[Congressional Record Volume 140, Number 107 (Friday, August 5, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: August 5, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
              SETTING THE RECORD STRAIGHT ON CLINTONOMICS

  Mr. DOLE. Mr. President, this is the big anniversary of the $255 
billion tax increase, and so today the President and Vice President had 
a press conference, talking about the economy and how this big tax 
increase has helped the economy.
  I want to repeat, this $255 billion tax increase passed the House 
without a Republican vote and passed the Senate without a Republican 
vote. The Vice President twice broke tie votes in the Senate to enact 
this big, big tax increase. They made more claims today about the State 
of the economy and how the impact of this budget--which they call a 
$500 billion deficit reduction package, including a lot of spending 
cuts which have since been reduced rather drastically. The taxes have 
not been reduced.
  Throughout last year's debate and again today, President Clinton 
argued that declining long-term interest rates were a vote of 
confidence by the financial markets in his budget plan. But since his 
budget was adopted, the average interest rate on a 30-year mortgage has 
increased from 6.97 percent a year to roughly 8.5 percent today. Hardly 
the vote of confidence the President boasted about.
  Far from the President's claim of $500 billion in deficit reduction, 
the independent Congressional Budget Office--the President told us in a 
joint session over a year ago we ought to accept their figures--the 
Clinton plan was generating a total of $433 billion in savings. And 
budget experts agree--not Republicans, but budget experts--agree that 
so far, all the deficit reduction we have seen from this plan has come 
from one source: Higher taxes.
  I am told by economists--and my colleague from New Mexico understands 
this much better than I do--that it probably takes a couple years after 
the taxes are imposed before you have the real impact on the economy. 
Somebody has to pay the $255 billion. They are not all rich people. 
Some are subchapter S corporations in a Kansas, New Mexico--wherever--
and they have about a 31-percent tax increase. These are men and women 
out there creating jobs and opportunities that got hit right in the 
nose with a big tax increase.
  There is no disputing that President Clinton inherited an economy 
that was already in recovery. I think the fact that the economy is 
still fairly strong despite higher taxes and more regulations and more 
mandates and higher interest rates and the threat of the Government 
takeover of the Nation's health care system is more of a testament to 
the strength of the free enterprise system than anything President 
Clinton has done.
  Now, he wants to declare victory on the deficit even though serious 
problems persist, and even though both OMB and CBO project that after 
1996, as the Senator from New Mexico will point out on the chart here 
in a moment, the deficit is going to start going up in 1996, and the 
White House and the Democrat leadership in Congress have consistently 
opposed efforts by Democrats and Republicans to cut spending to reduce 
the deficit.
  The President forgot to mention today in all the exuberance about the 
1-year anniversary of the big tax increase that another budget issue 
will have an even bigger impact on the deficit than last year's massive 
tax increase. Whatever happened to all those budget savings the 
President promised us from health care reform? The President initially 
said we would save about $185 billion over 5 years. That would drop the 
deficit to about $120 billion by 1999.
  Last month--that was not long ago--last month the Office of 
Management and Budget, the White House office, revised estimates 
projecting that the Clinton health plan would only shave $26 billion 
off the deficit after 5 years and that the 1999 deficit would be about 
$190 billion. The administration's current estimates of the deficit 
with health care reform are $250 billion higher than their initial 
February 1993 estimates. Let me say that again, $250 billion higher 
than their initial 1993 estimates.
  The independent Congressional Budget Office projects that the Clinton 
health care plan would actually increase the deficit by $65 billion 
over 5 years, pushing up the 1999 deficit to $230 billion or more. That 
is because we always have it low. Nobody can be faulted for it. But it 
seems every time, or most every time there is an estimate made by some 
Government agency it is always low, and it keeps going up, up, and up 
and somebody gets stuck with it.
  So next week we are going to begin debate on health care which I 
think is unfortunate because I think we are in effect shutting out the 
American public. We received a 14 pound, 1,410 page bill yesterday or 
the day before--yesterday, and we hope to have our bill ready for the 
majority leader by Monday. There is no doubt about it, the so-called 
Clinton-Kennedy-Mitchell bill would create the greatest expansion of 
social spending in our Nation's history, providing taxpayer-financed 
subsidies for more than 100 million people, more than the current 
Social Security, Medicare, and Medicaid programs combined. More than 
all those programs combined. We are going to start a whole new subsidy 
program. Somebody has to pay for it. And the President calls this a 
conservative approach, a claim that would be rather amusing if the 
consequences were not so serious.
  But rather than to criticize the President, we have tried to come up 
with a plan, too. And we have a plan. We have had a plan. It is called 
the American option. We try not to be partisan. We have tried to say 
OK, let us talk to Democrats about this plan, and we still are. We have 
had a number of meetings with a bipartisan group of House Members, 
Congressman Roy Rowland, a physician, Democrat from Georgia, and 
Congressman Mike Bilirakis, who is one of the leading health care 
proponents on the House side, a Republican from Florida.
  So, Mr. President, we want the economy to be strong. Do not 
misunderstand. We ought to keep everything in perspective, and we ought 
to set the record straight. We ought to tell the American people 
precisely what is happening. I am convinced that we would have built on 
the recovery with more growth and more jobs and more investment and a 
stronger dollar and lower interest rates and a stronger economy than we 
have today if we would have figured out a way, as we did in our 
alternative budget, to cut deficit spending without raising taxes.
  So we are going to have an alternative health care reform bill. We 
hope to offer it as a substitute. It does not have any mandates. It 
does not have any employer mandates which are employer taxes. It does 
not say to a small businessman or woman, wherever they live in America, 
we are going to put you out of business; we are going to raise your 
taxes, or it does not have price controls. We tried those in Republican 
administrations. They have not worked. We would hope the Democratic 
administration would not make that mistake. President Nixon tried price 
controls back in 1971 without success.
  We do not want to turn the health care system over to Government, 
even though many of us have had health care--a couple of us in this 
Chamber--pretty good care at that, in Army hospitals. We have Army 
hospitals. We have veterans' hospitals. We have Medicare. We have 
Medicaid. So the Government is into health care. But I think there is a 
fear on the part of most people, ``That's fine, but let's don't turn it 
all over to the Government.'' Consumers are worried about choice, and 
what they may have, whether they will be able to choose their doctor or 
pharmacist or whatever.
  So it seems to me that we have a long way to go. We are prepared to, 
as I said before, continue to work with Democrats, Republicans, 
whoever. There is still time to pass a sensible, comprehensive health 
care reform package. And I will bet if you ask 100 Members in this 
Chamber to list 15 things on health care you agree on, and we added 
them all up, you would find about 90 percent agreement. We could pass 
that package with 90 percent of the votes in this Chamber. It would 
help millions of people this year in America. It would take care of all 
these things we talk about--preexisting conditions, portability, 
malpractice reform, small business, all these things that we agree on. 
Why not do that? Hopefully that will be the end result of the debate 
that starts next week.
  Mr. President, I ask unanimous consent that a piece written by Martin 
Feldstein be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

