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Full Text: House GOP Caucus Defends 'Contract With America.'

OCT. 7, 1994

Full Text: House GOP Caucus Defends 'Contract With America.'

DATED OCT. 7, 1994
DOCUMENT ATTRIBUTES
  • Institutional Authors
    Joint Economic Committee
    House Republican Caucus
  • Cross-Reference
    For related news coverage, see the Oct. 26, 1994, Tax Notes Today

    Table of Contents.
  • Index Terms
    budget, federal, deficit reduction
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 94-9697
  • Tax Analysts Electronic Citation
    94 TNT 210-26
====== FULL TEXT ======

DEMOCRATS CONJURE "BIG SCARE" TO CONFUSE AMERICAN PUBLIC

 

ON REPUBLICAN'S "CONTRACT WITH AMERICA"

A study by the Republican Staff of the Joint Economic Committee documents how the Republican "Contract With America" (Contract) can deliver on middle class tax relief and still balance the budget without touching social security benefits.

The study, "White House Scare Tactics Unfounded: Democrats Reveal Willingness to Accept Huge Future Budget Deficits," demonstrates that taxes can be cut, the budget can be balanced and senior citizens can be protected from any social security benefit reductions by trimming four (4) cents a year off every dollar of remaining planned spending between 1995 and 2000. The Foreword to the report asks, "Does anyone who's not a House Democrat or Clinton Clone believe we can't cut four cents on the dollar from this bloated Federal budget?"

In a desperate attempt to discredit the Republican Contract, Democrats have charged that delivering on the promised tax cuts and balancing the budget would require draconian spending cuts of more than a trillion dollars and a 20 percent reduction in social security benefits. Congressman Jim Saxton (R-NJ), a member of the Joint Economic Committee, called this tactic the "Big Scare" and pointed to numerous factual errors and outright fabrications in a White House critique of the Republican Contract.

Saxton said, "By manipulating and misrepresenting the data, the White House and Clinton Democrats hope to scare the dickens out of the American public. But it won't work. Going to these lengths to scare the voters merely reveals how addicted Democrats have become to deficit spending. They can't even imagine how to balance the budget anymore, and the effort to undermine the public's desire to see the budget balanced indicates their willingness to go on living with huge deficits indefinitely."

Saxton emphasized that "if the Democrats cannot bring themselves to reduce spending growth by the amount required to balance the budget, they are, in fact, advocating increasing taxes or the public debt by that same amount."

The study points out that according to the Congressional Budget Office, deficits will double to more than $400 billion a year -- a fact the White House concedes. The study concludes that exploding deficits threaten because spending growth continues to outpace revenue growth by 15 percent a year in spite of tax increases of historic proportions in 1990 and 1993. "It's the spending, Mr. President," said Saxton. He quoted the study: "Immediate steps must be taken to improve the long-run performance of the economy and to slow the rate of growth of Federal spending so that deficits can be brought under control. Raising taxes has been tried and failed. It is time now to reduce taxes and cut the growth in spending."

The study concludes: "Essentially, the "Contract With America" would cut the anticipated annual rate of spending growth between 1995 and 2000 from 5.0 percent to 2.0 percent to give Americans tax relief and balance the budget without touching social security. The alternative, which the White House endorses with its criticism of the Republican Contract, is to let Federal spending grow twice as fast, deny tax relief to middle America, allow the deficit to mushroom to $400 billion within the next decade and increase the national debt by at least $900 billion."

ECONOMIC POLICY UPDATE

WHITE HOUSE SCARE TACTICS UNFOUNDED:

 

DEMOCRATS REVEAL WILLINGNESS TO ACCEPT

 

HUGE FUTURE BUDGET DEFICITS

Prepared by the Republican Staff

 

of the Joint Economic Committee

at the request of

Representative Dick Armey (R-TX)

 

and

 

Representative Jim Saxton (R-NJ)

Members, House Republican Caucus

 

Joint Economic Committee

 

and

 

Representative John R. Kasich (R-OH)

Ranking Republican Member

 

House Budget Committee

October 1994

 

Updated October 14, 1994

FOREWORD

Since House Republicans unveiled our proposed "Contract With America" last week, the cool autumn air in Washington as been warmed by rhetoric from Democrats scared by the prospect of power slipping from their grasp for the first time in 40 years. The shrillness of the Democrat attacks is matched only by their baselessness.

