[Congressional Record Volume 145, Number 106 (Monday, July 26, 1999)]
[House]
[Pages H6382-H6387]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                              {time}  1915
              IT'S TIME TO DECIDE OUR NATIONAL PRIORITIES

  The SPEAKER pro tempore (Mr. Simpson). Under a previous order of the 
House, the gentleman from Massachusetts (Mr. McGovern) is recognized 
for 5 minutes.
  Mr. McGOVERN. Mr. Speaker, last week we saw the budget allocation for 
the Departments of Labor, Health and

[[Page H6383]]

Human Services, and Education cut by an additional $1 billion, making 
for a potential $12 billion shortfall in these programs. We saw that 
same Committee on Appropriations bring to the House floor the FY 2000 
defense bill as a level $10 billion above the 1997 budget agreement cap 
for defense, and $5.7 billion above the Administration's request, a 
request that was already $1 billion greater than the FY 1999 
allocation.
  We saw the Republican majority approve a GOP tax bill, mainly for the 
very wealthy, which would reduce Federal revenues somewhere in the 
neighborhood of $800 billion over the next 10 years, and nearly $3 
trillion in the following decade.
  What is wrong with this picture? What is wrong is what is missing, 
funding for our children: for their education, their health and well-
being; funding for our seniors: their security, their medicine, and 
their basic needs; funding for our communities: for their economic 
development and safety, the protection of open space, safe drinking 
water, clean air, and the recovery of polluted land.
  In a time of unprecedented economic prosperity, I believe we have a 
unique opportunity to face the issues and solve the problems that have 
been holding individuals and communities back for decades. We have the 
resources, if managed carefully, to increase Federal grant assistance 
for higher education; rebuild our public schools; protect and preserve 
our national resources; attack poverty and homelessness; clean up 
contaminated urban sites; invest in environmental, medical, and other 
technologies; establish early childhood development programs for all 
our children, and ensure that the health of our children and our 
seniors is safeguarded for a generation. All we need is the political 
will to make these choices our national priorities.
  In 1997, Congress approved one of the largest tax cuts in the history 
of our country. We do not need over $100 billion in new tax breaks for 
corporations and new favors for the wealthiest Americans when our 
schools and our communities and infrastructure need significant repair 
and modernization.
  We do not need $4 billion to $5 billion worth of pork barrel projects 
in the defense bill, projects the Pentagon did not ask for and does not 
want, year after year after year, when that money could reduce 
classroom size in grades K through 3.
  Do not tell me the money is not there. President Clinton presented a 
budget for the Pentagon that was $1 billion more than last year's 
level, increases that will continue annually over the next 6 years. The 
defense bill approved by the House last week is $5.7 billion more than 
even the President's request.
  By contrast, according to the Children's Defense Fund, to provide 
health insurance for every uninsured child in the United States would 
cost $11 billion.
  Do not tell me the money is not there. Last week the Republican 
majority said we can eliminate the estate tax for the 300 largest, 
wealthiest estates in America, but we cannot provide seniors with the 
prescription drug benefit. This Congress is deciding the Nation's 
future, the fate of its children, its seniors, its communities, its 
farms, without a serious debate on the critical needs and priorities of 
our Nation.
  If the defense budget over the next 5 years includes just the 
increases requested by President Clinton and the GOP tax bill is 
implemented, then all other discretionary spending will have to be cut 
by nearly 40 percent. That is a 40 percent cut in education, in 
veterans programs, in Head Start, in disaster relief, in urban 
development, in immunizations for infants and toddlers.
  The current budget caps are intolerable if we are to address the 
current needs of our communities. Is this Congress really prepared to 
implement a fiscal program that will require an additional 40 percent 
reduction in all non-defense programs? Does the majority really want 
this to be the anti-education, anti-children, anti-seniors, anti-
veterans Congress, or is it trying to return us to the days of big 
deficits?
  We can do better and we must do better. We are elected to do better. 
I firmly believe we can have a strong and modern defense second to none 
without the increases being suggested, but it will require a 
significant reordering of priorities within the Armed Forces. It will 
require greater accountability on the part of the Pentagon for the 
funds it receives. It will require our allies to pay their fair share 
for global defense. It will also demand restraint and responsibility on 
the part of all Members of Congress not to load up the defense budget 
with unneeded and unasked for weapons, equipment, and facilities.
  I believe we should provide responsible tax relief to help the most 
vulnerable in our society become more productive and financially 
secure, to eliminate the major penalty, to modernize our schools, and 
enhance our ability to research and develop the technology machinery of 
the next century.
  We have an historic opportunity to address longstanding needs and 
bring every American into a more prosperous future. I hope we will do 
that, and not squander this moment with irresponsible spending and 
reckless tax cuts like the one the Republican majority approved last 
week.
  Mr. Speaker, I include for the Record the following material relating 
to the budget.
  The material referred to is as follows:

         Summary: ``Why a Cold War Budget Without a Cold War?''

