of which, through circumstances nobody here created, the
President didn't create, we are confronting simultaneously.
So the first thing I think to say to you is that, as
important as they are and as much as we want to get back to
them quickly, there are some things that come first. They are
the defense of the American people, their safety, their
physical safety, the first and foremost responsibility of the
central government ahead of everything else. Then the
encouragement through the things government can do which is
not--it is not all powerful in the economic area but the things
that it can do to encourage a return of economic growth. And it
is only economic growth that will create surpluses.
Your history catalogue was important, I thought, and
useful, but I am pointing out that it is really economic growth
that gets us to a strong position, not the other way around.
Surpluses have never created a job or a higher GDP.
I think that the--you ask about tough decisions, and you
have a President who I think has proven he doesn't shrink from
them, and he has made a few already. He will make some more. He
will make some in the arena we are talking about now.
I was encouraged by Congressman Collins' suggestion that we
look even harder for modifications in the budget that might
bring balance back to us more quickly.
Finally, I would just say that one thing many of these
questions I think point us to is the need to get serious
quickly about Medicare reform. This budget asks for it. Again,
the President has asked for it since coming to office. We ought
to move to it quickly.
Anything we do with regard to prescription drugs for the
most vulnerable elderly ought to be a mere bridge as short as
possible, a transition to genuine Medicare reform, and that is
the single most important thing we can do to offer long-term
hope both for solvency and for better quality. And both the
programs that you mentioned that we all treasure, these
programs are both in need of long--comprehensive reform, and
let us get on with it.
Chairman Thomas. Thank you, Director.
I tell the Members, to the degree their questions consume
the 5 minutes, there will be no response. The Chair has tried
to accommodate moving down the lower level. The last two
inquirers have consumed almost 10 minutes each. It makes it
very difficult to accommodate the Members' wishes. When they
are allowed to do it, they then extend the time the way they
have and a significant discourtesy to others.
The gentleman from Ohio wish to be recognized?
Mr. Portman. Thank you, Mr. Chairman; and thank you, Mr.
Director, for being here.
We were talking about history, and I just thought it would
be helpful to talk about history and ask you a few questions,
first of all, as to whether we are overtaxed or undertaxed? As
a percentage of our income, are we taxed at rates that have
been historically on average or are we high or low?
Mr. Daniels. Well, above average, Congressman. This is
after the tax relief and throughout the horizon we can see and
at all-time record levels when we look at individual income
taxes.
Mr. Portman. In fact, the 18 percent average over time is
going to be exceeded even after the Bush tax cuts are all in
place?
Mr. Daniels. It is being exceeded right now and will be as
far as we can see----
Mr. Portman. The highest tax rates except during war time.
Second, with regard to the debt and deficit, just
interesting statistics out there on that, a lot of concern
about the debt now. We pay down almost a half trillion dollars
on the debt. We want to pay down more. But as a percentage of
our GDP or of our economy or as a percentage of outlays, how
does our debt compare to the last 20 or 30 years?
Mr. Daniels. Down substantially, much, much lower than all
the other developed countries. This is not to say that anybody
is satisfied with it, only to try to keep it in perspective.
Mr. Portman. We are down to a percentage of what we were in
1970s now, and that is thanks to economic growth and beginning
to curb the increase in the debt. As far as the deficit goes,
have we ever not run a deficit during a recession?
Mr. Daniels. Not to my knowledge, sir.
Mr. Portman. Does your budget propose a deficit that is
about what it has been during a typical recession or is it a
lower deficit?
Mr. Daniels. Actually, somewhat smaller; and, again, this
is not to express any satisfaction with any red ink at all----
Mr. Portman. But it is an important question to remind
during recession----
Mr. Daniels. Yeah, the deficit one on the right, as you can
see, the one we are in now, the smallest reaching all the way
back to World War II----
Mr. Portman. Another historical issue that has been talked
about a lot is tax cuts, and I just think it is interesting
when you look at where we are. We have got a recession. We have
a war. We have a national emergency. Yes, we put some tax cuts
in place which hopefully will have kept the recession from
being worse than it would have been, will keep us from going
into a deeper recession.
As I recall, the Democrats have an alternative on the tax
cut in the Senate. It was a cost that was $1.25 trillion versus
the Bush tax cut which was $1.349 trillion. They had virtually
the same cost. Would it have had the same impact on the
surplus?
Mr. Daniels. Yes, and some of the alternatives would have
had a more severe impact on the near term, that is, this year
and next year; and the ones we are looking at in this budget
actually would have been--would have--the deficits would have
been deeper under those alternatives.
Mr. Portman. I think it just gives us some historical
perspective with regard to taxation, with regard to deficits
and debt, and with regard to tax policy and its impact on the
budget.
The final question I have for you, I notice in your budget
that you have got the refundable health care tax credit. I
didn't have a chance to ask Secretary Thompson about it this
morning. I wonder if you can give me your personal views on
that and how do you think it would impact the uninsured?
Mr. Daniels. The President believes it is a very important
initiative and hopes that Congress will treat it promptly and
seriously. We are doing all we can right now to--and Secretary
Thompson's in the lead in trying to extend coverage to the
uninsured. We are using much broader use of the waiver policy
under Medicaid to do that. A million and a half people have
secured health insurance in the last year through that device,
but this would reach, of course, millions more in a direct way,
in a way that gives them the choice, gives them autonomy and
dignity in meeting their own health care needs, and we would
very much like to see it. We wanted to see it for dislocated
workers in the stimulus package that this body passed, and we
would like to see it on a permanent basis.
Mr. Portman. We are encouraged to see it in the budget, and
I thank you, Mr. Director.
Mr. Daniels. Thank you.