"When these tax breaks are put on the national credit card, they are going to be a burden on middle-class families and children," shrieked House Budget Committee Chairman Martin Sabo of a "Contract" that has as its first item a balanced budget amendment (thus cutting up "the national credit card"). The "Contract" also includes a $500 per child tax credit that would provide much needed relief to those "middle class families and children." And we pay for it!

In order to bolster their claims that Republican proposals would harm the middle class and senior citizens, Democrats used the prestige of the Office of Management and Budget and Council of Economic Advisers to estimate costs -- before having the benefit of actual legislation to analyze. As this paper demonstrates, OMB Director Alice Rivlin and CEA Chairwoman Laura Tyson disseminated numbers that have no basis in our proposed legislation and have proved completely erroneous. Director Rivlin has apparently turned her public office over to the Democrat National Committee. The OMB is now engaged in Whitewater accounting, turning nothing into billions overnight.

The "Anatomy of a Scare Tactic" section of this paper is must reading for any student of politics. The manner in which the Democrats derived the exaggerated number of "a trillion dollars" in "cost" of the package and the markedly different manner in which they derived "social security cuts" and distributed them precisely on a state-by-state basis is a true example not only of "the big lie," but also "the specific lie" as well.

Our "Contract With America" guarantees that every penny in cost will be offset with specific spending cuts. The ferocious attack by Clinton Democrats on the balanced budget amendment has a very interesting aspect to it. No longer are these Democrats pretending to favor balancing the budget while only opposing the principle of "tinkering with the Constitution to make fiscal policy." THEY NOW OPENLY AND VOCIFEROUSLY ADMIT WHAT MANY HAVE SUSPECTED ALL ALONG -- THEY HAVE SURRENDERED TO DEFICIT SPENDING AND CANNOT ENVISION A FEDERAL GOVERNMENT THAT EVER BALANCES ITS BUDGET.

The abandonment of even the notion of balancing the budget amounts to just one more broken promise by this President ("I would present a five year plan to balance the budget, " -- Bill Clinton on Larry King Live, June 4, 1992). The American people know politicians in Washington will never have the discipline to balance the budget unless it is required by law.

Even if you accept the Democrats' counting method, which includes a healthy dose of double counting (i.e., a cut in year one is counted again and again in years two, three, four and five), the Contract would permit FEDERAL SPENDING TO INCREASE BY NEARLY A HALF TRILLION DOLLARS BY THE YEAR 2000. Not exactly "draconian spending cuts."

Rather than increasing by an average of 5 percent annually, as President Clinton and Democrats in Congress intend, spending would increase by a smaller -- but still significant -- 2 percent per year. That's certainly more than many people's pay checks have increased in the past few years. In the real world, a spending increase of almost half a trillion dollars would be seen for what it is -- a spending increase.

GETTING TO A BALANCED BUDGET OVER SIX YEARS -- WITHOUT TOUCHING SOCIAL SECURITY -- WOULD TAKE ALL THE DISCIPLINE OF CUTTING FOUR CENTS FROM EVERY REMAINING DOLLAR IN PROJECTED NON-SOCIAL SECURITY SPENDING. DOES ANYONE WHO'S NOT A HOUSE DEMOCRAT OR CLINTON CLONE BELIEVE WE CAN'T CUT FOUR CENTS ON THE DOLLAR FROM THIS BLOATED FEDERAL BUDGET?

The Democrats' actions in the past few weeks have brightened the lines between our Nation's two great parties. Once you clear away the blue smoke of their bogus numbers, it becomes obvious to every American that Bill Clinton and Clinton Democrats in Congress are opposed to balancing the budget, middle class tax relief, welfare reform and a vote on term limits. That is the true essence of their opposition to the "Contract With America."