       Dr. Lawrence Korb, the former Assistant Secretary of 
     Defense under Ronald Reagan, has outlined an alternative 
     Pentagon budget that would reduce spending by more than 17% 
     per year ($48 billion). Dr. Korb's study was sponsored by 
     Business Leaders for Sensible Priorities (BLSP), a coalition 
     of business people and military officials who are currently 
     advocating a 15% reduction in the Pentagon budget. They 
     believe this money can be reinvested in programs that build 
     American communities, such as school modernization, class-
     size reductions, healthcare and other local and state 
     programs. Dr. Korb calls the present Clinton Administration 
     plan ``A Cold War Budget without a Cold War'' and argues for 
     restructured spending that strengthens the U.S. military in a 
     manner reflective of the drastically changed world order.


                               investment

       Dr. Korb's $75 billion annual modernization proposal (20% 
     less than the present $94 billion investment budget) would 
     replace aging equipment and increase our technological edge. 
     Dr. Korb's plan would actually modernize U.S. forces ``more 
     rapidly at a lower cost'' than the current investment 
     strategy. The Pentagon could achieve this by buying less 
     expensive weapons that would still be the most powerful in 
     any battle, rather than building the next generation of 
     unproven weapons at three times the price. ``Rushing new 
     generations of weapons systems into production,'' Dr. Korb 
     reports, ``is an antiquated Cold Ware practice that continues 
     to cost taxpayers billions.''


                           nuclear capability

       The Korb report calls the $30 billion spent annually on 
     strategic nuclear forces a remnant of the former U.S./Soviet 
     practice of mutual assured destruction. Dr. Korb urges the 
     U.S. cut the number of strategic nuclear weapons from its 
     present level of 7,500 to a number no greater than 1,000 a 
     quantity large enough to destroy any possible targets but 
     small enough to be maintained at $15 billion per year (half 
     the present rate).


                               readiness

       Dr. Korb details a readiness package costing no more than 
     $145 billion per year, $21 billion less than present spending 
     ($166 billion). Dr. Korb's plan would maintain forces capable 
     of winning a major theater war and conduct a significant 
     peacekeeping mission, while maintaining a presence in the 
     other key areas around the globe. Dr. Korb finds that the 
     Pentagon currently overspends in force deployment. He 
     maintains, for example, that stationing 100,000 U.S. troops 
     in Europe is excessive and that 50,000 troops would 
     constitute an effective presence in Europe (which can afford 
     to do more to protect its own interests).


                               conclusion

       Dr. Korb's report stresses the importance of making a 
     Pentagon budget responsive to the reality of the post Cold 
     War world. No longer should the U.S. Government overspend to 
     ensure security or compete in an arms race with the Soviet 
     Union. As the only remaining superpower, it is time for us to 
     adjust spending to reflect that place of privilege and 
     responsibility. Dr. Korb's realistic budget proposals set an 
     important standard for fiscal responsibility. Pentagon 
     officials were immune to financial constraints during the 
     Cold War era, and the recent reviews they have conducted have 
     been, Dr. Korb tells us, ``nothing more than a 
     rationalization for the existing force structure.'' Business 
     Leaders believes that it is now time for the Pentagon to 
     follow Dr. Korb's lead and become accountable for spending 
     taxpayers' assets.
                                  ____


               [From the Washington Post, July 24, 1999]

                 Business Gets Big Breaks in Tax Bills

                            (By Dan Morgan)

       After years of tight budgets and a Congress focused on 
     cutting the deficit, business this

[[Page H6384]]