Chairman Thomas. The Chair would inquire then of the
Director, would it be possible to get some signal from the
Administration or preferably the President that if in fact the
Senate sends over an unemployment insurance package as the
single response in this time of need that there might be a
signal that perhaps the displaced workers' tax credit or a more
broadly based tax credit could be attached to the UI and
perhaps the New York package to make it a bit broader based?
Mr. Daniels. Well, the answer would be perhaps. I will be
happy to take that idea back.
Chairman Thomas. Thank you for the ``perhaps.'' The
gentleman from Texas wish to inquire?
Mr. Doggett. Thank you. Mr. Daniels, I want to thank you
again for the very constructive role that you played in the
airline bailout. There was some of my----
Mr. Daniels. Yes. Rescue.
Mr. Doggett. Some of my colleagues that wanted to write
essentially a blank check to Continental Airlines and some of
the other airlines, and after my objection I think your
personal involvement and your office's involvement were
important in getting some safeguards in place to protect the
taxpayer, maybe not every one that I wanted, but I think it was
an important step forward.
On the other hand, I have been concerned about some of the
things you have said about the statutory debt ceiling. What do
you believe is the amount of the increase that the Congress
needs to approve in the debt ceiling and what is the final date
by which we need to do it?
Mr. Daniels. I take my cue from the Secretary of the
Treasury here, but I believe the correct answer is $750 billion
and--during March to be safe in terms of keeping the operations
of government moving uninterrupted.
Mr. Doggett. Under the plan you have laid out here over the
next 10 years, that won't be the last time that we will need to
raise the debt ceiling, will it?
Mr. Daniels. I wouldn't say we would be planning for more.
Again, I have every hope and will take every step to see that
we get back to surplus as soon as we can. But you are correct.
On the projections here, this would not be the last time.
Mr. Doggett. I don't see anything in your budget to cover
what I assume is still an objective of the President to
privatize Social Security with the individual accounts. As you
know, the Deputy Actuary of the Social Security Administration
has made some projections about transition costs, and while I
understand the goal is to not offer the privatization plan
until after the election, I think everyone involved recognizes
that there are hundreds of billions of dollars in transition
costs and yet there is not anything in your budget to cover
that, is there?
Mr. Daniels. Not specifically, sir. I think privatization
is probably not the right word to describe where we are.
Clearly, the President does favor as a part of the future
retirees' options the option of some personally directed
investment accounts, but----
Mr. Doggett. I understand----
Mr. Daniels. Usually people mean something more by
``privatization.''
Mr. Doggett. You use different terminology.
Mr. Daniels. Right.
Mr. Doggett. But whatever the terminology is, private
accounts or privatization, the cost of transition is not
inconsiderable, is it?
Mr. Daniels. Yes. The Commission has, as you know, laid out
a series of options, none of which has been settled on yet.
Clearly, this is going to be an extended conversation. There
are many people who favor different of those options, some who
disagree with all of them, and therefore we didn't feel it was
timely to pick a number which could vary dramatically depending
on which outcome we have.
Mr. Doggett. But as we look over the next 10 years and
whether to provide--as your budget does propose an additional
$650 billion in tax cuts plus whatever we might do on AMT
relief or expiring tax credits, it is certainly appropriate for
us to consider what the costs would be for any transition to
private accounts, isn't it?
Mr. Daniels. I would not disagree.
Mr. Doggett. I like your idea of a management scorecard and
performance budgeting, but I note that one of the several
agencies that failed in all five categories was the Department
of Defense, and they are getting the biggest increase. It seems
to me that when you look at the reports that the General
Accounting Office, that the Inspector General of the Department
of Defense have done themselves concerning waste and
mismanagement at the Department of Defense that our security is
not improved with more waste and mismanagement, and I hope your
office will be giving consideration to what can be done,
whatever the funding level is. We don't get the most security
with the most waste, but we seem to be adding there.
Then, finally, we had the cameo appearance from Secretary
Thompson here this morning on prescription drugs. I know,
having worked before coming to this office for Eli Lilly, you
are very familiar with this area, but it does seem to me that
the prescription drug program that this budget contemplates is
not one that is going to do much for very many seniors and that
unless we use--and I know this is contrary to the
pharmaceutical manufacturer's position--unless we use the
bargaining power of the Federal Government much as we have done
for our Nation's veterans, appropriately, to try to help them
negotiate lower prices, that our seniors are going to continue
to face the highest prices in the entire world for their
prescriptions if they are uninsured; and I view this as a
serious deficiency in the budget.
Beyond that, the concern that I have is that when you take
what is essentially $2 trillion of money that was paid in--even
though you credit it to Social Security and Medicare trust
funds, it was paid in for that purpose in payroll taxes--and
use it for non-Social Security purposes and non-Medicare
purposes, it really is a raid on those funds.
Mr. Daniels. Two quick responses, if I may, Mr. Chairman.
First of all, Congressman, much in there I agree with. Let
me just make a point or two. We always use Social Security for
other purposes. What we use it for when we can is to pay down
debt. I think that is everyone's preferred use, but it is
always used, and the trust funds are always just as big as they
would have been. So in this era when we are at war at least
temporarily, we find it necessary to use them for a different
purpose, but it is important for folks to understand that they
are always put to one use or another.
A quick word on prescription drugs. You made a couple real
important points. I mean, to me we would not disagree that the
steps the President has been pushing for, the discount card,
the immediate help for those at the most vulnerable income
level, are too partial and should be temporary. I mean, to--I
think to the President the lesson is, let us get the
comprehensive reform including prescription drug coverage for
all as soon as we can.
Second, I would tell you that elsewhere in our budget there
is a substantial increase--just on the point about the
manufacturers' participation, a substantial increase
anticipated in rebates that they pay through Medicaid. And this
may not meet with favor there, but it is one of the ways in
which we are trying to enhance and protect Medicaid patients.