Representative Dick Armey (R-TX)

 

Member, House Republican Caucus

 

Joint Economic Committee

 

October 7, 1994

ECONOMIC POLICY UPDATE

 

October 1994

WHITE HOUSE SCARE TACTICS UNFOUNDED: DEMOCRATS REVEAL

 

WILLINGNESS TO ACCEPT HUGE FUTURE BUDGET DEFICITS

INTRODUCTION

The Congressional Budget Office (CBO) reports that in spite of history's largest tax increase in 1993, the Federal budget deficit will soon veer out of control unless steps are taken to avert it. "The deficit is projected to double from around $200 billion in 1998 to nearly $400 billion by 2004." /1/ The deficit in 2004 will be two and a half times the size of next year's deficit.

The explanation for burgeoning deficits is clear: Spending growth continues to outpace revenue growth by a wide margin despite tax increases of historic proportions in 1990 and 1993. Spending will grow, on average, 15 percent faster than revenues each year between 1996 and 2004.

The conclusion is equally clear: Further tax increases will not solve the deficit problem. History demonstrates unambiguously that tax increases damage the economy, reduce revenue growth, and spur Congress to spend more and produce larger deficits.

CBO's latest economic outlook confirms this conclusion. CBO has lowered its medium term growth forecast: "CBO projects that real [gross domestic product] GDP will grow at an average annual rate of 2.2 percent over the medium term -- that is, between 1996 and 1999." /2/ CBO's long-run outlook for annual real economic growth, in 2000 and beyond, is not much better at 2.3 percent. This outlook compares to a 3.2 percent post-World War II average annual rate of real growth. From the end of 1982 and through 1989, when President Reagan's economic policies were fully in place, annual real growth equalled 4.4 percent, and both inflation and interest rates fell throughout the period.

GRAPH 1

 

DEFICIT WIDENS AS SPENDING GROWTH OUTPACES REVENUE GROWTH

[graph 1 omitted]

In short, Clintonomics has failed. Contrary to the Administration's predictions, interest rates are higher today than when President Clinton took office; the economic recovery continues but at a subpar pace compared to earlier recoveries; inflation flags are flying; consumer confidence is falling; medium and long-run economic forecasts show the economy mired on a subpar growth path; and budget deficits are set to explode.

Immediate steps must be taken to improve the long-run performance of the economy and to slow the rate of growth of Federal spending so that deficits can be brought under control. Raising taxes has been tried and failed. It is time now to reduce taxes and cut the growth in spending.

WHITE HOUSE EFFORTS TO DISCREDIT "CONTRACT WITH AMERICA"

 

ARE MISINFORMED AND MISLEADING

Republican (GOP) Members of the U.S. House of Representatives have proposed a "Contract With America" (Contract) that would start the country along the path to long-run prosperity and fiscal health by cutting taxes, reducing spending growth, and proposing a balanced budget amendment to the Constitution. Congressional Democrats and the Clinton Administration have reacted to the Republican proposals with harsh rhetoric and outlandish assertions designed to discredit the Contract and to scare the American public, especially the elderly population.

A number of congressional Democrats and White House officials, including Council of Economic Advisers Chairwoman Laura Tyson and Office of Management and Budget Director Alice Rivlin, contend that the "Contract With America" will require draconian Spending cuts amounting to more than $1 trillion over five years. Of the trillion dollars in question, $743 billion, or three-quarters of the total, is accounted for by implementing the balanced budget amendment in the year 2000. In addition to being shot through with factual errors, the White House critique of the Republican Contract reveals clearly how committed Clinton Democrats are to deficit spending indefinitely.

Before analyzing in detail the errors and misrepresentations contained in White House critiques, it is instructive to ask WHY the White House misrepresents the data. After all, the President and most of his Democrat allies in Congress profess to favor a balanced budget even though the President and many congressional Democrats oppose a constitutional requirement that the budget be balanced. In fact, then-candidate Clinton said, "I will present a five-year plan to balance the budget." /3/

Reasonable people may well disagree over the wisdom of amending the Constitution to require a balanced budget. And it may be perfectly rational for someone to support the policy of a balanced budget yet oppose "enshrining fiscal policy in the Constitution." But it is inconsistent, or disingenuous, to support balancing the budget as a matter of policy, as many Democrats claim they do, and then turn around and use the cost of balancing the budget as an argument against adopting a balanced budget amendment. The COST of balancing the budget is the same whether it is mandated by the Constitution or pursued voluntarily as a matter of policy. If the cost does not prohibit balancing the budget voluntarily as a matter of policy, it does not prohibit balancing the budget under the requirement of a constitutional amendment.

