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Clinton-Gore Administration's Budget Framework

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The Briefing Room

THE CLINTON-GORE ADMINISTRATION'S
BUDGET FRAMEWORK

June 26, 2000

 

The Clinton-Gore Administration's budget framework continues the three-part strategy put in place at the beginning of the Administration: getting our fiscal house in order and keeping it that way, investing in people, and opening markets abroad. This strategy has helped foster the longest economic expansion in history, contributing to the lowest unemployment rate in over thirty years.

Specifically, the budget framework would make investments in key priorities while putting America on track to eliminate the debt by 2012 -- one year earlier than projected in the February budget.

 

The Six Key Elements of the Clinton-Gore Administration's Budget Framework

 

1. Pay off the debt by 2012

2. Take Medicare off-budget as the next step in locking in fiscal discipline and debt reduction

3. Extend the solvency of Social Security to at least 2057 and Medicare to at least 2030

4. Improve the President's prescription drug benefit and health care provider payments

5. Establish a $500 billion Reserve for America's Future

6. Invest in key priorities like education, expand health coverage, and provide targeted tax relief

 

 

(1) Pay off the debt by 2012. The President has a fiscally responsible plan to pay off the debt held by the public by 2012, one year earlier than was projected in the February budget.

The $211 billion unified surplus this year will be the largest on record. In 1992 the deficit was a record $290 billion and the Congressional Budget Office projected that it would rise to $455 billion in 2000. Instead, this year the projected surplus is a record $211 billion -- a $666 billion improvement relative to forecast in this one year alone.

The on-budget account will be in surplus for the first time since Medicare was established. In 2000, the on-budget surplus, excluding both Social Security and Medicare, is projected to be $39 billion. This is the only surplus on this basis since the Medicare program was established in 1965.

Debt held by the public will have been paid down by the largest amount in history: $324 billion. In 1998 and 1999, the debt held by the public was reduced by $140 billion. OMB is projecting that the government will pay down an additional $184 billion in debt held by the public this fiscal year. That will bring the total debt pay-down to $324 billion -- the largest three-year debt pay-down in American history, and almost 9 percent of the total in public hands as of the end of fiscal year 1997.

The President's plan would lock in $2.9 trillion of debt reduction between now and 2010 and eliminate the debt by 2012. The President proposes to save the entire Social Security surplus, $2.3 trillion over 10 years, and devote it to paying down the debt held by the public. In addition, he proposes to save the entire Medicare surplus, $403 billion over 10 years, and devote it to debt reduction. He also proposes to further reduce the debt held by the public by dedicating a portion of the on-budget surplus, based on the interest savings from these policies, to the solvency of Social Security and Medicare. Over the next decade these policies would dramatically reduce the debt held by the public by $2.9 trillion; the remaining debt held by the public would be eliminated by 2012.

The President's plan would eliminate net Federal interest expenses. Currently the Federal government spends 12 cents of every dollar on net interest payments. These payments, which were once projected to grow to 25 percent of all federal spending in 2012, would be completely eliminated by that date under the President's plan.

 

(2) Take Medicare off-budget as the next step in locking in fiscal discipline and debt reduction. Following the leadership of Vice President Gore, President Clinton is proposing to take Medicare Part A off-budget. This would mean that the projected $403 billion Medicare surplus will be off-budget, like the Social Security surplus, and therefore, no longer counted as part of the funds available for other purposes. Under this plan, the Medicare surplus will be dedicated to paying down the publicly held debt to help strengthen the life of the Medicare program.

Building on our progress with Medicare. In 1993, the Medicare Trust Fund was projected to be exhausted in 1999. The latest estimates by the Medicare Trustees push the exhaustion date back to 2025. The Medicare surplus has grown from $4 billion in 1993 to $24 billion in 2000. This makes taking Medicare off-budget the next logical step in the Clinton-Gore Administration's fiscal discipline and Medicare policies.