Chairman Thomas. The gentleman from Texas, Mr. Brady, wish
to inquire?
Mr. Brady. Yes, Mr. Chairman.
Mr. Director, the charts we have seen, the budget
projections, surplus and all, those aren't written in stone,
are they, for the next 10 years?
Mr. Daniels. No, sir. That has been one of the--in fact,
one of the charts sort of goes to that point. We really--it is
hard to know. We can't know.
Mr. Brady. But the single greatest way that we can return
to large surpluses, paying down the debt and creating more
revenue for Social Security and Medicare, isn't the greatest
single thing Congress can do right now is to get the economy
moving as soon as possible?
Mr. Daniels. Yes, no question.
Mr. Brady. So would it be your opinion that at this point
in the recession and if we really are concerned about balancing
the budget and paying down debt and preserving Social Security,
neither Chamber in Congress ought to give up on getting this
economy moving now; is that right?
Mr. Daniels. That would certainly be the President's point
of view.
Mr. Brady. I appreciate, too, your focus on results rather
than just activity. Up here it seems we always measure our
progress by how much more money we pour into a leaky bucket. We
rarely work on fixing those leaks and trying to actually get
that service to the people who most need it and to that
direct----
I serve as a new Member on the Social Security
Subcommittee, and I am dealing with disability issues where we
have got retirement claims. Disability claims are projected to
jump by more than half, and so funding for Social Security is
reaching the Administration--reaching critical stage.
The bipartisan Social Security Advisory Board has
repeatedly said we are going to need new resources, greater
productivity, especially since about half of our employees are
ready to reach retirement soon, and we have an increased
backlog. We have got about--in disability we have got almost
1.2 million individuals whose claims are backlogged, and in my
Houston area it has really reached a critical stage. We have
one of the longest wait times in the Nation for a hearing just
before a judge, and if you are caught up in this backlog, it
really is a terrible situation to be in.
Two questions I have. We all agree we need good service
delivery. What can be done, do you think, in the near term to
ensure the Social Security Administration does a better job
getting the disability benefits to those who need them in a
fair and efficient manner?
Second, how do we start now from a resource and
productivity perspective to set the agenda so we can
effectively deliver these services long term?
Mr. Daniels. That is a very important question. I met with
the new Commissioner of Social Security pretty shortly after
her appointment. This was the first item on her agenda.
We talked about it. We talked about the resources required
but also about potential reorganization or efficiency
improvements at her department that might begin to bring that
backlog down; and I can assure you, when you have her before
you, you will find she sees it as job one.
Mr. Brady. Great. Thank you. I yield back the balance of my
time, Mr. Chairman.
Chairman Thomas. Thank the gentleman. The gentleman from
Louisiana wish to inquire?
Mr. McCrery. Yes, Mr. Chairman, thank you.
Just in case you are wondering, Mr. Daniels, those of us on
the top row here have not been ignoring you. We have allowed
our colleagues below us on the Committee to ask questions first
since we were allowed to ask questions first this morning with
Secretary Thompson. So I am delighted to have you here and to
be able to talk with you about the budget.
I might just say on the repeal of the corporate AMT, when
the President originally announced his intention to have us
move an economic stimulus package, he did request repeal of the
corporate AMT. Now, he did not request the redemption--
immediate redemption of the credits. We came up with that on
our own. It was a good idea then. It is still a good idea in
terms of stimulus, if that is what you want, because it pushes
about $21 billion out the door in the first year, and it
doesn't cost a dime over 10 years because the Joint Committee
on Taxation assumes that those corporations would have redeemed
these credits in any event over the next 10 years. It is their
money.
Now, of course, in your budget you say reform the corporate
alternative minimum tax, I assume somewhere along the lines
that we included in the negotiation with the so-called
centrists in the Senate in a second package that we passed as a
result of those negotiations.
Thank you very much for including in the budget a proposal
for reforming our unemployment insurance system. It is very
badly needed, particularly in light of welfare reform, our
emphasis on work and getting people off welfare into the
workforce and particularly in light of our renewed familiarity
with economic cycles and knowing that we can have recession
still, and there is a need for employment services. That need
has gone sorely lacking because of Congress' inattention to the
matter and appropriating less money to the States than they
need to adequately run their unemployment insurance services,
including unemployment services. So that was a welcomed
addition to the budget, and I look forward to working with you
and the Secretary of Labor on implementing that.
There has been a lot of talk this afternoon about the
budget, the debt, the deficit. Generally, Mr. Daniels, would
you agree that our economy and our fiscal situation at the
Federal level are fundamentally strong still, that we are in
better shape now than we have been in a long time in terms of
our economy, the underlying fundamentals of our economy and the
budget or the Foreign Sales Corporation of the Federal
Government?
Mr. Daniels. Yes, sir, I would. I think that it is a
tribute to people on both sides of the aisle and this
Administration and previous ones that we found ourselves in
this position again. I think it is historically striking that
in a recession with a war and with some emergency costs from
last September's attacks all rolled up simultaneously that we
are essentially at balance on an operating basis, as I pointed
out. Until you take the additional step, as the President would
much like to do, of attacking the recession further with a
stimulus package you are about in balance; and in historical
perspective that is astonishing.
Mr. McCrery. So, in other words, citizens of our country,
even though we are in a recession and even though we have
challenges from a security standpoint, in terms of our economy,
in terms of our financial condition, they ought to be comforted
that we are still in good shape.
You say in your testimony that we will pay 9 cents of every
dollar as interest payments. You don't say when, though. When
under your budget are we scheduled to reach that level of nine
cents of every dollar for interest payments?