If the White House and its Democrat allies in Congress remain in high dudgeon over the cost of balancing the budget, one can only infer that they are not prepared for the task of balancing the budget, either by constitutional amendment or voluntarily as a matter of policy. If the Democrats oppose the Republican commitment to balance the budget by means of a constitutional amendment because it is too expensive, they must admit that they are not willing to balance the budget by any means.

Which is it? Do Democrats want to balance the budget or not? If they do, it is unproductive and irresponsible for them to present the data in a way designed to scare the public.

On the other hand, if the scare tactics are aimed at undermining public support for balancing the budget, taxpayers should realize what unspoken alternative the Democrats are advocating. If the Democrats cannot bring themselves to reduce spending growth by the amount required to balance the budget, they are, in fact, advocating increasing taxes or the public debt by that same amount. There are no other alternatives. The White House reaction seems to reflect anxiety about the strong public support for this amendment which the President and his most liberal congressional allies oppose.

ERRORS IN THE WHITE HOUSE "CRITIQUE"

The Administration employed the Council of Economic Advisers and the Office of Management and Budget to mount a partisan assault on the GOP Contract. The two offices attempted to give their ideological critique a patina of academic respectability by calling it a budget analysis. Unfortunately, they used the same Alice-in-Wonderland accounting techniques employed by CBO that helped get us into the deficit spending dilemma in the first place. The White House objective clearly was to distort the data in order to mislead the public into believing that the Republican proposals would "cost" too much.

But the Administration published its "analyses" before the Contract was actually released. Consequently, many of the Administration's "conclusions" are based on guesswork and their projections are scores of billions of dollars off the mark. The Administration's careless assessments also failed to give credit for substantial amounts of savings in the GOP proposal.

Below is a summary of where the Administration's figures and actual Republican assessments differ by substantial amounts.

Savings in Crime Prevention. The Republican Contract proposes $5 billion in savings over five years from the recently enacted $30 billion crime bill. Republicans propose to achieve these savings through the following steps:

o Combining the crime bill's police and "prevention" programs

 

into a block grant, saving $7 billion.

o Cutting $1 billion from drug courts.

At the same time, the Republican crime prevention package would restore approximately $3 billion in grant funds for state prison construction.

The Administration gives no credit for the savings.

WELFARE REFORM. The Republican welfare reform plan projects savings of approximately $40 billion over five years. Among the provisions that would generate savings in the bill are the following:

o The measure would deny welfare benefits to non-citizens,

 

saving $22 billion.

o The proposal would consolidate Federal nutrition programs,

 

saving $11 billion.

o The plan also would consolidate various welfare programs, such

 

as Aid to Families with Dependent Children (AFDC), with low-

 

income housing.

At the same time, the Republican welfare reform program would boost funding by $13 billion for job training so that welfare recipients can focus on ending their dependency and becoming self- sufficient.

The Administration gives no credit for the Republican savings.

MODIFY THE MARRIAGE PENALTY. The Administration claims this proposal would reduce revenues by $72.7 billion over five years. The Republican estimate is $10 billion. The difference comes from the Administration's assumption that the Contract would eliminate the provision completely in a single step. In fact, the Republican proposal would simply modify the penalty and cap the revenue reduction from this proposal at $2 billion a year. Therefore, the proposal's cost cannot be more than $10 billion over five years.

AMERICAN DREAM SAVINGS ACCOUNT. The Administration assumes a $6.2 billion cost for this proposal over five years. The Republican plan projects a SAVINGS of $4.7 billion.

This savings account proposal would allow participants to withdraw funds from their accounts, without penalty, for education for themselves and/or their children or grandchildren; for a home purchase; or for medical expenses or long-term care. For these reasons, the accounts will be highly attractive. Because of the accounts' attractiveness, and because the funds invested in them would still be taxable at the time of investment (compared with current IRAs, in which taxes are deferred until withdrawal), it is anticipated that many savers would be willing to pay deferred taxes on their existing IRAs in order to be eligible to roll them over into the new account. They would be willing to pay the taxes because of the various benefits of the accounts.

DEFENSE. The Administration claims the Republican defense strategy would "cost" $61.1 billion over five years. The GOP projection shows no additional defense costs.