             The Senate's Hidden $100 Billion Tax Increase

                         (By Martin Feldstein)

       President Clinton is increasing the pressure on Congress to 
     enact a massive and irreversible entitlement program to 
     subsidize health insurance and redistribute income. The tax 
     cost for this largest-ever welfare expansion would top $100 
     billion a year at today's prices. That's equivalent to 
     raising personal taxes across the board by nearly 20 percent.
       Amazingly, the Senate Democratic leadership has managed to 
     conceal this massive tax increase from the public. The 
     legislative wrangling and public discussion have virtually 
     ignored the cost of financing this spending explosion. 
     Members of the business community have been so eager to avoid 
     employer mandates that they have not considered the tax 
     consequences of the pending legislation. And the general 
     public has been so concerned about preserving their ability 
     to choose their own doctors that they have not focussed on 
     what these plans would mean for their individual wallets.
       Although the Democrats have yet to agree among themselves 
     on the details of the final plan, it is likely to be closely 
     related to the Senate Finance Committee bill. (The recent 
     proposal by Senate majority leader George Mitchell that 
     President Clinton said he would accept is essentially and 
     expanded version of the Senate Finance Committee plan.) To 
     understand the magnitude of the potential tax hike that would 
     be required to finance such a plan, it's useful to look at 
     the Senate Finance Committee bill and the recent analysis of 
     it by the Congressional Budget Office.
       Under the Senate Finance Committee plan, the government 
     would pay the full cost of a standard private insurance 
     premium for anyone below the poverty level and would provide 
     a partial premium subsidy that declines with income between 
     the poverty level and twice that income. The insurance 
     premium would vary with family composition but would average 
     about $2000 per person. A single parent and child would 
     receive a subsidy with income below $20,500 while a couple 
     with three children would receive a subsidy with income up to 
     $37,700. More than 60 million individuals would be eligible 
     for subsidies in addition to the 65 million already covered 
     by Medicaid and Medicare. The Senate Finance Committee plan 
     would raise insurance coverage by about 21 million 
     individuals, bringing total coverage to 93 percent of the 
     American population.
       The budget analysis prepared by the Congressional Budget 
     Office never states their estimate of the total additional 
     cost that taxpayers would have to bear to finance the new 
     insurance subsidies. But the CBO figures do imply that the 
     public would be paying about $63 billion a year (at 1994 
     prices) by the year 2000 when the plan is fully operational. 
     Even this massive tax increase understates the likely cost. 
     Estimates that I have made with the help of colleagues at 
     the National Bureau of Economic Research indicate that the 
     CBO figures understate the true cost by about $40 billion 
     a year because they underestimate the extent to which 
     currently insured employees would receive the new 
     subsidies and because they completely ignore the impact of 
     the plan on work incentives and earnings.
       Most of the $63 billion tax burden implied by the CBO 
     numbers is hidden in cost-shifting through insurance 
     companies and providers of health services. Only a relatively 
     small part of the financing plan is an explicit $14 billion a 
     year increase in the tax on tobacco products. A second small 
     piece is a 1.75 percent excise tax on private health 
     insurance premiums. Although this tax of $7 billion a year 
     (at 1994 levels) would be paid by the insurance companies, 
     they would pass it on in the form of higher insurance 
     premiums. These higher premiums would be a direct tax on 
     individuals who buy their own insurance. Companies would 
     offset the higher premiums on the insurance that they provide 
     to their employees by keeping wages lower than they would 
     otherwise be. The true burden of the premium tax would 
     therefore fall on everyone who is now privately insured.
       The largest part of the financing is a hidden tax that is 
     built into the plan to replace the current Medicaid program 