     week cashed in on the new economic climate to win billions of 
     dollars in breaks tucked into the tax bill that passed the 
     House and another working its way through the Senate.
       Capitalizing on the new era of government surpluses are 
     multinational corporations, utility companies, railroads, oil 
     and gas operators, timber companies, the steel industry and 
     small business owners.
       Along with the breaks for those behemoths, smaller 
     provisions sprinkled through the bills will give tax relief 
     to seaplane owners in Alaska, sawmills in Maine, barge lines 
     in Mississippi and investor Warren Buffett. Other provisions 
     assist Eskimo whaling captains on Alaska's North Slope and 
     Carolina woodlot owners.
       The House version contains almost $100 billion in direct 
     tax breaks for business over the next decade--and dozens more 
     provisions that will benefit various industries indirectly. 
     The Senate Finance Committee reported out a different and 
     less generous measure giving business about $50 billion in 
     direct tax relief.
       While special provisions in tax and budget bills are a 
     staple of life in Washington, the difference this time is 
     that, with a projected $3 trillion budget surplus over the 
     next decade, the lawmakers enjoyed far more flexibility to 
     gratify lobbyists' wishes.
       ``If you're a business lobbyist and couldn't get into this 
     legislation, you better turn in your six-shooter,'' said a 
     Democratic lobbyist. ``There was that much money around.''
       The Republican tax plans, which would cut nearly $800 
     billion in taxes over the next 10 years, face a long and 
     uncertain road, and are sure to be sharply scaled down before 
     President Clinton will agree to sign them.
       Still, the sections providing tax relief for corporations 
     make clear that business intends to use its political muscle 
     to claim its share of the surplus.
       Republican leaders strongly defended the tax concessions, 
     saying they are needed to strengthen the competitiveness of 
     U.S. global business, help distressed industries such as 
     steel and oil, and encourage mergers that make the economy 
     more efficient. And they noted that the bulk of tax cuts in 
     the bill go to benefit families.
       But some critics--even within the GOP--said the largess to 
     special interests repudiates the party's pledge to eliminate 
     ``corporate welfare.''
       ``Republicans promised to change this kind of behavior,'' 
     said Sen. John McCain (R-Ariz.), an opponent of ``pork 
     barrel'' spending. ``But I think it's fairly obvious that 
     hasn't been the case. Now we're going to see this big thick 
     tax code on our desks, and the fine print will reveal another 
     cornucopia for the special interests, and a chamber of 
     horrors for the taxpayers.''
       Tax concessions to the oil and gas industry, as well as 
     nuclear utilities, have also drawn some early fire from 
     environmental and consumer groups.
       ``At a time when we should be curbing smog and global 
     warming, these bills are going to give billions of dollars in 
     tax breaks to the companies responsible for these problems,'' 
     said Anna Aurelio, staff scientist at U.S. Public Interest 
     Research Group.
       Budget analysts cited a single, sizable item to illustrate 
     how the new budgetary climate has opened up possibilities for 
     corporations.
       Since the mid-1980s, multinational corporations have 
     attempted to secure changes in the tax code that would allow 
     them to allocate their worldwide interest deductions in such 
     a way as to generate additional foreign tax credits--and 
     thereby trim their tax bills. The U.S. Treasury has been 
     largely supportive. But according to a lobbyist for a major 
     international bank, ``Nobody thought it could get done 
     because it would cost so much money.''
       This year, both House and Senate bills include the tax 
     relief. The House proposal would cost $34 billion in lost 
     revenue to the government over the next 10 years, and the 
     slightly more modest Senate version would cost $14 billion.
       ``For so many years Congress was totally focused on raising 
     revenues,'' said Douglas P. Bates, chief lobbyist for the 
     American Council of Life Insurance. ``These were really the 
     first tax bills in a long time where the revenue offsets [the 
     need to find money to make up for cuts elsewhere] weren't 
     driving the issues.''
       Bates experienced that first-hand. He spent much of the 
     week dispatching a series of e-mail messages to the 
     organization's 500 members, alerting them to beneficial 
     provisions that were added to the bills as they moved through 
     the Senate Finance Committee and the House.
       When the dust settled, the full House and Senate committee 
     had approved a series of provisions that had long been on the 
     group's wish list, including deductibility for long-term care 
     insurance and changes in rules governing corporate pension 
     plans. ACLI officials said the changes should create new 
     business for life insurance companies that manage corporate 
     pension plans or offer long-term care coverage.
       After years of trying, ACLI also scored a major victory 
     when it got the House to support repeal of a tax provision 
     that delays the ability of life insurance companies to 
     file consolidated returns, or write off losses of newly 
     acquired affiliates against their own profits. The 10-year 
     savings to the industry from that provision alone would be 
     $949 million, according to the Joint Committee on 
     Taxation.
       ACLI Chairman Carroll A. Campbell Jr., a former member of 
     the House Ways and Means Committee, met with committee 
     Chairman Bill Archer (R-Tex.) to press for the change, 
     sources said.
       The change is deemed crucial to a wave of insurance company 
     mergers, including the recent one between Provident Insurance 
     Co., of Chattanooga, in the home state of Sen. Fred D. 
     Thompson (R), and UNUM Corp., of Portland, Maine. Thompson, a 
     member of the Senate Finance Committee, persuaded committee 
     Chairman William V. Roth Jr. (R-Del.) to add part of the 
     House provision to his tax draft hours before it was brought 
     before the committee.
       ACLI also joined with a coalition of banks and securities 
     firms to get both the full House and Senate Finance Committee 
     to extend for five years a temporary tax deferral on income 
     those industries earn abroad.
       The companies, working under the umbrella of the Coalition 
     of Service Industries, will save some $5 billion in taxes 
     over 10 years as a result of the provision, according to 
     congressional calculations.
       As uncertain as the prospects for the across-the-board tax 
     cuts for families are, the tax relief for business seems 
     likely to create its own pressure on Clinton and Congress to 
     agree on legislation. And with tens of millions of dollars in 
     campaign contributions at stake, neither party can afford to 
     ignore business's drive for extensive tax relief this year.
       ``Business doesn't want a repeat of last year when there 
     was no tax bill, just a bunch of extenders [of provisions 
     about to expire.] It would be nice if this wasn't just a 
     political exercise. There's enough money that I think they 
     can work this out,'' said John Porter, an Ernst & Young tax 
     expert.
       An example of the huge stakes is the more than $1 billion 
     that the utility industry stands to save in taxes over the 
     next 10 years if a House provision affecting utility mergers 
     survives.
       The provision, sponsored by Rep. Gerald ``Jerry'' Weller 
     (R-Ill.) a Ways and Means Committee member, would excuse the 
     payment of taxes on the fund that utilities set up to cover 
     the costs of shutting down nuclear power plants.
       Weller, who has three nuclear facilities in his district, 
     said the tax provision is crucial to the restructuring 
     underway in the utility industry as the nation moves to a 
     deregulated electricity market. One immediate effect would be 
     to hasten the merger of Decatur, Ill.-based Illinova Corp. 
     and Dynegy Inc., a Houston natural gas company.
       The issue, Weller said, was important to the entire 
     Illinois delegation, including House Speaker J. Dennis 
     Hastert (R), though he added he has not spoken to Hastert 
     about the matter.
       But some consumer groups are wary. ``The nuclear industry 
     has already been getting a ratepayer-funded bailout in state 
     electricity reorganization plans. Now they're going for 
     federal tax breaks too,'' said U.S. Public Interest Research 
     Group's Aurelio.
       Several environmental groups this week said they were still 
     studying provisions in both the House and Senate versions of 
     the bill that would allow timber companies to write off the 
     cost of replanting trees over seven years, rather than 
     recovering those costs when they sold the trees.
       ``We see this as a huge win for the environment,'' said 
     Michael Kelin of the American Forest and Paper Association, 
     which lobbied Rep. Jennifer Dunn (R-Wash.) and other timber 
     state members. ``This will lead to a greener America.''