Again, the Administration is making groundless assumptions. The Republican Contract calls for codifying the Bush Administration policy of not placing U.S. troops under U.N. command, restoring budgetary firewalls between defense and social spending to end raiding the Pentagon for new and bigger social programs, and renewing U.S. commitment to NATO and expediting NATO membership for former Eastern Bloc countries adopting free market economies and democratic forms of government. The Contract also calls for a complete reassessment of national security needs, but makes no recommendations about changing spending levels until the review is complete.

RAISE THE SOCIAL SECURITY EARNINGS LIMIT. The Administration projects a cost of $11 .8 billion for this proposal. The Republican estimate is $6.8 billion.

The Administration erroneously assumed a complete repeal of the earnings limit. The Republican plan would limit the increase in the earnings threshold to $30,000, phased in over five years.

REPEAL CLINTON SOCIAL SECURITY TAX INCREASES. In the 1993 tax bill, the Clinton Administration increased the amount of social security benefits that are subject to income taxes. The Republican plan would repeal this change. The Administration says the Republican proposal would "cost" $21 billion. The GOP estimate is $17 billion.

The difference in cost estimates results because the Administration assumes the repeal would occur immediately. In fact, the Republican plan calls for phasing out the tax increase over five years.

CUT CAPITAL GAINS RATE/INDEX TO INFLATION. In this case the Administration's cost estimate is much lower than the Republicans'. The Republican projection -- a revenue decline of $56 billion over five years -- is based on legislation introduced by Congressman Archer as scored by the Joint Tax Committee. The Administration gives no clear explanation of the basis of its $15 billion estimate.

NEUTRAL COST RECOVERY. The Administration projects savings from this proposal of $5 billion over five years. The GOP plan estimates a savings of $19.5 billion.

The Clinton Administration gives no technical explanation of how it reached its estimate. The Republican estimate comes from a Joint Tax Committee scoring of the proposal in the House Republican Budget Initiative for FY 1995.

THE FISCAL IMPACT OF "CONTRACT WITH AMERICA"

One key element of the White House calculations is the reliance on baseline budget accounting, an inside-the-Washington-Beltway concept that the "Contract With America" replaces with common-sense budgeting rules. According to baseline budgeting, Federal spending is assumed to grow automatically, and any slowing of this growth due to policy changes is accounted for as a "spending cut" for years to come.

Under baseline budgeting's Alice-in-Wonderland logic, reductions in projected spending increases are transformed perversely into budget cuts. When "cuts" from the rising spending baseline are compounded and cumulated year after year, it is made to appear as if astronomical spending reductions are occurring when in reality the budget continues to grow. Most Americans find this paradox incomprehensible. How can it be that Congress "cuts" spending yet the budget continues to grow?

Under baseline budgeting, policy changes are not judged on the basis of their effect on spending relative to prior year levels, but relative to a hypothetical baseline-growth path well into the future. Under common-sense budget rules, which the "Contract With America" would implement, proposed changes to next year's budget are evaluated relative to this year's budget, not some hypothetical budget projected five or ten years into the future.

The best way to analyze the fiscal implications of "Contract With America" is to break it into its components -- the balanced budget amendment and the tax proposals -- and apply common-sense budget accounting to each component.

SCORING THE BALANCED BUDGET CONSTITUTIONAL AMENDMENT

According to Congressional Budget Office data, spending is projected to grow by a cumulative $1.6 trillion in fiscal years 1995- 2000. According to the White House, movement toward a balanced budget would require reducing the growth of cumulative Federal spending by $743 billion, reducing the increase from $1.6 trillion to about $860 billion. IN OTHER WORDS, BY THE WHITE HOUSE'S OWN DEFECTIVE METHOD OF ACCOUNTING, BALANCING THE BUDGET IN THE YEAR 2000 WOULD ENTAIL CUMULATIVE FEDERAL SPENDING INCREASES EQUALING ALMOST $900 BILLION.

