[Congressional Record Volume 143, Number 119 (Wednesday, September 10, 1997)]
[Extensions of Remarks]
[Pages E1724-E1725]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       THE 1997 BUDGET AGREEMENT

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                     Wednesday, September 10, 1997

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, August 6, 1997 into the Congressional Record.

                       The 1997 Budget Agreement

       Congress and the President recently enacted a major budget 
     agreement to reform Medicare, balance the budget, and provide 
     tax relief to many Americans. I supported this agreement.
       The budget plan is a major political achievement. For many 
     years, the test of governance has been measured by the 
     ability to cut budget deficits. Both sides gave ground, and 
     both sides won major priorities. Most of the credit, however, 
     should go to the booming economy. Historic growth and low 
     unemployment have boosted revenues and reduced spending. The 
     1993 budget agreement helped reduce the deficit from almost 
     $300 billion to about $40 billion today. In the final 
     negotiations, new economic estimates gave negotiators just 
     enough money to brush aside the last disagreements.
       The tax bill appears to offer something for practically 
     every powerful constituency--the middle class, older persons, 
     parents, farmers, small businesses, college students, and 
     investors. It would not offer much relief to single working 
     adults or persons without children. It also includes about 80 
     narrowly-focused provisions, that benefit just a few 
     individuals or businesses. These limited tax provisions could 
     be subject to a Presidential line-item veto.
       The five-year agreement will have only a modest impact on 
     the economy. The tax cuts amount to less than 2-tenths of one 
     percent (0.2%) of the country's economic output. They were 
     designed to be small enough to have little impact on the 
     economy, and they are affordable because of the economy's 
     current strength. The spending cutbacks are equally modest 
     from an economic perspective. But balancing the budget will 
     show that the federal government can get its fiscal house in 
     order, and it will lower interest rates and boost savings and 
     long-term investment.


                               education

       The plan includes approximately $40 billion in education 
     incentives over five years, including the President's $1,500 
     tax credit for each of the first two years of college, and up 
     to $1,000 for each of the next two years. Education Savings 
     Accounts (ESAs) will allow taxpayers to save $500 per year 
     for a child's education, with tax-fee investment earnings. 
     Finally, up to $2,500 of student loan interest expense will 
     be tax-free. While I am not convinced these changes will 
     dramatically increase the number of children going to 
     college, they will certainly ease the burden on families 
     paying for higher education.


                              health care

       The agreement helps curb rising health costs and the 
     growing number of uninsured Americans. Medicare changes 
     should ensure solvency through 2010, in part through more 
     competition and choice in health care coverage. Provisions in 
     the senate bill to raise the eligibility age to 67, increase 
     co-payments, and means test benefits were not included in the 
     bill. The budget provides health care to about 7 million 
     children who currently have no health insurance. The health 
     insurance deduction for the self-employed will rise to 100%.

[[Page E1725]]

                                tax cuts

       Income taxes are cut $130 billion over five years in the 
     bill. Parents earning up to $110,000 will receive a $500 per 
     child tax credit. Capital gains taxes are reduced, 
     retroactive to May 7, and long-term investments will receive 
     additional benefits. Homeowners can exclude up to $500,000 in 
     capital gains from the sale of a principal residence. Savings 
     are encouraged by expanding Individual Retirement Accounts 
     (IRAs), and taxpayers will be able to make penalty-free 
     withdrawals for education expenses or first-time home 
     purchases. Estate taxes will be reduced, primarily for family 
     farms and small businesses.


                               drawbacks

                         Complicated tax system

       One major problem with this budget is that it further 
     complicates the tax code. It creates seven different capital 
     gains rates, four education tax credit formulas, three kinds 
     of tax-preferred savings accounts, and two different child 
     tax deductions. Each provision will require more forms, 
     separate instructions, and new income eligibility 
     requirements. Each deduction has a worthy goal, but the 
     cumulative effect is that tax-filing season next year will be 
     the most complicated in a decade. My preference is to 
     eliminate loopholes and deductions and reduce basic tax rates 
     across-the-board.

                      Betting on a strong economy

       Congress and the President are hoping a strong economy will 
     carry us to balance, perhaps as early as next year. If the 
     economy slows, the budget lacks the tough spending cuts to 
     ensure balance. In fact, new spending and accelerating tax 
     cuts will make it harder to balance the budget. Early figures 
     indicate this bill will boost the deficit by $5.7 billion by 
     October 1. The impact of backloaded tax cuts is less than 
     earlier proposals, but we are still left with a ticking time 
     bomb that can only be defused by a level of fiscal discipline 
     that has not yet been achieved in Congress.

                                Fairness

       One of my concerns about the original House plan is that 
     the tax relief was tilted to better-off Americans. Although 
     the final agreement improved upon the House bill, it still 
     makes the tax code less progressive. All sides agree that, 
     when fully implemented, a far greater share of the tax 
     benefits will go to citizens with high incomes. In effect, 
     proponents of these changes argue that middle-class taxpayers 
     were paying less than their fair share of taxes. I simply 
     disagree.

                              Entitlements

       Perhaps the biggest drawback of the budget agreement is the 
     failure to address long-term entitlements. As baby boomers 
     begin to retire in 2010, spending for federal health and 
     retirement programs will increase dramatically. Congress and 
     the President lost an opportunity to tackle the biggest 
     budget challenge of the next fifty years. The bill does 
     include a commission report on long-term Medicare changes in 
     1999, but it does not deal with Social Security. History will 
     judge this agreement harshly unless we enact more reforms.


                               Conclusion

       On balance, this agreement moves the country forward. It 
     should ensure Medicare's solvency for ten years. It provides 
     tax relief, education, and health care benefits to hard-
     working families. While it moves backwards on tax reform, and 
     postpones some tough decisions, it is still likely to achieve 
     a balanced budget. My hope is that we can build on this 
     political and economic achievement to address the country's 
     long-term challenges as we move into the next century.

     

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