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InsiderOnline Blog: February 2008

The President’s FY 2009 Budget

Congress will hold hearings starting this week on President Bush’s FY 2009 budget. Here are some notes on that budget:

Some unreal numbers. The President’s budget projects a balanced budget by 2012, but it doesn’t include the costs of the war on terrorism. It also includes the unrealistic assumption that Congress will allow the Alternative Minimum Tax to ensnare tens of millions of additional taxpayers in 2009. Last year, Congress passed a one-year patch that prevents 23 million additional taxpayers from having to pay higher taxes under the AMT. See President’s Budget Would Restrain Entitlement and Domestic Discretionary Spending by Brian M. Reidl, The Heritage Foundation.

Who cares about 2012? Even if the budget were balanced by 2012, it would be only a short-term achievement without entitlement reform. Brian Reidl: “[W]hether the federal government runs a deficit of $100 billion, $50 billion, or zero dollars in 2012 is not particularly important. Even if Washington enacts the necessary short-term budgetary tweaks, spending on Social Security, Medicare, and Medicaid would quickly push the budget back into a deficit shortly thereafter. If lawmakers put entitlement spending on a sustainable path, the short-term budget picture will take care of itself.” See President’s Budget Would Restrain Entitlement and Domestic Discretionary Spending by Brian M. Reidl, The Heritage Foundation.

Time to try something besides socialism? On the plus side, the President’s budget reduces the growth in Medicare spending by $178 billion over five years and achieves a one-third reduction in the program’s unfunded liabilities. Unfortunately, it does so by adjusting payment formulas—i.e. by increasing price controls on doctors and hospitals—which will make it harder for Medicare enrollees to find the services they want. Instead of more onerous price controls, a better approach to controlling costs would be to incorporate free market mechanisms into the program so that insurers and providers have incentives to compete on price and value. Such reforms would entail a transformation of Medicare from a defined benefit to a defined contribution plan and greater incentives for health care consumers to shop for value. See The President’s Medicare Budget: A First Step Toward Entitlement Reform and Make Medicare Budget Options Compatible with Comprehensive Reforms both by Robert E. Moffit, The Heritage Foundation.

Tax burden rising even with cuts. Also on the plus side, the President’s budget makes the 2001 and 2003 tax cuts permanent. Even with those cuts, however, federal tax revenues as a percentage of GDP are above the historical average and will rise to a record 22.8 percent of GDP by 2050. See President’s Budget Would Restrain Entitlement and Domestic Discretionary Spending by Brian M. Reidl, The Heritage Foundation.

Surrender the SCHIP? After proposing only a $5 billion five-year increase in last fall’s reauthorization battle over SCHIP, the President’s new budget includes a $20 billion increase over five years for the program. Giving SCHIP more money will result in higher enrollment in this government-run plan. Policies that expand enrollment in private insurance would be better. See The President’s Proposals on Medicaid and SCHIP: One Step Forward, One Step Back by Nina Owcharenko, The Heritage Foundation.

A presumptuous request. The President requests nearly $5 million to fund activities related to the Law of the Sea Treaty, even though the United States has never ratified the treaty. The Law of the Sea Treaty creates a socialist system of governance over the world’s ocean resources, and subjects U.S. companies to the judgments of an international tribunal. See Congress Should Ignore Budget Requests Relating to the Law of the Sea Treaty by Steven Groves, The Heritage Foundation.

What might been. Kevin Hassett of the American Enterprise Institute writes: “If we now had the lower spending levels that Bush inherited, we could extend his tax cuts, repeal the alternative minimum tax, enact the current stimulus package, and still have a 10-year budget surplus of $1.9 trillion. And, remember, that allows spending to be adjusted up for the Iraq war and the war against terrorists.”

Posted on 02/11/08 07:10 PM by Alex Adrianson

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