                            the big winners

       Big Business: Relaxation of pension and health plan 
     regulations; bills also lift some ceilings on defined pension 
     benefits.
       Expanded availability of foreign tax credits, by allowing 
     global allocation of interest deductions (both bills).
       Small Business: Repeal or reduction of estate taxes (both 
     bills).
       House restores 80 percent deductibility of business meals.
       Banks, securities firms: Bills extend ability to defer 
     taxes on income earned abroad until money is returned home.
       Railroads, barge lines: both bills repeal 4.3 cents per 
     gallon tax on rail diesel and barge fuels.
       Timber: House reduces capital gain on sale of trees. Both 
     bills allow seven-year amortization of costs of replanting 
     trees, lifting current cap.
       Insurance: House bill would end five-year restriction 
     against life insurance companies writing off losses of 
     affiliates against profits. House and Senate allow 
     deductibility of long-term care insurance.
       Oil and Gas: House bill allows expensing of environmental 
     remediation costs; expands net operating loss carryback to 
     five years; extends suspension of income limits on percentage 
     depletion allowance.
       Utilities: In utility mergers, the House bill allows 
     acquiring companies not to pay tax on funds previously set 
     aside to cover future costs of decommissioning nuclear 
     plants.
       Steel: House allows manufacturers to use alternative 
     minimum tax credit carryover to reduce 90 percent of AMT 
     liability.
                                  ____


                               Priorities

       1. Amount of federal tax money allocated to the Pentagon 
     this year: $276 billion.
---------------------------------------------------------------------------
     Sources: 1, 2, 3, 4 Budget of the United States (FY 2000); 5, 
     6, 7, 8 Center for Defense Information (Washington, DC); 9 
     World Military and Social Expenditures by Ruth Leger Sivard; 
     10 National Center for Educational Statistics (Washington, 
     DC); 11, 12, Children's Defense Fund (Washington, DC); 13 
     Budget of the United States (FY 2000); 14 Children's Defense 
     Fund (Washington, DC); 15 Council for a Liveable World 
     Education Fund (Washington, DC); 16 U.S. Conference of Mayors 
     (Washington, DC); 17 Center for Defense Information 
     (Washington, DC); 18 Justice Policy Institute (Washington, 
     DC); 19, 20 Budget of the United States (FY 2000); 21, 22 ``A 
     $75 set screw? Bad old days of Pentagon purchasing are 
     back,'' Copley News Service, by Julia Malone, March 18, 1998; 
     23 Center for Defense Information (Washington, DC); 24 World 
     Military and Social Expenditures by Ruth Leger Sivard; 25, 26 
     SIPRI (Stockholm); 27, 28 Center for Responsive Politics 
     (Washington, DC); 29, 30 distributed anonymously over the 
     Internet; 31 ``Military-Industrial Complex Revisited,'' by 
     William Hartung, World Policy Institute, November, 1998; 32 
     $276 billion annual Pentagon budget  365 days per 
     year  24 hours per day  60 minutes per hour 2 
     minutes = $1,050,200.

