Congressional Budget Office Releases ‘Pessimistic’ Budget Estimates, Democrats Focus on Medicare ‘Threat’

The nonpartisan Congressional Budget Office released its budget analysis on Aug. 27, warning that the "economic downturn" and President Bush's tax cut package will force the federal government to spend $9 billion of the Social Security surplus this year and "billions more" over the next three years, the New York Times reports. In the report, the CBO said that the overall federal budget surplus for the fiscal year ending Sept. 30 has decreased by $122 billion from its May estimate, to $153 billion. Bush's tax cut program is responsible for about two-thirds of the reduction, the Times reports. The CBO report was "more pessimistic" than the budget projection released last week by the White House Office and Management and Budget, which concluded that there would be no need to use the Social Security surplus (Shenon, New York Times, 8/28). Bush's report also estimated the federal budget surplus this fiscal year to be $158 billion, slightly higher than the CBO projection (Rosenblatt, Los Angeles Times, 8/28). The Wall Street Journal reports that the government now appears "even more likely to spend Medicare surpluses." Rep. John Spratt (D-S.C.) said that because the CBO analysis did not account for the cost of Bush's future policy initiatives, the "threat" to Social Security and Medicare funds could be "understated" by as much as $72 billion through 2004 (McKinnon/Rogers, Wall Street Journal, 8/28). Restrictions on the use of surpluses are "largely political," because it is "all but impossible" for the government to put Social Security or Medicare taxes into a bank because of the impact on financial markets, the Washington Post reports. The government borrows the money from the programs and uses it on other programs, but such spending does not affect benefit payments (Kessler, Washington Post, 8/28).

Political Implications
The two reports' projections set the stage for "a bitter struggle in Congress this fall," when lawmakers will consider programs such as a Medicare drug benefit, the New York Times reports. Senate Budget Committee Chair Kent Conrad (D-N.D.) said, "It is now clear that the president will be raiding Social Security and Medicare trust funds even when he is forecasting strong economic growth. He's cooked a stew that's going to be very hard for us to choke down" (New York Times, 8/28). Rep. Robert Matsui (D-Calif.) said, "President Bush actually put a straitjacket on America's schools, seniors and states who need Congress to follow through on priorities such as a Medicare prescription benefit." But House Speaker Dennis Hastert (R-Ill.) said that "every dime collected for Social Security and Medicare will be spent solely on Social Security and Medicare" (Los Angeles Times, 8/28). The Wall Street Journal reports that defense education and farm programs will emerge as "immediate" battles in Congress, before expanding health coverage or adding a prescription benefit to Medicare (Wall Street Journal, 8/28). The CBO report is available online.

Upcoming Budget Committee Hearing
More high-profile discussion of budget issues is expected next Wednesday, Sept. 5, when OMB Director Mitchell Daniels and CBO Director Dan Crippen testify before the House Budget Commitee. Their testimony will be webcast on kaisernetwork.org. Those interested in this hearing may sign up for an email reminder online.