Center for American Progress

Statement on President Bush’s Proposed Budget for Fiscal Year 2008
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Statement on President Bush’s Proposed Budget for Fiscal Year 2008

Iraq, Medicare and Medicaid cuts, and Deficit Reduction

New budget proposal continues the same misguided economic policy that neglects problems at home while racking up national debt.

Washington, DC – President Bush today released his proposed budget for fiscal year 2008. This budget continues the same misguided economic policy that neglects problems at home while racking up hundreds of billions of dollars in national debt. We believe that Congress should work to develop its own fiscal blueprint, and not rely on the president’s budget as a starting point for discussion.

According to John Irons, Director of Tax and Budget Policy at the Center for American Progress, “For the past seven years, the Bush administration’s budget choices have reflected an economic policy that has benefited the few at the expense of the broader economy and our fiscal future. This latest budget proposal does little to address long-term budget imbalances, while continuing to promote policies that benefit wealthy individuals. According to the president’s own numbers, the proposed tax policies would add $600 billion to deficits over the next five years, and $1.9 trillion over the next ten. Once other costs are included—such as needed reform to the Alternative Minimum Tax and ongoing expenditures for Iraq—the deficit totals would be much higher. The president’s claim that his plan will balance the budget by 2012 is simply not credible.”

In the past, the Center for American Progress has been critical of President Bush’s proposed budgets, believing that many of his stated intentions—such as tax cuts that predominately benefited the wealthiest—represented the wrong priorities for the nation.[1] Moreover, on some of the more promising goals and intentions that President Bush expressed in advance of the budget release (for example, reducing dependence on foreign oil), he has repeatedly neglected to follow up with appropriate funding or administrative focus. Likewise, we do not believe that the current document merits serious consideration.

Specifically:

  • The president’s claim of balancing the budget by 2012 relies on budgetary gimmicks and unrealistic assumptions, for example:

* The budget projections do not include the cost of extending changes to the Alternative Minimum Tax beyond 2008.

* The budget does not include full 5-year costs for Iraq.

* $77 billion in proposed cuts to Medicare and Medicaid threaten the security of our nation’s elderly, and it is unlikely to have broad support from either party in Congress.[2]

  • The president’s health care proposals are inadequate to meet the needs of the uninsured, would raise costs on the elderly, would cause low income children currently insured by the State Children’s Health Insurance Program to lose coverage, and threaten to undermine coverage for the majority of Americans who receive health insurance through their employer.
  • Spending in Iraq, which now exceeds $8.4 billion each month, could be invested in other areas, including intelligence gathering and homeland security, which are also vital to U.S. national security.
  • The president continues to push for costly tax changes that yield a disproportional benefit to the wealthy, while adding trillions to the national debt over the next decade.

Balanced Budget by 2012?

The president’s proposed budget relies on the budgetary gimmicks and unrealistic assumptions to achieve balance in 2012. In particular:

  • The budget does not include the cost of “fixing” the Alternative Minimum Tax beyond 2008. Without this change, approximately 30 million people would get snared by the AMT by 2010.[3]
  • The budget does not include full five-year costs for Iraq. While the budget does anticipate supplemental requests for 2007 and 2008, it does not include additional supplemental requests after that.
  • The budget includes $77 billion worth of cuts over the next five years to health care programs for the elderly (Medicare) and low-income Americans (Medicaid), which is unlikely to gain Congressional backing.
  • The budget proposes cuts to domestic, non-security discretionary funding of approximately one percent per year over the next five years after adjustment for inflation, in contrast with historical experience.

Undermining health care affordability

The proposal would result in $77 billion in funding cuts for Medicare and Medicaid over the next five years, and $280 billion over the next 10. If enacted, the Medicaid changes would place significant stress on state budgets. While the Medicare proposals would result in premium increases for some Medicare beneficiaries, they leave overpaid Medicare contracting HMOs unscathed. These proposed cuts to Medicare and Medicaid are simply unrealistic and only serve to dress-up the five-year deficit projections.

