March 11,1999

Roth Outlines Goals/Views on Finance Committee Issues in Views and Estimates Letter

WASHINGTON -- As part of the annual budget process, Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) today sent his "views and estimates" letter to the Senate Budget Committee.

In the letter, Roth outlined his goals and agenda for the committee in the key areas of Social Security, tax policy, Medicare, Medicaid, and international trade. A copy of the letter is attached.

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Seven page attachment follows.

March 10, 1999

The Honorable Pete Domenici
Chairman
Senate Committee on the Budget
United States Senate
Washington, D.C. 20510


The Honorable Frank R. Lautenberg
Ranking Member
Senate Committee on the Budget
United States Senate
Washington, D.C. 20510

Dear Pete and Frank:

Pursuant to Section 301(d) of the Congressional Budget Act of 1974, I am submitting my views and estimates with respect to federal spending and revenues within the jurisdiction of the Senate Committee on Finance for fiscal year 2000.

As you well know, both the Congressional Budget Office and Office of Management and Budget are projecting significant budget surpluses over the next decade. These surpluses are largely due to unanticipated revenues flowing into federal coffers. I believe that we should seize this historic opportunity to return these surpluses to the very people who sent them to Washington--the American taxpayer.

Social Security

This year, the Committee intends to work towards achieving a bipartisan approach to addressing the long-term solvency of Social Security. The Committee began this effort in January 1999 with hearings on the President's Social Security plan and on general revenue financing of Social Security.

I also believe that Social Security proposals should be examined in light of the larger issue of the need for Americans to better prepare for retirement. The Committee is particularly interested in proposals, such as personal retirement accounts, that might not only maintain current law benefits but have other advantages, including encouraging more saving; empowering Americans with more control over their retirement decisions; giving the majority of Americans who do not own any investments a new stake in America's economic growth; providing a permanent solution to Social Security financing; improving the intergenerational equity of Social Security benefits; and promoting economic growth.

The Congress should consider adopting personal retirement account legislation this year, particularly for younger working Americans.

The Committee is also concerned that the Congressional Budget Office (CBO) currently provides estimates on legislative proposals for 10 years. However, proper evaluation of Social Security reform proposals will require longer term estimates. The Committee recommends that the Budget Committee examine CBO's estimation practices and consider changes that would allow longer term estimates for Social Security legislation.

The Committee also expects to consider legislation to provide new opportunities for Social Security disability insurance (SSDI) and Supplemental Security Income (SSI) beneficiaries to return to work and to self-sufficient lives.

Revenues

Since the inception of the Budget Act, the Federal budget has been in deficit. The measures contained in the Budget Act have been appropriately directed at deficit reduction.

Fortunately, the Congressional Budget Office reports the Federal Budget to be in surplus. The primary reason for the surplus has been greater than anticipated revenues. Those revenues have been generated by the robust economy, principally the hard work of millions of Americans. Federal revenues, as a share of the gross domestic product, are at record post-World War II levels. The surplus is attributable to both payroll taxes and income taxes.

It is time to reconsider the Budget Act rules in the context of a surplus. The bias in the rules against tax cuts needs to be revisited. There should not be a point of order against a proposal to rebate to taxpayers a portion of their tax dollars.

Across-The-Board Tax Relief - As a long-term objective, the Finance Committee may consider legislation to provide simple, fair, and meaningful tax relief to all taxpayers.

Retirement Incentives - In order to expand the opportunities of all Americans to provide for the financial needs at retirement, the Finance Committee will consider legislation which will expand the opportunities for savings in the tax-favored savings vehicles already provided for under the Internal Revenue Code and will add some new options for retirement savings. In addition, the Committee will consider legislation to simplify the rules regarding private pension plans, including increasing the portability between plans, incentives for small businesses to establish retirement plans and providing retirement security for women.

Tax Simplification, Education Incentives, and Savings and Investment Incentives - The Finance Committee intends to consider legislation to provide significant simplification of the tax system. Complexities in the tax code adversely affect millions of taxpayers every year. The complexities resulting from the alternative minimum tax ("AMT"), myriad income limits and phase-outs, and elaborate coordination rules, need to be addressed. In addition, the Finance Committee intends to consider tax incentives to promote savings and investment, assist families and students with the cost of education, extend expiring tax provisions, and other tax code changes.

Superfund Trust Fund - The excise and corporate environmental taxes that fund the Superfund program expired on December 31, 1995. The Senate Environment and Public Works Committee is in the process of developing legislation to make fundamental reforms to the Superfund program. As part of this effort, the Finance Committee expects to consider legislation reinstating the Superfund taxes and related proposals this year.

Airport and Airway Trust Fund - The authorization for expenditures from the Airport and Airway Trust Fund expired on September 30, 1998. If the Federal airport program is re-authorized, the Airport and Airway expenditure authority will need to be extended.

Tax Reform - The Finance Committee expects to continue hearings on proposals to replace or fundamentally change the existing tax system. The Finance Committee will particularly focus on the U.S. taxation of international income.

It would be useful if the FY 2000 Budget Resolution contains reserve funds which would allow consideration of the legislative items specified above.

Medicare

I strongly recommend not seeking savings this year from the Medicare program. The Balanced Budget Act of 1997 was the largest Medicare spending and policy change package since the inception of the program in 1965, and the budgetary and policy ramifications are still not fully understood. The period of October-December 1997 was the last quarter in which there was any spending growth in the program. In analyzing the monthly Treasury reports on the Health Insurance and Supplementary Insurance Trust Funds, the program spent $2.1 billion less for the period October, 1998 through January, 1999 ($69.8 billion, excluding a special HMO payment) than for the period of October, 1997 through January, 1998 ($72.4 billion).