---------------------------------------------------------------------------

[[Page H6385]]

       2. Amount allocated to education: $31 billion.
       3. Amount allocated to the Environmental Protection Agency: 
     $7 billion.
       4. Amount allocated to Head Start: $5 billion.
       5. Ratio of U.S. defense spending versus Iraqi defense 
     spending: 276 to 1.
       6. Ratio of Pentagon spending to combined defense spending 
     of Russia, China, and all ``rogue'' nations: 2 to 1.
       7. Ratio of defense spending by U.S. and allies to combined 
     defense spending by those nations: 4 to 1.
       8. Rank of U.S. military spending among all nations: 1.
       9. Rank of U.S. education spending per student among all 
     nations: 10.
       10. Rank of math and science test scores by U.S. high 
     school students among industrialized nations: 18.
       11. Number of children without health insurance in U.S.: 11 
     million.
       12. Number of children without health insurance in all 
     other industrialized nations: 0.
       13. Amount of President Clinton's proposed increase to the 
     Pentagon budget next year: $12 billion.
       14. Amount needed to provide health insurance for 11 
     million American kids who don't have it: $11 billion.
       15. Amount of pork in the Pentagon budget--not requested by 
     the Pentagon but inserted by Congress: $5 billion.
       16. Amount needed to reduce kindergarten through third 
     grade class size to 18 students: $4 billion.
       17. Amount required to build 48 of 341 new F-22 fighters, 
     designed to fight the collapsed Soviet Union: $9 billion.
       18. Amount needed to provide proven anti-crime programs for 
     all eligible kids in U.S.: $9 billion.
       19. Percentage of U.S. discretionary budget--the part of 
     the budget that Congress votes on--given to Pentagon: 48.
       20. Percentage allocated to education: 8.
       21. Amount paid by the Pentagon for one screw in 1998: $75.
       22. Amount such a screw would cost in a hardware store: 50 
     cents.
       23. Rank of U.S. nuclear arsenal among all nations: 1.
       24. Rank of U.S. infant mortality rate among all nations: 
     13.
       25. Percentage decrease in Russian defense budget since 
     1998: 74.
       26. Percentage decrease in Pentagon budget since 1998: 21.
       27. Amount of political contributions and lobbying in 1997 
     by tobacco industry: $44 million.
       28. By the weapons industry: $58 million.
       29. Cost of a New Attack Submarine, proposed to replace 
     U.S. subs that are already the world's best: $2.1 billion.
       30. Cost of one decent map of downtown Belgrade: priceless.
       31. Percentage of Senators who have a facility in their 
     district owned by defense contractor Lockheed Martin: 100.
       32. Amount spent by Pentagon while you read this fact sheet 
     (average reading time 2 minutes): $1 million.
                                  ____


    [From the Center on Budget and Policy Priorities, July 12, 1999]

     Much of the Projected Non-Social Security Surplus is a Mirage


vast majority of surplus rests on assumptions of deep cuts in domestic 
                  programs that are unlikely to occur

                  (By Sam Elkin and Robert Greenstein)