 

(3) Extend the solvency of Social Security to at least 2057 and Medicare to at least 2030. The President would ensure that the benefits of the debt reduction that are due to Social Security and Medicare are used to extend their solvency by:

Protect Social Security and Medicare surpluses. The President proposes to protect the Social Security and Medicare surpluses from being spent on other purposes, locking them away to pay down the debt.

Make transfers based on the interest savings achieved by locking away the surpluses. The President proposes to go one step further to ensure that Social Security and Medicare receive the benefit of locking away their surpluses for debt reduction. According to the Social Security actuaries, the President's plan would extend the solvency of Social Security to at least 2057. The President's proposed Medicare solvency transfers, together with the President's proposals to increase competition and reduce fraud, extend the solvency of Medicare to at least 2030.

Republican so-called "lockboxes" do not add a single day to the life of Social Security or Medicare. Because they would not add any new resources to Social Security or Medicare, the Republican so-called "lockboxes" would not extend the life of Social Security by a single day. Furthermore, they have "trap doors" that would allow these surpluses to be used for other purposes.

 

(4) Improve the President's Medicare prescription drug benefit and provider payments. The framework allocates a net $264 billion over ten years for Medicare prescription drug benefits and other reforms (with an additional $115 billion in Medicare solvency transfers that go to debt reduction). The President will improve his voluntary and affordable Medicare prescription drug benefit by specifying that no Medicare beneficiary will pay more than $4,000 in out-of-pocket drug costs; maintaining the beneficiary premium at the same level even with the enhanced benefit; starting the program one year earlier; and providing immediate payments to managed-care plans to provide a prescription drug benefit, for a total cost of $253 billion over 10 years. The President is also proposing $40 billion over ten years to further mitigate the impacts of the Balanced Budget Act of 1997 reductions for Medicare and Medicaid providers. Finally, the President's proposal maintains the key elements of the Administration's Medicare reform plan, such as the increased competition and anti-fraud provisions from the February budget, saving $29 billion over 10 years.

 

(5) Establish a $500 billion Reserve for America's Future. The framework sets aside $500 billion over ten years that could be used for key national priorities, such as retirement savings, additional targeted tax cuts, investments in education, research, health and the environment, or further debt reduction. There are always uncertainties in budget and economic projections, especially when they cover a long period into the future. This reserve provides a margin of insurance: if the surplus is not as large as projected, then any use of the reserve could be reduced. The allocation of the reserve should be subject to a full debate over national priorities this year, given the competing visions of the use of these funds.

 

(6) Invest in key priorities like education, expand health coverage, and provide targeted tax relief. The President's budget framework maintains his commitment to his proposals from the February budget including:

Invest in priorities. The President's framework maintains the FY2001 budget proposals for specific, detailed policies to address the Nation's priorities in national defense, education, law enforcement, the environment, and veterans programs. These policies are part of an overall fiscally prudent level of spending.

Expand health insurance for working Americans. The President's budget invests $110 billion over 10 years in a number of policies that would efficiently extend coverage to an additional 5 million uninsured Americans and expand access to millions more by building on current options. Together with the State Children's Health Initiative enacted in 1997, up to 10 million uninsured people could be covered.

Provide targeted tax relief for American families. The President's February budget made detailed proposals for $359 billion of gross tax cuts over 10 years -- of which $263 billion are paid for out of the surplus and $96 billion are paid for with corporate loophole closers, elimination of tax shelters, and other measures. (These cost estimates are based on the revised economic assumptions and thus differ slightly from the cost estimates released in the February budget.) The President's proposals include expanding the Earned Income Tax Credit to help larger families and to reduce the marriage penalty, increasing the Child and Dependent Care Tax Credit and making it refundable, making up to $10,000 of college tuition tax deductible through the College Opportunity Tax Cut, and helping pay for long-term care with a $3,000 tax credit.


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Budget Framework - Table of Contents

Clinton-Gore Administration - Appendix A1

Clinton-Gore Administration - Appendix A2

Clinton-Gore Administration's Budget Framework

American Families in a Framework of Fiscal Discipline

Taking Medicare Off-Budget and Dedicating the Resulting Interest Savings

Improving the President's Medicare Prescription Drug