     for the poor by subsidized private insurance. Medicaid 
     provides much more generous benefits than the proposed 
     standard insurance package since Medicaid covers a broader 
     range of services and has no out-of-pocket copayments. 
     Although the government would pay the insurance companies the 
     same subsidies for former Medicaid beneficiaries as it pays 
     for everyone else, the proposed law would require the 
     insurance companies to provide those who are currently 
     eligible for Medicaid with the much more expensive coverage 
     that they have today. That complex maneuver would save the 
     government about $29 billion a year on the current Medicaid 
     program and would add that amount to the annual costs of the 
     insurance companies. The insurance companies would in turn 
     shift it to everyone who is privately insured in the same way 
     that they would shift the explicit premium tax.
       A second very large hidden tax would result from reducing 
     government payments to hospitals and other providers of 
     Medicare services without any reduction in the care that they 
     are expected to give. As a result, the hospitals and other 
     providers would just raise their prices to patients and 
     insurance companies. In the end, it would be the privately 
     insured individuals that bear those costs in the form of 
     higher insurance premiums and lower wages. At 1994 levels, 
     this cost shifting burden is equivalent to at least a $13 
     billion annual tax.
       A second very large hidden tax would result from reducing 
     government payments to hospitals and other providers of 
     Medicare services without any reduction in the care that they 
     are expected to give. As a result, the hospitals and other 
     providers would just raise their prices to patients and 
     insurance companies. In the end, it would be the privately 
     insured individuals that bear those costs in the form of 
     higher insurance premiums and lower wages. At 1994 levels, 
     this cost shifting burden is equivalent to at least a $13 
     billion annual tax.
       In short, buried in the CBO numbers is a projection that 
     the Senate Finance Committee plan would have a $63 billion 
     annual cost (at 1994 price levels) and that all but the $14 
     billion in cigarette levies would be obtained by hidden taxes 
     in the form of cost-shifting through health care providers 
     and insurance companies. It's remarkable that the same 
     politicians who have produced this $49 billion hidden cost-
     shifting have the audacity to say that the public should 
     support their plan in order to eliminate the much more 
     limited cost-shifting that occurs under the existing system 
     as hospitals pass on the cost of free care. Indeed, to the 
     extent that hospitals are already giving free care, the 
     increase in formal insurance coverage gives that much less 
     to the currently uninsured and confirms that most of the 
     plan's cost is to achieve income redistribution rather 
     than expanded health insurance.
       The CBO report is careful to note that its estimates are 
     ``preliminary'' and ``unavoidably uncertain'' and fully half 
     of the report is devoted to discussing why there is ``a 
     substantial chance that the changes required by this 
     proposal--and by other systemic reform proposals--could not 
     be achieved as assumed.''
       My own analysis confirms that the CBO's caution is 
     justified and that the CBO estimates understate the likely 
     annual cost by at least $40 billion that would eventually 
     have to be financed by higher taxes. A key reason is that 
     there is no way to limit the premium subsidies to those who 
     are currently uninsured. Those who are now buying their own 
     insurance would automatically receive the government subsidy. 
     Those who are now receiving insurance from their employers 
     could qualify for an insurance subsidy by switching to an 
     employment situation that paid higher cash wages instead of 
     providing health benefits. That subsidy would be worth a very 
     significant $2,000 for a single mother with a child who earns 
     $15,000; if she earns $10,000, the subsidy would be worth 
     more than $4,000. It wouldn't take long for employers and 
     employees to recognize that some combination of new pay 
     arrangements, explicit outsourcing of some work, and 
     individual job changes would be handsomely rewarded by the 
     government.