       Congressional Budget Office figures released July 1 
     indicate that the large majority of the budget surplus 
     projected outside Social Security is essentially artificial 
     because it depends on unrealistic assumptions that large, 
     unspecified cuts will be made over the next 10 years in 
     appropriated programs and that there will be no emergency 
     expenditures over this period. When the more realistic 
     assumption is made that total non-emergency expenditures for 
     appropriated programs will neither be cut nor increased and 
     will simply stay even with inflation--and that emergency 
     expenditures will continue at their 1991-1998 average level--
     nearly 90 percent of the projected non-Social Security 
     surplus disappears.\1\
---------------------------------------------------------------------------
     \1\ We use the average level of emergency spending in fiscal 
     years 1991 through 1998, other than expenditures for Desert 
     Storm. This also excludes the high level of emergency 
     spending in fiscal year 1999. The term ``appropriated 
     programs,'' as used here, means discretionary programs.
---------------------------------------------------------------------------
       The new CBO projections show that under current law, the 
     federal government will begin running surpluses in the non-
     Social Security budget in fiscal year 2000 and run cumulative 
     non-Social Security surpluses of $996 billion over the next 
     10 years. But these projections, like those OMB issued 
     several days earlier assume that total expenditures for 
     appropriated programs--which include the vast bulk of defense 
     expenditures--will remain within the austere and politically 
     unrealistic ``caps'' the 1997 budget law set on appropriated 
     programs.\2\
---------------------------------------------------------------------------
     \2\ Technically, OMB assumes expenditures for discretionary 
     programs that exceed the caps, but it also assumes offsetting 
     reductions in mandatory programs and tax increases.
---------------------------------------------------------------------------
       To remain within the FY 2000 caps will entail cutting 
     appropriated (i.e., discretionary) programs billions of 
     dollars below the FY 1999 level. No one expects this to 
     occur. Leaders of both parties have acknowledged that a 
     number of appropriations bills cannot pass unless the amount 
     of funding provided for the bills is at significantly higher 
     levels than the current caps allow.
       The caps for FY 2001 and 2002 are more unrealistic than the 
     FY 2000 cap; the caps for those years are significantly lower 
     than the FY 2000 cap when inflation is taken into account. 
     Moreover, the CBO and OMB projections assume that for years 
     after 2002, total expenditures for appropriated programs will 
     remain at the level of the severe cap for FY 2002, adjusted 
     only for inflation in years after FY 2002. This means that 
     the surplus projections assume levels of expenditures for 
     appropriated programs for fiscal years 2001 through 2009 that 
     are lower, when inflation is taken into account, than the 
     highly unrealistic FY 2000 cap that almost certainly will not 
     be met.
       Also of note, both parties have proposed significant 
     increases in defense spending in coming years. Defense 
     spending constitutes about half of overall expenditures for 
     appropriated programs. In addition, legislation enacted last 
     year requires increases in highway spending in coming years. 
     These factors are further reasons why the caps are unlikely 
     to be sustained.
       CBO must base its budget projections on current law. The 
     spending caps on appropriated programs are current law. CBO 
     has acted properly in developing its projections. But 
     policymakers who act as though the $1 trillion in non-Social 
     Security surpluses projected over the next 10 years all 
     represent new funds that can go for tax cuts of program 
     expansions appear to misunderstand the meaning of the 
     projections.
       Because the CBO projections rest on the assumption that 
     expenditures for appropriated programs will be held to the 
     levels of the caps, these projections assume that over the 
     next 10 years, these expenditures will be reduced $595 
     billion below current (i.e., FY 1999) levels of non-emergency 
     discretionary spending, adjusted for inflation. (The $595 
     billion figure is found in a CBO table on this matter issued 
     July 12.)
       Since defense spending is widely expected to rise, all of 
     these $595 billion in cuts would have to come from non-
     defense programs, primarily domestic programs. This would 
     entail reducing overall expenditures for on-defense 
     appropriated programs by 15 percent to 20 percent over the 
     next 10 years, after adjusting for inflation. Since some 
     areas of non-defense spending such as highways are slated to 
     increase, other areas would need to be cut deeper than 15 
     percent to 20 percent. Achieving cuts of this magnitude in 
     non-defense appropriated programs would be unprecedented.
       Cutting federal expenditures results in lower levels of 
     debt. CBO projects that the $595 billion in reductions in 
     appropriated programs assumed in its baseline would generate 
     $154 billion in additional savings over the next 10 years 
     through lower interest payments on the debt. Consequently, 
     the reductions in appropriated programs that the CBO 
     projections assume result in total savings of $749 billion 
     over the next 10 years.
       These $749 billion in assumed savings account for 75 
     percent--or three-fourths--of the non-Social Security surplus 
     projected over the next 10 years. Since most or all of these 
     cuts are unlikely to materialize, a large majority of the 
     surplus projected in the non-Social Security budget is 
     essentially a mirage.


                           emergency spending

       Nor does this represent the full extent to which the DBO 
     projections rest on assumptions that lead to an overstatement 
     of the likely non-Social Security surplus. The CBO 
     projections assume no emergency spending for the next 10 
     years. There will, of course, be emergencies over the next 10 
     years that result in government expenditures. There have been 
     emergency expenditures outside the spending caps every year 
     since the Budget Enforcement Act of 1990 established the 
     caps. Hurricanes, tornadoes, floods, and international 
     emergencies will not magically disappear.
       Over the 1990's, emergency funding has averaged $8 billion 
     a year, excluding both emergency expenditures for Desert 
     Storm in the early 1990s and the higher level of emergency 
     spending in fiscal year 1999.\3\ The most prudent assumption 
     to make is that emergency expenditures will continue to 
     average about $8 billion a year.
---------------------------------------------------------------------------
     \3\ The $8 billion figure represents average funding for 
     emergencies other than Desert Storm for fiscal years 1991 
     through 1998, as expressed in 1999 dollars.
---------------------------------------------------------------------------
       This means an additional $80 billion of the projected 
     surplus over the next 10 years is not likely to materialize 
     since it will be used for emergency expenditures. This $80 
     billion in expenditures will cause interest payments on the 
     debt to be $24 billion higher than the levels the CBO 
     projections assume.

