Tuesday, February 8, 2005

A report on the nation’s fiscal status presented to Congress yesterday showed that expenditures in President Bush’s budget are unsustainable and will lead to permanent deficits in the next decade.

The Government Accountability Office (GAO) report came as Mr. Bush and two of his leading spokesmen on fiscal issues — Office of Management and Budget Director Joshua B. Bolten and Treasury Secretary John W. Snow — made a public case for the president’s budget proposal, released Monday.

In his testimony before the Senate Budget Committee, GAO Comptroller-General David Walker said the greatest threats to the nation’s economic stability are the ballooning costs of Medicaid reimbursements as health care becomes increasingly expensive.

“Continuing on this unsustainable fiscal path will gradually erode, if not suddenly damage, our economy, our standard of living and, ultimately, our national security,” Mr. Walker said. He said such pressures will make it nearly impossible to address budget surprises, such as recovery costs for natural disasters, and increase the finance charges for future generations.

Five years ago, spending for Social Security, Medicare and Medicaid was about 55 percent of the federal budget, said Sen. Judd Gregg, New Hampshire Republican and chairman of the Budget Committee. He said that by 2015 it will be 64 percent, “and as a result, it will essentially absorb all the revenues unless we address these programs today.”

In a speech in Detroit yesterday, Mr. Bush said he had sent to Congress “a disciplined budget” that would put the nation on the path to fiscal health.

“My budget reduces spending on non-security discretionary programs by 1 percent — the most disciplined proposal since Ronald Reagan was in office. It holds discretionary spending below the rate of inflation. It includes vital reforms in mandatory spending that will save taxpayers $137 billion over the next decade,” he said.

But the debate yesterday in both houses of Congress centered on which program to fix first: Social Security or health care.

Administration officials want to focus on Social Security this year and worked to convince Congress that the program is on its way to bankruptcy, because of the declining ratio of workers to retirees.

Mr. Snow said that when the system was put into place in the 1930s, the nation had 40 workers for every retiree. By 1950, that ratio was 16-to-1, and today it has fallen to 3.2-to-1, Mr. Snow said.

He said raising taxes and putting more revenue into the retirement program is not the answer, because tax cuts are needed to stimulate economic growth.

“That’s why [the budget] calls for a number of measures to strengthen the economy, including, importantly, making the tax cuts permanent. I’d urge you to act on that,” Mr. Snow told the House Ways and Means Committee.

Mr. Bolten touted the administration’s review of government programs for their effectiveness.

He said 60 percent of all federal programs have gone through an assessment by his office to determine which are duplicates, not working or too costly. Those programs are among the 150 on the president’s chopping block.

Mr. Walker said Congress should work to contain both health care and Social Security spending, but that Social Security is the easier to reform.

“The fundamental difference is that health care is much more complex, and it will be very heavy lifting and labor intensive for many years,” Mr. Walker said.

“You can restructure Social Security, be it with private accounts or some other method, in such a way that everybody gets more than they think they will, but you don’t have a prayer of doing that with health care.”

Sen. Pete V. Domenici, New Mexico Republican, said the answer is simple, “You do first what is the easiest and what you can do. And that is Social Security.”

Democrats appear to be drawing a line that the problems of Social Security can be fixed by eliminating some of the Bush tax cuts in the 2006 budget and allowing many of the current cuts to expire five years from now.

• Joseph Curl contributed to this article.

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