Economic experts from major research organizations, government agencies, and the media met at the Urban Institute in early March to discuss the Bush administration's budget proposal in light of unprecedented surplus forecasts. Urban Institute President Robert Reischauer, a former director of the Congressional Budget Office, opened the session, which was moderated by Urban Institute Senior Fellow Eugene Steuerle, formerly the deputy assistant secretary for tax analysis at the Treasury Department. Participants included Austin Smythe of the Office of Management and Budget, Isabel Sawhill of the Brookings Institution, Rudolph Penner, Jane Hannaway, and Marilyn Moon of the Urban Institute, Wendell Primus of the Center on Budget and Policy Priorities, Tom Miller of the Cato Institute, and Jim Horney of the Senate Budget Committee. Excerpts from their remarks and those of other participants follow.
Highlights of the Event
Highlights of the Event
Gene Steuerle, Urban Institute
There is a squeeze on the budget that comes about between revenues and entitlements, and it is a squeeze that we have had for a very long time. It does not wait for baby-boomers to retire. Until we get entitlement reform, no proposal for changing taxes, no proposal for changing spending, whether it's in the administration or in Congress, really adds up in the full sense. Under the Bush budget, real revenues in 2011 would be higher annually by about a half trillion dollars even after a tax cut. This is not a trivial amount. But it turns out that over $400 billion is already committed to increased real spending in Social Security, Medicare, and Medicaid—only a modest amount is then left over for everything else, even after adjusting for what is happening to debt and interest payments on that debt.
Austin Smythe, Office of Management and Budget
President Bush has put together a balanced plan that doesn't call for rolling back the Clinton administration's and the Congress' spending increases that have occurred in the past three years. It doesn't call for dramatic reductions in spending. We've allowed discretionary spending to grow with inflation. We set aside $150 billion for Medicare reform over the next ten years. The budget funds the president's initiatives, and finds what we think are suitable offsets to pay for those within a growing base, discretionary base.
Isabel Sawhill, Brookings Institution
The budget is really a tax proposal dressed up in budget clothes—clothes that are a little gauzy at that. When you cut taxes in this way, the effect is to increase the inequality in after-tax incomes in our country. There is the argument that this budget is an insurance policy against a recession, but bear in mind the administration's proposal wouldn't take effect until 2002.
Rudolph Penner, Urban Institute
I used to be among those who argued that we should give first priority to paying down the national debt to prepare for the retirement of baby-boomers, but I never expected that there would be a reasonable probability of paying off the whole blooming debt. I don't think that would be a good idea. I don't see any apparent bias in either the CBO or OMB assumptions, and I think we've reached the most remarkable state in which there is some danger of having surpluses that are too large.
Robert Reischauer, Urban Institute
There are three specific questions to which answers have been backed into, and not really debated or analyzed. What is the optimal level of public debt for the nation to hold? How fast can and should the government pay down the debt? Is there a way for government to save to meet its future unfunded liabilities? I think we really need to start with a more fundamental debate about these three questions rather than the way we are handling them now. The administration also has missed an opportunity to rethink its framework and design a budget process that is more attuned to an era of surpluses. It has failed to accept the fact that unrealistic discretionary spending caps were put in place, and it has gone forward with equally unrealistic ones for the future.
Jane Hannaway, Urban Institute
I think the first important observation about the Bush education budget is that there is one at all. It was just four short years ago that the Republicans were calling for a dismantling of the Department of Education. Not only that, but the administration is claiming that education is getting the biggest proportionate increase of any cabinet agency. The amount of the increase is not large, but what the president hopes to accomplish with it is quite significant. It's unclear how the details of this are going to work out.
Marilyn Moon, Urban Institute
There are a couple things that bother me considerably about the Bush proposal. Suggesting that the $86 billion in funding from general revenues is a deficit in the Medicare program does a clear disservice to understanding and thinking about Medicare financing. Also, for example, shifting home health benefits out of Part A and into Part B is not inconsequential, as they indicate. It will mean that beneficiaries over a ten-year period will pay approximately $1200 more in premiums than they otherwise would have.
Tom Miller, Cato Institute
On the issue of Medicare reform, I fear that we're seeing a move toward a competitive benefit structure, as opposed to a defined contribution, or premium support. It's more likely that we're going to have benefit competition, which will drive up spending, and the cash rebates won't provide enough of an incentive to really provide that type of economizing.
Jim Horney, Senate Budget Committee
I think the problem here is that you have a very large tax cut, and you don't really have a full laying out of the other priorities and how you get there. This is particularly a problem because the totals may not be adequate, as suggested by Senator Domenici, who said that the proposed 4 percent growth in discretionary spending may not be enough.
Jack Lew, Georgetown University
Paying down the debt is clearly something that I think we ought to be doing as aggressively as possible. What I think is unfortunate is that the conclusion has been reached without a debate about the prudent options for Treasury debt management, and without really asking what the alternatives are to saying you have no choice but to spend or give back excess amounts in a tax cut. And, you have to have budget processes that make sense for a surplus. Suggesting limitations that nobody believes is a recipe for discarding the rules.
Van Doorn Ooms, Committee for Economic Development
In a discussion about debt reduction, we have to remember that balance sheets have two sides, it's not just the liability side of the balance sheet, there is the asset side, too. You have to begin to worry about how you might increase the assets of the government as the net worth of the government increases. A major part of the agenda should be figuring out how we can let the government hold private assets and still protect them from political interference.
Gene Sperling, Brookings Institution
If $2.5 trillion were committed right now to actual debt reduction, we wouldn't hit a hard-to-redeem debt issue until 2011. The notion that today we are in such a panic about hitting that hard-to-redeem debt issue that we'd better start giving all the money away is just not prudent, not wise.
Wendell Primus, Center on Budget and Policy Priorities
Today there is a $2.5 trillion non-Social Security surplus, or thereabouts. We really have an opportunity as a nation to make some chocies. This budget says that the choice is not the fact that some kids are uninsured, or that when a mother leaves welfare for work she doesn't have health insurance, or that we could take estate tax proceeds and put them in the Social Security trust fund. But those are the choices we face, and this budget makes all the wrong choices.
Peter Sperry, Heritage Foundation
When you consider whether an individual be primarily responsible for their own retirement and health care, or whether families should be primarily responsible for the education of their children—if you take a limited government view then there is going to be more than enough revenue for a tax cut. If on the other hand you take a more liberal view that society should have the primary responsibility for these things, then it's questionable whether there will be enough revenue to pay for what we've got with or without a tax cut. That's the debate I don't see going on here or in the larger arena.
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