       There are now more than 30 million individuals who could 
     qualify for a subsidy. The CBO estimate recognizes that the 
     roughly 6 million of them who now buy their own insurance 
     would receive government subsidies. But when it comes to 
     those who are already insured by their employers, the CBO 
     assumes that only about one-fifth of the income eligible 
     group would eventually choose to qualify for the subsidy, 
     leaving $27 billion of potential subsidies (at 1994 levels) 
     on the table. It seems totally implausible to me that 
     employees and employers would permanently pass up subsidies 
     of $1,000-plus per person that they could get by relatively 
     easy changes in employment arrangements. When they do choose 
     to qualify, taxpayers would have to pay another $27 billion 
     to finance the plan.
       The CBO calculation also totally ignores the effect of the 
     subsidy phase-out between poverty and twice poverty on the 
     incentives to work and to report earnings. The phase-out rule 
     that gives a woman with a child $4660 of subsidy when she 
     earns $10,250 and then takes away more than 40 cents of 
     subsidy for every extra dollar that she earns is a powerful 
     incentive to work less and to shift work to the underground 
     economy. The CBO's report acknowledges that ``the effective 
     marginal levy on labor compensation could increase by as much 
     as 30 to 45 percentage points for workers in families 
     eligible for low-income subsidies'' so that ``some low-wage 
     workers would keep as little as 10 cents of every additional 
     dollar earned.'' But then, quite incredibly, the CBO 
     calculations do not take into account that this would reduce 
     reported earnings, thereby cutting income and payroll tax 
     receipts and raising the health insurance subsidies to which 
     individuals are eligible. Estimates made at the NBER indicate 
     that these reactions would reduce taxes and increase 
     subsidies by a combined total of at least $17 billion a year.
       These estimates make no allowance for the impact of 
     increased demand on health care costs in general. Extending 
     insurance to at least 20 million people who are currently 
     uninsured and giving private insurance to the more than 25 
     million nonaged Medicaid beneficiaries would inevitably raise 
     the demand for health services and increase health care 
     prices. But even without that, the analysis that I have laid 
     out shows that the Senate Finance Committee bill would cost 
     the American public more than $100 billion a year at today's 
     prices. The Clinton-Mitchell plan for even broader coverage 
     would cost even more.
       A cost of $100-plus billion a year to increase the number 
     of insured by 20 million means a cost to the taxpayers of 
     more than $5,000 for each additional person insured, a cost 
     of $20,000 for a family of four. Since the actual insurance 
     premiums are $2,000 per person, it's clear that most of the 
     tax dollars in these plans are for income redistribution 
     rather than the expansion of insurance coverage.
       The most fundamental social program in a generation should 
     not be enacted without full and careful consideration of its 
     costs. Once enacted, the benefits would be an irrevocable 
     entitlement for nearly 100 million people.
       The ability of the politicians to hide a $100-plus billion 
     tax increase is both amazing and frightening. Using mandates 
     on insurance companies or mandates on all businesses as 
     substitutes for direct taxes destroys the budget process and 
     provides a ready way for politicians to deceive the voters. 
     The politics of tax and spend has entered a new era when 
     politicians can spend $100 billion dollars a year and hide 
     the taxes that we pay for those outlays.
       If President Clinton and his Congressional allies succeed 
     in ramming this legislation through Congress in the weeks 
     ahead, the American people will have lost not just $100 
     billion a year. We will also have lost our ability to check 
     the excesses of the political process and to unmask the 
     chicanery of the politicians.
       If political leaders want to deceive the voters, the only 
     safeguard is a democracy in which long and careful public 
     debate and Congressional hearings can expose such deception. 
     Although the Congress has held hearings on the now defunct 
     Clinton plan and on the broad issues of health care, there 
     has been no serious consideration of the cost and financing 
     of the plans that have recently emerged. The American public 
     deserves a chance to know what we are being asked to pay and 
     what we will get for our money. We should be suspicious of 
     any politician who says there isn't time for such a careful 
     examination.

  The PRESIDING OFFICER. The Senator from New Mexico [Mr. Domenici] is 
recognized.
  Mr. DOMENICI. I thank the Chair. I know that my distinguished friend, 
the chairman of the Armed Services Appropriations Subcommittee, is here 
on the floor, and he has been anxiously waiting.

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