Further, the Medicare beneficiary population continues to grow, increasing by 1.0 percent for 1999 over 1998. In real terms, this is a decline of 3-percent in aggregate spending and a decline of 4-percent in spending on a per-beneficiary basis under the Medicare program.

Separately, I am increasingly concerned about the financing stability of the Medicare+Choice program over time and believe we may need to consider additional funding in this area. We believe this program is the "seedbed" for future program reforms needed to sustain the promise and security of Medicare benefits for the demographic surge in retirees expected beginning around the year 2010. The five-year payment system transition enacted in BBA 97 has yet to result in full funding of the blended payment amounts that are crucial to stimulating the entry and continued participation of private health plans in the Medicare program. These plans offer important services and benefits to retirees that the traditional fee-for-service program does not.

In addition, the Administration has proposed further technical adjustments to these plan payments that the Health Care Financing Administration's actuaries estimate would generate savings of about $16 billion over 5 years, or if their transition model was adopted, about $11.9 billion over 5 years. This is a policy that when enacted in BBA 97, scored no savings in the expectation that it would move forward in a budget neutral fashion.


All of these payment policies are in addition to an across-the-board negative 5-percent differential in spending on Medicare+Choice relative to the fee-for-service program. This differential was set years ago under very different and more generous payment policies, and was based on a general notion that health plans could achieve efficiencies relative to the fee-for-service program, that should be shared with the government. Plans have achieved efficiencies, but also are facing significantly changed and reduced payment levels. In this changed policy and payment environment, we intend to review this issue of spending parity between the Medicare+Choice and fee-for-service programs.

Lastly, we expect the Bipartisan Commission on Medicare Reform to release its recommendations to the Congress by the end of March, 1999. The central concept under discussion, referred to as the "premium support" approach, builds significantly upon the objectives of competition and choice that led to the Medicare+Choice program. Therefore, it is all the more important that the Medicare+Choice program be on a sound footing in order to lead to successful reforms in the future.

Medicaid

Over the past several years, savings realized through the Medicaid program have made a substantial contribution to deficit reduction. Now that the budget is balanced, additional Medicaid cuts seem unnecessary and inappropriate. Medicaid spending growth has decreased substantially over the past few years from highs over 20% to rates fluctuating between 7 and 8% through 2003. At the same time, federal requirements related to the administration of the program have increased significantly, particularly through new managed care quality requirements set forth in the Balanced Budget Act of 1997. The current moderate rate of program growth can be attributed both to caseload expansions and to increasing demands for long-term care and prescription drugs.

Tobacco Settlement Budget Issues. Should the Senate choose to act on legislation to surrender or modify the federal government's Medicaid third party liability claim against tobacco settlement funds paid to the states, it is imperative that the federal government not be required to offset the costs associated with surrendering this claim by cutting Medicare or Medicaid, or by raising taxes. A complete "waiver" of current law will be scored by the Congressional Budget Office as costing the federal government $2.9 billion over five years and $6.8 billion over ten. This CBO score must be kept in mind as Congress appropriately recognizes the states' leadership role in initiating action against the tobacco industry.

State Children's Health Insurance Program (SCHIP). This new program has gotten off to a strong start, with approved plans in place in 48 states. Now that plans have been developed and approved, enrollment of currently uninsured children is accelerating rapidly. Baseline estimates reflect low draw-downs of SCHIP funds for a couple years, reflecting a natural development of program capacity. Because unused funds are rolled over for future use, any cuts in SCHIP would interfere with the goal of extending insurance access to low-income uninsured children and would trigger significant political difficulties.

International Trade

This past year, I launched a thorough review of our trade policy designed to address a number of the issues that have been raised in the recent public debates on trade. My goal is to rebuild a bipartisan consensus on trade that will allow us to make progress in breaking down the trade barriers our exporters face abroad.

As a part of that review, the Finance Committee has already held a series of hearings this year on the prospects for the launch of a new multilateral round of trade negotiations at the World Trade Organization ("WTO") ministerial scheduled for November in Seattle and on the enforcement of our existing trade accords. I expect the Committee will markup legislation that will establish the specific negotiating objectives we expect the President and his representatives to demand as part of any new round of talks. That legislation will also address issues raised during the hearings regarding both the international and domestic legal tools for enforcing America's trade agreement rights.

I also expect the Committee to hold hearings on and potentially markup legislation affording trade preferences to our developing country trading partners through renewal of the Generalized System of Preferences, expansion of the benefits available under the Caribbean Basin Economic Recovery Act, a possible new program for the countries of Sub-Saharan Africa, and a review and renewal of current trade adjustment assistance programs.

In addition, the Committee has begun a comprehensive review of the operations of the United States Customs Service. My goal is to test the agency's compliance with the objectives set for it by Congress in the Customs Modernization Act. I expect the review to entail in-depth oversight hearings on a number of policy and management issues and lead to legislation authorizing appropriations for the Customs Service consistent with the policy goals set by Congress.

Thank you for the opportunity to comment on the areas within the Finance Committee's jurisdiction. I look forward to working with you as we enter this productive legislative year.

Sincerely,

William V. Roth, Jr.

Chairman