When common-sense budget rules are applied, the task of balancing the budget is seen in a different light entirely than the image depicted by the White House. The year 2000 is the earliest that a balanced budget requirement could be implemented practically. In preparation for that event, reductions in spending growth could be spread gradually over the intervening six fiscal years (1995-2000). Given the FY 2000 deficit projection of $257 billion, this adjustment would require trimming the growth of spending by an average of $43 billion in each of the next six fiscal years -- that is trimming projected annual expenditures by 2.5 percent a year on average. In other words, instead of permitting Federal outlays to rise by an average of $84 billion annually, annual spending would be allowed to grow about $40 billion a year, roughly half the baseline growth now projected.

GRAPH 2

 

IT'S THE SPENDING, MR. PRESIDENT!

[graph 2 omitted]

The analysis in this paper illustrates the spending path to a balanced budget using an average annual spending growth restraint figure. The same result can be accomplished in a variety of ways under different patterns of spending growth restraint not necessarily requiring a constant amount of restraint in each and every year.

Slowing spending growth by an average annual amount will not actually require annual legislative changes since many of the legislative changes enacted in earlier years will carry over to constrain spending growth automatically in later years. Moreover, a growing share of annual savings will be comprised of interest savings over time that will accrue automatically as a falling deficit reduces the government's borrowing needs. By fiscal 2000, nine-tenths of the average annual spending restraint of $43 billion would be accounted for by lower interest payments.

The White House would have the public believe draconian spending cuts are required to balance the budget. In reality, what is required is permitting spending to grow only about half as fast as President Clinton and the Democrat Congress have planned.

SCORING "CONTRACT WITH AMERICA" UNDER

 

A CONSTITUTIONAL BALANCED BUDGET REQUIREMENT

As the economy grows, Federal revenue automatically increases commensurately. The "Contract With America" proposes tax relief that would reduce anticipated revenue growth by $194 billion between fiscal 1996 and 2000. In order to accommodate such "revenue loss" and still balance the budget in the year 2000, an additional $10 billion a year, on average, would have to be sliced off projected annual spending growth -- bringing to $53 billion the average annual amount by which spending growth would have to be curtailed. In other words, the average annual rate of growth in planned spending would be reduced by 60 percent between 1995 and 2000, from 5 percent a year to 2 percent. The resulting outlay path to a balanced budget is depicted in Graph 2 as "Balanced Budget Path Outlays." /4/

Not all of the $53 billion annual reduction in spending growth necessary to balance the budget by 2000 would come from currently planned programmatic spending. As the deficit fell each year, a growing share of the $53 billion would result from lower debt service. By the year 2000, for example, approximately $40 billion, or 76 percent, of the yearly spending restraint would result from slower growth in debt service. The remaining $13 billion would come from policy changes. The required policy changes may have been enacted in the past, thus resulting in automatic outlay reductions in the year 2000, or the policy changes may be enacted concurrently in the year 2000 or some combination of the two. Over the five-year period, about one-third of the average annual reduction in spending growth would be accounted for automatically by interest savings as the deficit falls and reduces federal borrowing over the period.

GRAPH 3

BALANCING THE BUDGET IN 2000 BY REDUCING THE AVERAGE

 

ANNUAL RATE OF SPENDING GROWTH FROM 5 PERCENT TO 2 PERCENT

[graph 3 omitted]

Thus, the White House implication that enormous annual spending cuts would be required -- mounting up to hundreds of billions of dollars in a single year -- is simply false. Even with the tax relief envisioned in "Contract With America," the budget could be balanced by the year 2000 and cumulative Federal spending increases amounting to $487 billion would be possible. To put this matter in perspective, BALANCING THE BUDGET IN THE YEAR 2000 WITH ALL OF THE PROPOSED REPUBLICAN TAX CUTS WOULD REQUIRE TRIMMING ABOUT THREE CENTS A YEAR FROM EVERY DOLLAR IN PLANNED ANNUAL SPENDING.

The Clinton Democrats have gone so far as to assert that balancing the budget and delivering on the proposed tax cuts would entail huge cuts in social security. False again. The House Republican Leadership has stated categorically that social security would be exempt from cuts. REMOVING SOCIAL SECURITY FROM THE TABLE IN ACCORDANCE WITH THE POLICY OF THE HOUSE REPUBLICAN LEADERSHIP WOULD REQUIRE TRIMMING ABOUT FOUR CENTS A YEAR FROM EVERY REMAINING DOLLAR IN PLANNED ANNUAL SPENDING.