Mr. Daniels. We are there. It is about 8.7 cents in the
year we proposed, as I recall, fiscal year 2003; and it has
been coming down rather rapidly. Again, we can't go low enough
I suppose is the way we ought to all agree to look at it, but
we ought to recognize where it is.
There is a chart I can show you that does remind us that
not too long ago much more of that money--we were correctly
reminded by a question over here that money is not particularly
productive, but this is the burden on the Federal budget, and
you can see just as recently as a few years ago it was almost
twice the level we will now be at.
Mr. McCrery. So, in other words, for 2003 you are
projecting 9 cents on the dollar for servicing the debt?
Mr. Daniels. Yes, sir. Just a little less.
Mr. McCrery. Great. Thank you very much, Mr. Chairman, for
allowing us to visit with the Director; and thank you, Mr.
Daniels.
Mr. Daniels. Thank you.
Mr. McCrery. Keep up the good work.
Chairman Thomas. The Chair appreciates the line of comment
because, frankly, a dropping deficit in an environment of an
increasing GDP means you are managing the deficit in a way that
none of us thought. Some of us remember just a short time ago
that the interest on the national debt was the third largest
payment that the Federal Government made, notwithstanding the
circumstances we are in. We have a much brighter picture than
we did just a short time away.
The gentleman from North Dakota, by gosh, wants to be
recognized.
Mr. Pomeroy. North, by gosh, Dakota. Mr. Chairman, thank
you very much for calling on me, and I am delighted to have the
chance to ask some questions of the Director.
First, I would note that it appears, using the
Administration's numbers, the actual borrowing cost would be a
trillion dollars more in light of the additional debt, rather
than if we had been able to keep on the debt reduction timeline
that the Administration projected 1 year ago.
My question gets to--the first part of my question gets to
Veterans Affairs (VA) and funding for veterans' health
benefits. The President specifically noted in his State of the
Union a historic increase in commitment of resources to
veterans' health. Seven percent growth I believe is what it
would equate on a percentage basis. Put in perspective,
however, that is a little less sufficient than one might
otherwise think.
Two reasons. Health inflation, which is about 11 percent,
costs going up at 11 percent. Anyone who has paid a health
insurance premium increase knows that costs aren't holding
level, they are going up, and they are going up beyond the 7
percent range, again about 11 percent nationally.
Also, however, when you are looking at the veterans
population, you are looking at the World War II vets, you are
looking at the Korean vets, and you are looking at utilization
increasing as these aging veterans require more health services
than they did previously in their younger years, 11 percent
increases in utilization, I believe what the VA figures show.
So you have got utilization going up by a rate of 11 percent,
you have got costs going up by a rate of 11 percent, and you
have got a commitment for the budget of a 7-percent increase.
Now, the resulting bind has had some terribly unfortunate
consequences. Recently in North Dakota I have had some meetings
on veterans' health care, heard horrifying stories about newly
qualifying veterans, senior citizen veterans waiting 6, 8
months before they can access their initial visit to the
doctor.
Even worse than that, the region that North Dakota is in
for veterans' health care has literally closed down the
satellite-based outpatient clinics to any new patients. A
veteran in Minot, North Dakota, for example, that happened to
be an existing patient will have health care available through
the VA satellite facility in Minot. Someone that is just now
requiring services is going to have to drive to Fargo, North
Dakota, a drive of about 7 hours, to access those services.
That is a very, in my opinion, insufficient way to address cost
response problems.
I am wondering if the Director has a response in this area.
Mr. Daniels. I would start by saying that the increases
last year and then again especially this year, that you just
correctly referenced will be up over $26 billion in the VA this
year, is evidence of the commitment that the President feels at
a time of war when, as I say, the average for nonwar-fighting
activities is two. One way to look at this is it is three and a
half times the rate of increase being provided here. I think
that is worth recognizing at the start.
In terms of health cost inflation, it depends which part of
health care you are looking at. The VA system in general is a
pretty good one and has done some very innovative things to--
such as bulk purchasing of pharmaceuticals, which was mentioned
a minute ago, that have kept its costs somewhat more in line.
I think you are quite right that the big driver over there
is not unit cost inflation as much as it is utilization. Part
of that is demography. Part of that has been the broadening,
you know, dramatic broadening in who is eligible, so-called
category 7 vets, higher income and nondisabled now eligible or
driving--they are going--they have gone from something like 4
percent to 21 percent of all utilization. That is the big
increase that Secretary Principi is wrestling with, and it is
worth keeping our eye on.
I made careful note of the fact that you have--that there
are some local problems that you have seen, and I will make
sure to report those. My sense is that--and I hope this is true
that they are somewhat exceptional. It is harder to deliver
service of VA-type quality in sparsely populated areas, but I
am sure that Secretary Principi will not be happy about it and
will want to do something about it.
Mr. Pomeroy. I have spoken with the Secretary and will be
meeting with him later this month. I thank you, Mr. Director,
for that.
It is just not acceptable to try and work your way through
the budget shortfall by creating identically placed veterans in
the same community with a very dramatically different access to
health services.
Finally, the last question I would have is relative to the
budget itself. We are looking at deficits. I am interested in
your comments about pulling out of deficits in the near future.
We have a chart that indicates, and I have made copies for the
Members, that basically within the President's budget proposal
the additional tax cut would take us from a deficit position to
a deeper deficit position and that indeed the general fund
never does get out of deficit for the entire run of the next 10
years, which means we are subsidizing functions of government
with revenues coming in for Social Security or Medicare.
[The chart follows:]
[GRAPHIC] [TIFF OMITTED] T9697A.006
Mr. Daniels. Of course, you are using your definition.