[[Page H6386]]

  estimate of available surplus lower than in earlier center analyses

       Based on Congressional Budget Office data, this analysis 
     shows that when realistic assumptions are used, the non-
     Social Security surpluses total only about $112 billion over 
     the next 10 years. Earlier Center versions of this analysis 
     showed modestly larger available surpluses. The revisions in 
     this analysis stem from two factors. First, on July 12, the 
     Congressional Budget Office issued a table that raised CBO's 
     estimate of the portion of the CBO surplus projection that 
     results from the assumption that discretionary spending will 
     be cut. CBO had earlier estimated that $584 billion of the 
     projected surplus was attributable to assuming that non-
     emergency discretionary spending would be reduced below the 
     FY 1999 level of non-emergency discretionary expenditures, 
     adjusted for inflation. CBO now estimates that $595 billion 
     of the surplus projection is due to this assumption. Second, 
     an earlier Center analysis did not address the assumption in 
     the CBO projections that there would be no emergency 
     expenditures for the next 10 years. This revised Center 
     analysis does address this matter.

  CBO'S SURPLUS FORECAST: HOW MUCH IS REALLY AVAILABLE FOR TAX CUTS AND
                           PROGRAM EXPANSIONS?
                         [In billion of dollars]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
CBO projection of non-Social Security surplus over 10 years....     $996
Amount needed to keep non-emergency spending for appropriated       -595
 programs even with inflation..................................
Likely emergency expenditures (based on average annual               -80
 emergency expenditures, FY 1991-1998).........................
Social Security administrative costs (CBO counts as a Social         -31
 Security expenditure, but Congress counts as a non-Social
 Security expenditure).........................................
Higher interest payments on debt due to higher levels of            -178
 spending for appropriated programs than the CBO projections
 assume........................................................
Remaining surplus available for other uses (if some of this is
 used for tax cuts or program expansions, interest payments
 will rise further above the CBO projection, requiring some of
 the $112 billion to be used for interest costs)
------------------------------------------------------------------------

     congressional and clinton budgetary treatment of spending for 
                         appropriated programs

       The Congressional budget resolution approved earlier this 
     year assumes a very large tax cut of $778 billion over 10 
     years. The resolution can accommodate a tax cut of this 
     magnitude because it assumes that none of the surplus will go 
     to placing spending for appropriated programs at a more 
     realistic level. Moreover, the budget resolution assumes that 
     additional cuts in appropriated programs of nearly $200 
     billion over 10 years will be instituted, on top of the 
     already unrealistic reductions assumed in CBO's projections. 
     (These additional reductions would come in years after 2002.) 
     Under the budget resolution, overall expenditures for non-
     defense appropriated programs would be cut 29 percent between 
     FY 1999 and FY 2009, after adjusting for inflation.
       The Clinton budget would add back somewhere in the vicinity 
     of $500 billion over 10 years for appropriated programs, or 
     most of the $595 billion needed to keep non-emergency 
     spending for appropriated programs even with inflation. The 
     Clinton budget only uses $328 billion of the surplus, 
     however, for this purpose. The remaining funds would be 
     raised through a series of offsetting cuts in entitlement 
     programs and tax increases, such as a cigarette tax increase. 
     Many, if not most, of these offsets are given little chance 
     of passage on Capitol Hill. If these offsets are not approved 
     and no funds from the surplus are provided for appropriated 
     programs beyond the $328 billion the Administration has 
     proposed, appropriated programs would have to be cut 
     approximately $270 billion over 10 years below current 
     levels, adjusted for inflation. (To compute the exact amount 
     appropriated programs would have to be reduced under this 
     scenario requires data no yet available on the 
     Administration's new budget plans.) In addition, the 
     Administration's budget does not appear to reserve a portion 
     of the surplus for the emergency expenditures that inevitably 
     will occur.
       Another $31 billion also must be subtracted from the 
     project non-Social Security surplus; it is needed for the 
     administrative costs of operating Social Security. As the 
     Congressional Budget Office explains on page 6 of its new 
     report, CBO counts these $31 billion in costs as a Social 
     Security expenditures, but Congress treats them as part of 
     the non-Social Security budget and counts them against the 
     spending caps on discretionary programs. (The Congressional 
     budget resolutions passed each year include these 
     expenditures as non-Social Security expenditures that affect 
     the size of the non-Social Security surplus. It is the budget 
     resolution, not the CBO projections, that Congressional 
     budget rules enforce.) Counting these costs as part of the 
     non-Social Security budget reduces the non-Social Security 
     surplus.
       When this $135 billion--$80 billion for emergency 
     expenditures, $24 billion for related interest payments on 
     the debt, and $31 billion for Social Security administrative 
     costs--is added to the $749 billion described above in 
     expenditures for appropriated programs and related interest 
     payments on the debt, a total of $884 billion--89 percent of 
     the projected non-Social Security surplus--dries up. Only 
     $112 billion remains. (See table on page 3.) In addition, 
     non-Social Security surpluses of any size do not appear until 
     2006; the non-Social Security budget either continues to 
     show deficits or is in balance (but without significant 
     surpluses) until that time.
       One other caution regarding the surplus projections should 
     be noted. The economic and technical assumptions underlying 
     the forecast could prove too rosy (or not rosy enough). CBO 
     has repeatedly warned that a high degree of uncertainty 
     attaches to budget projections made several years in advance. 
     In a report issued earlier this year, CBO noted that if its 
     projections for fiscal year 2004 prove to miss the mark by 
     the average percentage amount that CBO projections made five 
     years in advance have provided to be off over the past 
     decade, its surplus forecast for 2004 will be off by $250 
     billion.\4\ If economic growth is modestly slower than 
     forecast or health care costs rise substantially faster than 
     is currently projected, budget surplus could be substantially 
     lower than those reflected in the CBO estimates.
---------------------------------------------------------------------------
     \4\ In computing the average percentage amount by which CBO 
     projections made five years in advance have proven to be off, 
     CBO excluded the effects of legislation on deficits or 
     surpluses. The $250 billion figure is based on the average 
     percentage amount by which the budget projections missed the 
     mark due solely to economic and technical factors. See CBO, 
     The Economic and Budget Outlook: Fiscal years 2000-2009, 
     January 1999, p. xxiii.
---------------------------------------------------------------------------


