Bush’s Proposed Budget Does Not Threaten Medicare, Say Heritage Foundation Writers

Despite the "Mediscare" claims offered by critics, President Bush's budget and tax cut proposals do not threaten the viability of Medicare or the ability to reform the program in the future, Robert Moffit and D. Mark Wilson write in an opinion piece published on the Heritage Foundation's "Backgrounder." Moffit, the director of Domestic Policy Studies at the foundation, and Wilson, a research fellow at the foundation's Thomas A. Roe Institute for Economic Policy Studies, write that the "fact is that both eligibility for Medicare and Medicare benefits are entitlements set by law," and "neither President Bush nor any principal congressional proponent of Medicare reform is proposing a change in Medicare eligibility of benefits in order to provide tax relief." The authors note the main "claims" offered by opponents who say the Bush plan threatens Medicare and then make the case why these are false:

• "Giving Americans significant tax relief will threaten Medicare's financing" -- Moffit and Wilson state that under Bush's plan "every penny of Medicare taxes collected and premiums paid, and more, will continue to go into the Medicare program." They note that the president's budget calls for an $853 billion increase in spending from FY 2002 to FY 2011, a $1.6 trillion tax cut, and setting aside $2.6 trillion for Social Security and $526 billion for Medicare, which will leave a $317 billion surplus. However, these numbers are based on a "static analysis" of Bush's plan, which the authors state does not account for behavioral changes that result from tax relief. A "dynamic analysis" accounting for increased "economic prosperity" under a tax cut reveals that the surplus would, in fact, be more than $1 trillion, which could be used, in part, to reform Medicare. For instance, they say lowering tax rates would bolster employment and result in a $39 billion increase in the payroll taxes used to finance Medicare Part A (the hospital trust fund). In addition, "broad and generous tax relief would make it easier for many retired Americans to purchase prescription drug coverage, regardless of whether Congress moves forward with Medicare reform to include" a drug benefit, the authors write.
• "Medicare reform with tax relief will require Congress to cut seniors' benefits." -- Wilson and Moffit write that "[i]n reality, no serious Medicare reform proposal includes a net cut in benefits." Among Bush's "top budget priorities" is that seniors' "current guarantee of access" to benefits "be preserved." In addition, the authors note that Bush's plan calls for $153 billion over 10 years for Medicare reform.
• "The president's plan raids the Medicare Part A Hospital Trust Fund to pay for other programs" -- Moffit and Wilson state that Bush's budget proposal "acknowledges that Medicare will have a surplus of $526 billion from FY 2002 to FY 2011 but notes correctly that this amount comes entirely from Part A of the program." Because Part B (physician and outpatient services) will run a $1.2 trillion deficit, the "total Medicare program" will actually run a $645 billion deficit "that must be covered by general tax revenues." Bush's opponents have said that combining Part A and Part B in the accounting of the budget means that it "effectively includes the surplus as part of his contingency fund in order to pay for other programs." But Moffit and Wilson state that Bush's "presentation of Medicare financing is an honest assessment of the entire program's fiscal condition." Discussing the arguments of Bush's opponents, the authors write: "Implicit in their methodology is an assumption that an unlimited and ever-larger draw on the U.S. Treasury for Medicare is not a problem, regardless of how that demand for spending would affect taxpayers, Medicare beneficiaries, or funding for other government programs. This is unrealistic."