GRAPH 4

WHAT HAPPENS EACH YEAR TO EVERY DOLLAR OF THE

 

RISING FEDERAL BUDGET UNDER CONTRACT WITH AMERICA

 

[graph 4 omitted]

THE ANATOMY OF A SCARE TACTIC

The Administration and its allies in Congress are so desperate to discredit the Republican Contract that they are systematically misrepresenting its effects. In particular they are claiming, without foundation, that the Contract calls for cuts of as much as 20 percent in social security benefits.

This distortion required to draw this conclusion is monumental. First, the Democrats compound a host of factual errors in estimating the effects of the Republican Contract on the deficit, both on the spending and revenue side of the ledger. Then, the Democrats cumulate the effects of these errors so that all the tax cuts in year one are counted again in years two, three, four and five, and cuts in year two are counted again in years three, four and five, and so forth. . . . The objective of this exercise is to arrive at the $743 billion "big number" that can be used to scare the dickens out of the American public.

Then, the Democrats turn to their attention to concocting the "big scare" -- convincing voters of the need for huge cuts in social security. /5/ At this point, they conveniently abandon the assumption of gradual deficit reduction, which earlier had permitted them under baseline-budget-logic to cumulate and compound spending "cuts" into the $743 billion "big number." In deriving the "big-social-security- number" (20 percent), the Democrats assume that balancing the budget would not be spread over five or seven years, but rather would occur instantaneously in the year 2000 when the projected $320 billion deficit would be zeroed out all at once. The projected deficit in 2000 ($320 billion, reflecting tax cuts contained in the Contract) equals 19.3 percent of projected non-defense spending in that year (approximately $1,655 billion), which the Democrats unaccountably round to 20 percent. The next step in concocting the "big scare," deriving a state-by-state analysis of that number, was easy of course.

There is no basis in the Contract for making any of these ridiculous assumptions and no need in reality to do so. Recent public policy history refutes the Democrats' contentions as much as their distortion of the numbers.

First, House Republican budgets have consistently preserved social security. There have been no proposals to change social security benefits in any way, and Republicans have repeatedly attempted over Democrat objections to repeal the 1993 Clinton tax increase on social security benefits. See the Appendix for a full accounting of Republican actions regarding social security in recent years.

Second, Republicans have expressly stated that they intend to maintain the government's social security commitment to senior citizens.

Third, it is the Democrats who have been attacking social security. It was President Clinton and the Clinton Democrats in Congress who raised the tax on social security benefits in 1993. It was the Democrats who repeatedly defeated subsequent Republican efforts to repeal this effective reduction in middle class social security benefits. It was former House Budget Committee Chairman -- now Clinton's chief of staff -- who came up with the idea of enacting AUTOMATIC CUTS IN SOCIAL SECURITY TO HIDE THE DEMOCRATS' ASSAULT ON THE PROGRAM FROM PUBLIC VIEW. See the Appendix for a summary of Democrat assaults on social security.

Democrats also are accusing Republicans of favoring "deep" cuts in Medicare. Again, the Democrat track record on Medicare is more reliable than the Democrat allegations. Democrats have consistently crippled the Medicare program with price controls in the name of "deficit reduction" and repeatedly turned to Medicare as a source of money to fund their grandiose new entitlement schemes. See the Appendix for examples of Democrat proposals with respect to Medicare.

CONCLUSION

Essentially, the "Contract With America" would cut the anticipated annual rate of spending growth between 1995 and 2000 from 5.0 percent to 2.0 percent to give Americans tax relief and balance the budget without touching social security. The alternative, which the White House endorses with its criticism of the Republican Contract, is to let Federal spending grow twice as fast, deny tax relief to middle America, allow the deficit to mushroom to $400 billion within the next decade and increase the national debt by at least $900 billion.