Instead of unified budget, you are using the on budget, that
is, taking the trust funds aside, which is a concept we
understand. I point out there has never been a period in our
history where we ran an on-budget surplus for an extended
period. We agree with you we would like to do it. It all
depends on the economy.
It is worth noting that this year and next year the same,
if there had never been a tax relief bill and in fact if we had
not spent a nickel more than the year before, the economy alone
would have, quote, raided Social Security, would have, quote,
broken the lockbox all by itself by a large amount in the year
we are sitting in. So that is--as others' questions pointed us
to, that is the key variable. That is what we have got to look
at.
If it does come back, our long-term outlook could brighten
once again. Two years ago today, we saw $2.9 trillion over 10
years. Everybody said hooray. That was the best we had ever
seen. Last year, it looked much better. This year, we are back
where we were in 1999. I hope we go back up.
Mr. Pomeroy. Mr. Director, your own comments of a year ago,
having protected every penny of Social Security, every penny of
Medicare receipts for Medicare, setting aside $1 trillion for
needs and contingencies, it is still a $1.6 trillion overcharge
to the American taxpayers. That was not a qualified outlook you
placed on budget projections last year. You indeed were perhaps
the loudest voice for these are projections we can bank on. We
did with the tax plan, and now we have got a decade of deficits
as a result.
Mr. Daniels. Well, I beg to differ. I would be happy to
send you a list of many, many times, including I will bet you
on the very day that--February 25 there in which I talked about
the uncertainty of the long term. The reason that we talked
about a $1 trillion set-aside contingency, the explicit reason
was because we cannot know the future.
Now, looking from today with everything that has happened,
it is true that $1 trillion was--even $1 trillion wasn't
enough. The shortfall just from the economy was in excess of
that, and for that I have no particular defense except it is
not as though we didn't think of the very real possibility that
circumstances could work against us.
Mr. Pomeroy. But knowing what--I thank the Chairman. Thank
you, Mr. Director.
Chairman Thomas. Let the Chair respond to the gentleman's
concern about the veterans who have to drive 7 hours to Fargo.
I just tell the Director, we have been trying to work--and we
came close in the last Administration--with the concept in
terms of distances where you have a VA without walls. You
really only need a storefront with a computer in which the
veteran is determined and you contract in the community.
It makes no sense with the World War II veterans now in
their seventies having to get outpatient services and drugs
filled and other very modest treatments to require them to go
to the bricks and mortars owned by the U.S. Government with the
VA title on it. This really is a way to make sure that they get
the kinds of services that they are entitled to, instead of
having an administrative structure which is somehow hooked to
bricks and mortars being serviced to our veterans. This idea of
simply contracting where there is not going to be a VA health
clinic or even where there is one, for example, in my district
where they have cut back significantly on the benefits, means
why don't we just let the veterans get the services in the
areas where they reside and contracting out the local services?
The service, the commitment to the veteran is what we ought to
honor.
Mr. Daniels. Right.
Chairman Thomas. Not a requirement that they visit some
particular building.
Mr. Daniels. That is absolutely right. A lot has been done.
Much more needs to be done in contracting out.
I will just add one other footnote. It will help if we can
continue to have support in Congress for getting out of bricks
and mortar that we really don't need anymore. There are many
places in America--while you don't have enough facilities in
Minot, there are places where we have multiple hospitals within
blocks of each other and don't need them, and we do have
difficulty sometimes moving to where the need is.
Chairman Thomas. Any additional questions?
The Chair and the Members would thank you very much, Mr.
Director, and look forward to the difficult decisions you have,
especially the responses to the particular questions that have
been asked.
The hearing stands adjourned.
[Whereupon, at 4:05 p.m., the hearing was adjourned.]
[Questions submitted from Chairman Thomas and Mrs. Johnson
to Mr. Thompson and Mr. Daniels, and their responses follow:]
U.S. House of Representatives
Washington, DC 20515
February 8, 2002
The Honorable Tommy Thompson
Secretary
U.S. Department of Health and Human Services
200 Independence Avenue, SW
Washington, DC 20201
The Honorable Mitchell E. Daniels
Director
Office of Management and Budget
725 17th Street, NW
Washington, DC 20503
Dear Secretary Thompson and Director Daniels:
Thank you for testifying at the Ways and Means Committee this week.
We appreciate your hard work in developing the President's budget in
this difficult time for our Nation.
As we stated in the hearings, we commend the President for not
reducing the resources he devoted to prescription drugs and Medicare
modernization last year, notwithstanding the new realities of the war
on terrorism and an economic downturn, which has produced short-term
budget deficits. We share your commitment to ensuring that our seniors
and disabled beneficiaries receive the highest quality of care for a
price our taxpayers can afford.
The President's budget provides $190 billion over 10 years for
prescription drugs and Medicare modernization, of which $77 billion is
reserved for low-income drug assistance. The budget proposes spending
increases for private plans in Medicare of $4.1 billion. It also
proposes several modest savings proposals--competitive bidding for
durable medical equipment, Medigap reform, Medicare Secondary Payer and
Graduate Medical Education reform--which collectively total $6.5
billion. Hence, there is $116 billion remaining for prescription drugs
for all non-low income beneficiaries and Medicare modernization.
Although we believe $116 billion is insufficient for a comprehensive
prescription drug benefit, we assume you share our belief that none of
this money is intended for provider payment increases.
The Administration's budget includes a statement that any provider
payment adjustments must be budget neutral in both the short and long-
term. However, the Medicare Payment Advisory Commission (MedPAC), a
non-partisan advisory Committee of Medicare experts, recently
recommended provider payment changes that could collectively total more
than $174 billion over 10 years. The MedPAC recommendation for
reforming the physician sustainable growth rate alone would cost $128
billion according to the CMS actuary. Clearly, we are not suggesting
that we could afford, or that we should implement every MedPAC
recommendation. However, MedPAC has identified serious problems, such
as significant and successive payment cuts to physicians, which are
unsustainable and require reform.