The president also reneges on the federal-state bipartisan commitment to reduce the number of uninsured children in the United States. In this proposal certain low-income children in 14 states would lose eligibility for SCHIP. In spite of widespread interest in expanding children’s coverage, the president would cause the number of children enrolled in Medicaid and SCHIP to decline.

The president has also outlined a new direction on tax policy that would change the deductibility of health insurance provided by employers. These changes would weaken the employer-provided system without ensuring an adequate alternative. Even by the administration’s own estimates, these tax changes would still leave over 40 million Americans without health insurance.[4] Because the new policy is structured as a standard deduction, those in higher tax brackets would receive a greater tax benefit that those in lower brackets.

Misplaced national security priorities

The president’s 2008 budget includes funding to begin a substantial increase in the size of the Army and Marine Corps, as the Center for American Progress advocated in its Progressive Quadrennial Defense Review. However, the White House also sent to Congress a $100 billion fiscal year 2007 supplemental to fund on-going military operations and another $145 billion supplemental is anticipated for 2008—a costly reminder of the Bush administration’s unrealistic assumptions, poor planning and ineffective management that characterized operations in Iraq over the past four years.

The Congress must continue to provide resources to support U.S. troops in Iraq, Afghanistan, and elsewhere around the world. However, it is also important to recognize that operations in Iraq consume almost 25 percent of all funding devoted to U.S. national security and roughly six times the resources dedicated to Afghanistan, where the 9/11 plot was planned and where its perpetrators—al-Qaeda and the Taliban—are making a comeback. There is little doubt that spending in Iraq, which now exceeds $8.4 billion each month, could be invested in other areas, including intelligence gathering and homeland security, that are also vital to U.S. national security. This diversion of resources also saps the U.S. ability to handle a host of international challenges such as peacekeeping, weak and failed states, pandemic flu, counterterrorism efforts, and Darfur.

These growing costs for U.S. national security and the strain of Iraq are key reasons why the United States must implement a policy of strategic redeployment of its military forces in Iraq.[5]

Misguided tax policy

According to the budget, an extension of the 2001 and 2003 tax changes will reach an annual cost of at least $211 billion in fiscal year 2012 (with significant additional cost if the AMT is reformed or repealed). As we know, these changes benefit high-income individuals much more than the average taxpayer. In 2006, those making more than $1 million received an average tax cut of $118,000, while those in the bottom 60 percent—those making less than $46,000 a year—received just $371 on average.[6]

Importantly, the president’s budget does not include the cost of “fixing” the Alternative Minimum Tax beyond 2008. Without this change, approximately 30 million people would get snared by the AMT by 2010.[7]

Conclusion

We look forward to an alternative proposal from Congress, which we hope takes an honest look at our fiscal situation and focuses funds on the nation’s most pressing priorities.

Endnotes

[1] For the last two years, the Center undertook comprehensive, in depth analyses of the president’s budget, examining the implications for economic, domestic, and international programs. See “Setting the Wrong Priorities: An Analysis of the President’s 2007 Budget” at and “Wrong Choices: An Analysis of the 2006 Budget“.

[2] The $77 billion figure is for legislative changes only, with reductions of $66 billion in Medicare and a net $11 billion in Medicaid over the next five years. Including administrative proposals would increase the reductions to over $100 billion, with reductions of $76 billion in Medicare and $26 billion in Medicaid over the next five years. See budget for full details.

[3] See Tax Policy Center, Table T06-0266

[4] See “Press Briefing on the President’s State of the Union Health Care Initiative,” Remarks of K. Baicker, January 22, 2007.

[5] See Lawrence Korb and Brian Katulis, “Strategic Redeployment 2.0,” May 2006.

[6] Greg Leiserson, Jeff Rohaly, “The Distribution of the 2001-2006 Tax Cuts,” Tax Policy Center, November 15, 2006.

[7] See Tax Policy Center, Table T06-0266.

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