Lawrence Hunter Christopher Frenze

 

JEC/GOP Staff Director JEC/GOP Senior Economist

APPENDIX

REPUBLICAN EFFORTS TO PROTECT SOCIAL SECURITY

House Republican budgets consistently have preserved social security. There have been no proposals to change social security benefits or taxes in any way. The record of Republican actions regarding social security provides the best evidence of the GOP's convictions:

o Both of the House Republican budgets in the past two years

 

would have slowed spending growth by more than $350 billion

 

over five years, yet not one penny of the savings came from

 

social security. The House Republican reconciliation

 

alternative also excluded any impact on social security.

o At the insistence of Republicans, last year's Penny-Kasich

 

amendment -- which reduced spending growth $90 billion over

 

five years -- excluded any impact on social security.

o In the Committee markup for the FY 1994 budget resolution,

 

ranking Republican John R. Kasich offered an amendment to

 

strip the Democrats' increase in taxes on social security

 

benefits. The Democrats defeated the motion on a party-line

 

vote.

o Kasich later offered a motion to recommit the conference

 

report on the Omnibus Budget Reconciliation Act of 1993 (OBRA

 

1993 -- Clinton's 1993 tax bill) to remove the social security

 

benefits tax hike. The House passed the motion, but the final

 

conference report contained an increase in the tax anyway. The

 

conference report passed without a single Republican vote.

o At the Committee markup of the FY 1994 budget resolution,

 

Representative Jim Bunning offered a motion to halt the

 

Democrats' raid on the social security trust fund. The

 

Democrats were funneling social security money into the

 

medicare trust fund. The Democrats defeated the Bunning motion

 

in a party-line vote.

o The Republican entitlement review legislation offered in the

 

summer of 1994 expressly excluded social security from any

 

mandatory spending limits. The measure also said that "no

 

reductions in benefits payable under the old-age, survivors,

 

and disability insurance program established under Title II of

 

the Social Security Act shall be made as a consequence of this

 

act."

DEMOCRAT ASSAULTS ON SOCIAL SECURITY AND MEDICARE

SOCIAL SECURITY

The Democrats' actions regarding social security demonstrate how they repeatedly have attempted to reduce the deficit on the backs of senior citizens by reducing promised social security benefits.

o In 1993, congressional Democrats passed, and President Clinton

 

signed, an increase in the amount of social security benefits

 

that are subject to Federal income taxes. This action was, in

 

effect, a reduction in social security benefits for middle-

 

income senior citizens.

o On the day Republicans released "Contract With America," four

 

Democrats appeared before the House Ways and Means

 

Subcommittee on Social Security to propose cuts in social

 

security benefits.

o In 1992, then-Budget Committee Chairman Panetta -- now

 

Clinton's chief of staff -- proposed a budget reform that

 

would have required AUTOMATIC CUTS IN SOCIAL SECURITY.

MEDICARE

o OBRA 1993, passed entirely with Democrat votes, contained $56

 

billion in Medicare spending growth reductions over five

 

years, the sharpest proposed decline in the program's growth

 

ever.

o The Democrat leadership supported Clinton's Health Security

 

Act, which would transfer billions of dollars out of Medicare

 

and require higher payments by senior citizens to establish

 

greater government control and a new health entitlement. THE

 

CLINTON HEALTH CARE PLAN WOULD HAVE SIPHONED OFF $202 BILLION

 

FROM THE GROWTH OF MEDICARE SPENDING TO FUND THE PRESIDENT'S

 

HEALTH CARE LEVIATHAN.

o Similarly, Senator Mitchell's version of health care reform

 

would have siphoned off $169.9 billion from Medicare over

 

seven years.

o The House Democrats' Ways and Means Committee health care bill

 

also would have siphoned off $258.9 billion from Medicare over

 

seven years to pay for a government take-over of health care.

FOOTNOTES

/1/ Congressional Budget Office, The Economic and Budget Outlook, Update, August 1994, p. 30.

/2/ Ibid., p. 18.

/3/ Larry King Live, June 4, 1992.

/4/ The balanced budget amendment in the Contract does not actually require a balanced budget until the year 2002.

/5/ Obey, David, "The Republican 'Contract' There They Go Again," September 27, 1994, p. 12.

END OF FOOTNOTES

DOCUMENT ATTRIBUTES
  • Institutional Authors
    Joint Economic Committee
    House Republican Caucus
  • Cross-Reference
    For related news coverage, see the Oct. 26, 1994, Tax Notes Today

    Table of Contents.
  • Index Terms
    budget, federal, deficit reduction
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 94-9697
  • Tax Analysts Electronic Citation
    94 TNT 210-26
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