Does the Administration believe Congress should address any of the
problems identified by the MedPAC (see attached list) with respect to
hospitals, home health agencies, physicians, skilled nursing facilities
and dialysis facilities? Please identify which provider problems you
believe merit Congressional action and which do not. Since the budget
calls for budget neutral payment adjustments, please provide a specific
list of Medicare savings recommendations, which can finance appropriate
provider payment changes.
Given the short legislative year, and our intention to act on
Medicare legislation this spring, we would appreciate a prompt and
detailed response to these requests.
Best regards,
Bill Thomas
Chairman
Committee on Ways and Means
Nancy L. Johnson
Chairman, Subcommittee on Health
Committee on Ways and Means
Enclosure: MedPAC Recommendations
WMT/NLJ/jm
__________
------------------------------------------------------------------------
------------------------------------------------------------------------
10 yrs.
Medicare Payment Advisory Commission Billions
Recommendations
------------------------------------------------------------------------
Physicians
The Congress should repeal the sustainable $127.7 1
growth rate and replace it with the Medicare Economic
Index. The Secretary should revise the physician
productivity offset from -1.5% to -0.5% to reflect the
productivity of all costs rather than just labor. The
resulting update for 2003 is 2.5%.
Hospitals
The Congress should phase out the difference in $15 *
the inpatient national rates between hospitals in MSAs >1
million and hospitals in all other areas starting in 2003.
In the first year, the update for hospitals in MSAs <1
million and rural areas should be increased 0.55%.
Rural Hospitals
The Congress should revise the Medicare $1.8 2
Disproportionate Share payment formulas so that the
payments for rural and small urban hospitals are capped at
10% rather than 5.25%.
Skilled Nursing Facilities
If refinement of skilled nursing payment system $10 3
is adopted by the Secretary as planned, Congress should
fold-in the resource utilization group (RUG) add-on
payments into the skilled nursing rates.
Home Health Agencies
The Congress should update home health payments $2 *
by market basket for FY 2003. (Current law is mb -1.1%.)
The Congress should retain the 10% bonus payments for
rural home health agencies.
The Congress should eliminate the 15% adjustment $17 4
to home health payments, which otherwise would result in a
4% to 7% reduction in payments.
Dialysis Facilities
The Congress should update dialysis payments by $0.5 *
2.4% in 2003.
------------------------------------------------------------------------
TOTAL $174
------------------------------------------------------------------------
1 Office of the Actuary, Centers for Medicare and Medicaid Services
(CMS), February 7, 2002.
2 Medicare Payment Advisory Commission, February 7, 2002.
3 CMS, Health Care Industry Market Update, February 6, 2002.
4 Congressional Budget Office (CBO), January 2002.
* Estimates based on BBRA, BIPA and discussions with CBO, February 6,
2002.
U.S. Department of Health and Human Services
Washington, DC 20201
March 14, 2002
The Honorable Bill Thomas
Chairman
Committee on Ways and Means
U.S. House of Representatives
Washington, DC 20515
The Honorable Nancy L. Johnson
Chairman
Subcommittee on Health
Committee on Ways and Means
U.S. House of Representatives
Washington, DC 20515
Dear Chairman Thomas and Chairman Johnson:
Thank you for your letter to the two of us regarding the
President's budget and the ways Congress could adjust Medicare payments
to health care providers in a budget-neutral fashion. We know you share
the Administration's dedication to better meeting the health care needs
of elderly and disabled Americans, and appreciate your longstanding
interest in and untiring dedication to these important issues.
President Bush believes that the Nation has a moral obligation to
fulfill Medicare's promise of health care for America's seniors and
people with disabilities. Medicare has provided this security to
millions of Americans since 1965. However, as Medicare's lack of
prescription drug coverage demonstrates, Medicare is not keeping up
with rapid changes in the way health care is delivered or with benefits
available in the private health insurance market.
To ensure that Medicare continues to provide our Nation's elderly
and disabled secure access to modern health care, the President's
Fiscal Year (FY) 2003 Budget renews his commitment to comprehensive
Medicare modernization with integrated prescription drug coverage. His
proposal is based on the framework for bipartisan legislation that he
proposed in July 2001. Specifically, the President's budget proposes to
invest $190 billion in Medicare to modernize the program by improving
health insurance plan options that include prescription drug coverage.
We agree with you completely that all of the new funding should be used
for the President's top priority of improving the coverage options
available to beneficiaries, including prescription drugs, and not for
increasing payments to fee-for-service Medicare providers.
The President's top three goals for improving Medicare include
quickly phasing in assistance with drug costs for Medicare
beneficiaries, sustaining and enhancing the options available to
beneficiaries in Medicare+Choice, and strengthening and modernizing the
Medicare Program. This includes transitioning low-income prescription
drug assistance into a drug benefit that serves all Medicare
beneficiaries and adding new plan options for beneficiaries and
updating the benefit package. Many of these improvements, such as full
implementation of a prescription drug benefit, will take several years
to set up. The needed improvements identified in the President's budget
can begin to take effect sooner by building on existing programs.
We agree with you that the current administrative pricing system
creates extremely complex provider payment systems that do not always
function smoothly or equitably. In our view, these problems further
underscore the need for the President's priority of fundamental
modernization of the Medicare program. We believe the primary focus of
the Congress should be on strengthening and modernizing Medicare, not
on revamping outdated, overly complex payment systems.
While we appreciate the work the Medicare Payment Advisory
Commission (MedPAC) has put into developing their proposals, we do not
believe these ideas are the appropriate starting point for a discussion
of Medicare provider payments.