how much of the surplus is available for tax cuts, medicare, and social 
            security if more realistic assumptions are used?

       In summary, if more realistic assumptions are used--namely, 
     that total non-emergency expenditures for discretionary 
     programs will remain at the fiscal year 1999 level, adjusted 
     for inflation and emergency spending will remain at its 
     average level for the recent past--a very different picture 
     emerges of how much in surplus funds is available for tax 
     cuts, shoring up Medicare and Social Security, and other 
     initiatives. Under this more plausible scenario, only about 
     $112 billion remains available, and hardly any of it is 
     available in the next five years.\5\
---------------------------------------------------------------------------
     \5\ There would be a small non-Social Security surplus in 
     fiscal year 2002.
---------------------------------------------------------------------------
       It may be noted that to assume, as we do here, that total 
     non-emergency expenditures for appropriated programs will be 
     no higher in future years that non-emergency expenditures for 
     such programs in fiscal year 1999, adjusted for inflation, is 
     to use a conservative assumption. It is a foregone conclusion 
     that defense spending will rise faster than inflation. Hence, 
     for overall non-emergency expenditures for appropriated 
     programs to remain even with inflation, non-defense programs 
     must be cut in real (i.e., inflation-adjusted) dollars. Yet 
     spending for some non-defense program areas such as highways 
     is already slated to rise. The House recently passed 
     legislation to boost aviation spending as well. Thus, the 
     assumption used here for expenditures for appropriated 
     programs may be too low.
       These findings have major implications for policymakers. 
     For there to be sufficient surplus funds to finance the large 
     tax cuts some policymakers advocate, Congress would have to 
     make cuts of unprecedented depth in appropriated programs 
     over the next 10 years--cuts substantially deeper than those 
     policymakers are balking at passing this year.


                    Trends in discretionary spending

       Expenditures for appropriated (i.e., discretionary) 
     programs are already low in historical terms as a percentage 
     of GDP. There is serious question about how much further they 
     can be expected to decline.
       CBO projects that total discretionary spending will equal 
     6.5 percent of GDP in fiscal year 1999, the lowest level 
     since at least 1962. (Published data on discretionary 
     spending as a share of GDP only go back to 1962.)
       Much of the decline in discretionary spending as a share of 
     GDP has come in defense spending, which fell following the 
     end of the Cold War. But non-defense discretionary pending 
     also has contracted as a share of GDP. At 3.4 percent of GDP 
     this year and last, non-defense discretionary spending is at 
     as low or lower a share of GDP as in any year since 1962.
       Under the new budget projections, discretionary spending 
     would fall much further as a percentage of GDP. The new CBO 
     projections assume discretionary spending will fall from 6.5 
     percent of GDP today to 5.0 percent in 2009, as much lower 
     level than in any year in decades.
       Dicretionary spending may be approaching its limits in 
     terms of how much more it can fall as a share of GDP. That 
     may be one of the lessons both of last year's highway bill 
     and of last October's omnibus appropriations bill, which 
     exceed the budget limits for discretionary spending and 
     designated the overage as emergency spending.
       While non-defense discretionary spending has fallen over 
     the past several decades as a share of GDP, it has not 
     declined in inflation-adjusted terms (although it has 
     declined since 1980 if an adjustment reflecting the increase 
     in the size of the U.S. population is made as well). If we 
     have emerged from a period of deficits without expenditures 
     for non-defense discretionary programs having declined in 
     inflation-adjusted terms, there is little reason to believe 
     the political system will exact deep cuts in this part of the 
     budget when the outlook is sunny, surpluses have merged, and 
     pent-up demands for various types of discretionary spending 
     are coming to the fore (witness the aviation bill the House 
     recently approved). This underscores the unrealistic nature 
     of the assumptions of substantial reductions in discretionary 
     program expenditures that underlie the projections of $1 
     trillion non-Social Security surpluses.

[[Page H6387]]



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