[Congressional Record Volume 143, Number 75 (Wednesday, June 4, 1997)]
[Extensions of Remarks]
[Page E1108]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                               THE BUDGET

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                        Wednesday, June 4, 1997

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, May 28, 1997 into the Congressional Record.

        The Balanced Budget: Agreement and Long-Term Challenges

       Last week, with my support, Congress approved a budget 
     resolution for fiscal year 1998 which provides a blueprint 
     for how Congress and the President intend to balance the 
     federal budget over the next five fiscal years. The budget 
     resolution reflects the recent budget agreement worked out 
     between the White House and congressional leaders, and marks 
     the first concrete step in enacting a balanced budget. 
     Congress will work over the next several months to make 
     specific changes in law, including spending cuts, tax 
     changes, and entitlement reforms, which will aim to bring the 
     budget into balance by fiscal year 2002.
       The budget resolution proposes to balance the budget over 
     five years, while providing a net tax cut of $85 billion. The 
     highlights of the budget plan include $139 billion in cuts in 
     discretionary spending, $170 billion in entitlement spending 
     cutbacks, and $13.2 billion in interest savings. Changes in 
     the Medicare program will ensure the solvency of the hospital 
     fund over the next 10 years. Defense and education spending 
     will rise slightly. The resolution also assumes that $16 
     billion would be spent over five years to provide health 
     insurance for up to 5 million children who are currently 
     uninsured.
       Congress must now work out the details of a balanced budget 
     on several different tracks: discretionary spending, through 
     the 13 annual appropriations bills; entitlement spending, 
     including spending on Medicare and Medicaid; and a separate 
     measure to make changes in tax law. The expectation is that 
     the tax package will include a reduction in the capital gains 
     tax and estate taxes, as well as a child tax credit and a 
     deduction for higher education expenses.


                           general assessment

       I voted for the budget resolution because it provides a 
     reasonable plan for balancing the federal budget in the next 
     five years. A strong economy and two budget agreements in 
     1990 and 1993 have helped reduce the deficit from a high of 
     $290 billion in the early 1990s to the current level of $70 
     billion. The recent agreement worked out between the 
     President and Congress will close that gap, provided, of 
     course, that the economy continues to grow.
       The plan endorsed by Congress last week provides for an 
     historically modest level of deficit reduction. This year's 
     agreement is expected to reduce the deficit by a total of 
     $204 billion over the next five years. The 1990 agreement, in 
     contrast, produced $593 billion in deficit reduction and the 
     1993 accord $487 billion.
       I do have some concerns with the current plan. First, it 
     does not provide adequate funding for infrastructure. I voted 
     for a substitute measure which would have increased highway 
     and transit funding by $12 billion over five years and 
     provided additional resources to Indiana and other states 
     which receive less than they pay out in federal gas taxes. 
     Unfortunately, the House defeated the amendment by a two vote 
     margin. Second, the budget plan could have achieved balance 
     more quickly if we had deferred or limited the scope of tax 
     changes. Third, the package did not include enforcement 
     mechanisms to ensure that we hit deficit reduction targets 
     each year until the budget is in balance.


                      long-term budget challenges

       Most importantly, the budget agreement does not address 
     long-term challenges to the federal budget. There is little 
     in this agreement to avert the spending problems caused by 
     our aging population. Once the Baby Boomers (i.e. those born 
     between 1946 and 1964) start to retire early in the 21st 
     Century, huge demands will be placed on Medicare, Social 
     Security, Medicaid and other entitlement programs, but the 
     budget agreement is silent on these issues. The Medicare 
     reforms in the agreement, for example, would provide a ten-
     year fix to the Part A (hospital) trust fund. The budget plan 
     makes no changes in the Social Security program, and only 
     minimal changes to Medicaid, the program which pays for much 
     long-term care for the elderly.
       The demographic changes facing this country in the next 
     century are staggering. First, the number of elderly 
     Americans will increase very rapidly as Baby Boomers reach 
     retirement age. The Social Security Administration estimates 
     that over the next 35 years the number of people age 65 and 
     older will double. This population change, combined with the 
     fact that people will be living longer, will place strains on 
     federal retirement and health care programs. Federal spending 
     on Social Security and Medicare now constitutes almost 7% of 
     national income. By 2030 those two programs will consume 
     almost 14% of national income.
       Second, the growth in the labor force will slow 
     dramatically as the Baby Boomers retire. The Social Security 
     Administration projects that, because of a declining birth 
     rate and other factors, the average rate of growth of the 
     labor force will slow from the current rate of 1% annually to 
     0.2% in 2010. This trend is significant because, under the 
     current Medicare and Social Security systems, workers help 
     pay for retiree benefits through payroll and income taxes. 
     With more retirees and fewer workers, the average worker 
     would have to pay significantly more in taxes to maintain the 
     current level of benefits for the average retiree.
       The challenge for Congress is to address these problems in 
     the nearterm before they overwhelm the federal budget. There 
     are numerous proposals for reforming entitlement programs. 
     Some have called for raising the retirement age, reducing or 
     means-testing benefits, of limiting cost-of-living 
     adjustments. Others have called for privatizing the Social 
     Security system so that government exposure to future costs 
     is limited. Still others have proposed converting Medicare 
     and Medicaid into managed care systems in an effort to curb 
     costs and limit services.


                               Conclusion

       Balancing the federal budget will be an important 
     accomplishment. As the 1990 and 1993 deficit reduction 
     agreements have shown, smaller deficits mean greater private 
     investment, stronger economic growth, and more job creation. 
     The real test will be keeping the budget in balance into the 
     next century. This year's agreement, while providing a short-
     term fix, does not address the long-term problems associated 
     with an aging population and shrinking workforce. We must now 
     begin to find solutions to these challenges.

     

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