We have no compelling evidence that there is a problem with the
overall adequacy of provider payments, although we recognize that
recent short-term adjustments have been substantial in the system
Medicare uses to pay physicians. For example, while home health
services are vitally important to the Medicare program, home health
spending is expected to rise by over 42 percent this year and 12
percent next year, and this includes the adjustment to payments already
scheduled in current law. And although certain provider payments may
benefit from adjustment, we believe such adjustments can be
accomplished without draining new funds that are even more urgently
needed for improving Medicare benefits.
In the context of moving forward on our shared goal of modernizing
and strengthening Medicare, the Administration is willing to work with
Congress to consider limited modifications to provider payment systems
in order to address payment issues. Most importantly, as we all
consider changes to payment systems, we need to be cautious and recall
that any increases in spending will be borne, in part, by beneficiaries
in the form of higher premiums and coinsurance payments.
Therefore, while the President's Budget did not contemplate any
particular provider payment changes, we are willing to consider limited
adjustments to payment systems and to work with you to develop a
comprehensive package that is budget neutral across providers. We will
not support any package of provider payment changes unless it is budget
neutral in the short- and long-term. To this end, we recognize that
some provisions in law that, in the past, have restrained growth in
payments are about to expire, and extension of these provisions is one
potential way to ensure a budget-neutral package of reforms.
We believe it is possible to develop a fiscally responsible package
of provider payment adjustments that remain budget neutral. We are
happy to begin to work with you to provide technical support for such a
package if you desire. Enclosed is some additional information on
various provider issues that we hope will be useful in our continuing
discussions of these issues.
We look forward to working with you to advance the priorities of a
prescription drug benefit, a strengthened Medicare+Choice program, and
a modernized Medicare Program, while also pursuing the issues
surrounding modifications to provider payment systems.
Sincerely,
Tommy G. Thompson and Mitchell E. Daniels, Jr.
______
Administration's Views on Various Provider Payment Issues
Physician Payment Update
The current system for updating Medicare's payment for physician
services was originally established in law in 1989, and has been
adjusted a number of times since then, eventually resulting in the
Sustainable Growth Rate (SGR) system that is used today. In general,
Congress' goal for the payment system was to restrain unsustainable
growth in physician payment under Medicare. The system has been working
precisely as designed. Between 1997 and 2001, Medicare physician
spending increased from 17.6 percent to 20.5 percent of total Medicare
fee-for-service spending. Moreover, physician spending continued to
increase, growing 5.3 percent in 1999, 10.7 percent in 2000, and 11.2
percent in 2001, far outpacing inflation in the broader economy.
Last year, a number of factors combined to cause the physician
payment formula, as set in law, to produce a negative update. First,
there has been a downturn in the economy, which affected the SGR
because it is tied to estimates of the Nation's Gross Domestic Product
growth per capita. Second, actual cumulative Medicare spending for
physicians services in prior years was higher than expected. Third,
information on services that were not previously included in the
measurement of actual expenditures was now included. Had this
information been captured in the measurements originally, spending
increases would have been 5.9 percent in 2000, and 9.7 percent in 2001,
rather than the respective 10.7 and 11.2 percent increases mentioned
above. Counting these previously uncounted actual expenditures, as
required by law, contributed to this year's negative update to
physician payments. However, despite the negative update, overall
Medicare physician spending is not projected to decrease this year. In
fact, as the Congressional Budget Office (CBO) noted before Congress
two weeks ago, program spending increases by 5.9 percent in 2002.
While a formula that produces these payment fluctuations year-to-
year should be reviewed, the underlying system is sound and effective.
As CBO Director Dan Crippen concluded in his testimony before Congress:
``In considering whether to change the current system for
setting Medicare physician payments, the Congress confronts the
prospect of reductions in the fees paid per service for the
next several years. MedPAC's recommendation would increase the
Federal Government's spending for physicians' services under
Medicare by $126 billion over the next 10 years. In contrast,
other approaches might have the potential to lessen the
volatility in the update without dismantling the mechanism for
linking physician fees to total spending for physicians
services or growth in the economy.
Changes that increase Medicare payments to physicians will
increase Federal spending. Incorporating higher fees for
physicians' services into Medicare spending as currently
projected would add to the already substantial long-range costs
of the program and to the fiscal challenge to the Nation posed
by the aging of the baby boomers. Raising fees would also
increase the premium that beneficiaries must pay for part B of
Medicare (the Supplementary Medical Insurance program).
Inevitably, over the long run, higher spending by Medicare for
physicians' services will require reduced spending elsewhere in
the budget, higher taxes, or larger deficits.''
We believe that considerations of sustainability and of our other
urgent priorities in Medicare argue strongly that, if changes in the
physician payment system are undertaken this year, they should be
undertaken carefully and implemented in a way that does not
significantly worsen Medicare's long-term budgetary outlook. The
Administration supports reforms in physician payment that lessen
volatility, and further believes that any short-term payment problems
can be addressed at a much lower cost than the MedPAC recommendation
implies.
Home Health
The President's budget also assumes no further delay in the
implementation of the ``15 percent reduction'' in home health interim
payment system (IPS) limits. As you may know, this reduction is
somewhat of a misnomer. It does not translate into an across-the-board,
direct cut in Medicare payment rates for home health services, as many
have described it. Rather, the 15 percent reduction is a decrease in
the payment caps under the old IPS. The actual percentage reduction in
payments that will result from lowering the limits is much less. In
fact, the CMS actuary estimates that the 15 percent reduction will only
reduce payments to home health agencies by about 7 percent, not 15
percent. Further, after the PPS rates are reduced by 7 percent, we
would apply the home health update (currently estimated to be 2.1
percent), leading to a net reduction of approximately 4.9 percent.
Home health spending is expected to rise by 42 percent for FY 2002.
Even if the 15 percent adjustment occurs, we estimate that home health
spending would increase 12 percent in FY 2003, 8.3 percent in FY 2004,
and 7.8 percent in FY 2005. Therefore, we do not support a repeal of
the 15 percent adjustment in the caps.
Skilled Nursing Facilities
Prior to the enactment of the Balanced Budget Act of 1997 (BBA),
many nursing home companies were expanding rapidly, taking on
significant debt, and leveraging themselves heavily for acquisitions of
new homes and allowing their debt-to-equity ratios to escalate steeply.
That strategy backfired on many of the industry's biggest companies
when the nursing home industry came under financial pressure resulting
from the implementation of the Prospective Payment System for skilled
nursing facilities (SNFs) and other Balanced Budget Act of 1997
provisions. As a result, Congress passed two laws to provide some
relief. The Balanced Budget Refinement Act of 1999 (BBRA) and the
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act
of 2000 (BIPA) required three Medicare payment ``add-ons'': a 4 percent
increase in per diem rates; a 16.66 percent increase in the nursing
component of each Resource Utilization Group; and a 20 percent increase
for certain categories of high-cost, medically complex patients. The
first two add-ons expire on October 1, 2002. The third will expire when
FIRS implements a case-mix refinement rule. The Administration is
currently moving forward in its development of this refinement rule.
The President's budget proposal reiterates the Administration's
commitment to paying SNFs fairly and appropriately for the delivery of
services to Medicare beneficiaries. CMS recently explored the fairness
and appropriateness of Medicare SNF payments in the February 6, 2002,
Health Care Industry Market Update--Nursing Facilities. While we surely
want to avoid overpaying any of our providers, we also must be
sensitive to their funding needs in order to maintain high quality
services. We are willing to continue to review the substantive
justification for modifying SNF payments with the Committee.
Hospital Updates
Under the President's budget assumption, inpatient hospital
payments for FY 2003 would follow current law and be updated by the
market basket, which accounts for inflation in the factors that
contribute to the costs to provide hospital services, minus 0.55
percentage points. Under current law, the update beyond FY 2003 would
be equal to the full market basket. Since the inception of the
inpatient prospective payment system (PPS), hospitals have received a
full market basket update only once in FY 2001. Since FY 1984 hospitals
have received on average approximately 60 percent of the market basket
forecasted increase. Even so, since the early 1990's, the Medicare PPS
inpatient margin has risen sharply from 1.3 percent in FY 1993 to a
historical high of 16.0 percent in FY 1997. Although there was a
decrease in FY 1999 to a 12.4 percent margin, the Medicare inpatient
hospital margins have begun to increase again. In addition, since the
early 1990's, there has been a significant drop in the number of
hospitals with negative inpatient margins. In FY 1991, 61.2 percent of
hospitals had negative inpatient margins compared to approximately 25
percent in FY 1999.
The stabilization of overall hospital margins in recent years
suggests that, overall, the restrictions on market basket increases of
recent years have not resulted in inadequate hospital payments.
Reasonable and modest limits on hospital market basket updates would
appear to provide adequate reimbursement for hospitals. Modest limits
below full market basket updates could be linked to continued careful
review of Medicare hospital margin data to ensure that margin problems
do not worsen, and certain hospital types that show clear evidence of
negative and declining Medicare margins could be monitored closely for
special consideration. The Administration believes that the savings
from such measured changes in hospital payment updates could be more
than adequate to finance reasonable net increases in total payments to
physicians.
There are market updates for other providers that were established
in the Balanced Budget Act of 1997. To help restrain spending growth,
you could also consider extending market basket update reductions to
the calculations for other prospective payment systems.
We are prepared to provide further technical guidance to the
Committee whenever it is requested.
12
[Questions submitted from Mr. Shaw to Mr. Daniels, and his
responses follow:]
Office of Management and Budget
Washington, DC 20503
1. Does the Administration's proposal to expand IRS' direct
assistance to taxpayers filing online (EZ file) potentially create a
conflict with private accountants and tax return preparers, running
counter to OMB's Circular A-76?
Response: No, it does not. The primary objective of the EZ Filing
Initiative is to make individual tax return preparation and filing
easier and less burdensome by assuring access to a free, secure, online
filing option for a significant portion of individual taxpayers. The
IRS is moving toward providing additional access to tax services via
the Internet. The Treasury Department and IRS are currently discussing
a partnership with the tax preparation and software industry to make
free online options available. If a partnership with the tax software
industry is reached the initiative will reflect a unique partnership of
the tax preparation industry and government.
2. What potential privacy issues has Treasury/OMB identified and
how are you prepared to deal with them?
Response: Any online filing will have robust security to ensure the
privacy of taxpayer information filed with the IRS. In addition, such
filing will not compromise the existing regulations and standards that
govern the use of taxpayer information. When partnering with the
industry, certain privacy regulations and standards must continue to
apply, all of which are currently adhered to by commercial preparers.
Some examples include:
LIRC Section 7216 prohibits the use or disclosure of tax
return data for purposes other than preparing the tax return.
LCompanies who e-file returns today to the IRS must
annually pass the Participants Acceptance Test to ensure the security
of all transmitted data.
3. What internal agency conflicts potentially could arise by having
IRS assuming roles as both tax return preparer and its existing role
for developing regulations, collecting, and auditing tax returns?
Response: None. The IRS is committed to reducing taxpayer burden
and the cost associated with preparing taxes. Just as IRS provides
forms and instructions for paper filing of returns and provided
Telefile via phones, this project moves tax filing to the next medium--
the Internet.