THE WHITE HOUSE

Office of the Press Secretary

          THE REPUBLICAN TAX BILL WOULD TRIGGER AUTOMATIC CUTS 
            IN MEDICARE AND OTHER VITAL GOVERNMENT PROGRAMS 

                            August 25, 1999 

Republican Tax Bill Drains Resources Needed To Secure Medicare, Protect Social Security Surpluses, Pay Down the Debt, and Prevent Deep Cuts in Key Priorities From Education to Agriculture to Public Safety to Science. The Republican tax bill, and the associated interest costs, would use up the entire $1 trillion non-Social Security surplus and, assuming it continued, would explode between 2010 - 2020, right at the time when the baby boom generation begins to retire, Medicare is projected to become insolvent, and Social Security comes under strain. Under the Republican budget resolution, key priorities including education, agriculture, public safety, and science would be cut by nearly 50 percent by 2009. (This assumes that the Republicans fund defense at levels requested by the President.)

New Analysis in report released today from the Office of Management and Budget: As Written, GOP Tax Bill Would Over Next 5 Years Trigger Automatic Across-the-Board Cuts That Would Cut Medicare by $41.4 billion & Entirely Eliminate Key Federal Programs Including Veterans Education and Training, Farm Safety Net and Child Support Enforcement Programs. The Republican tax cut bill as written would, under existing law, automatically trigger across-the-board spending cuts in the budget (known as sequestration). These cuts would automatically come from mandatory programs, resulting in a $41.4 billion cut in Medicare over the next 5 years (2000-2004), according to today's Office of Management and Budget analysis. These cuts would also force the complete elimination of key federal programs, including farm safety net programs like CCC and crop insurance, veterans education and training benefits, child support enforcement, and Social Service Block Grants, which support child care for low-income families and Meals on Wheels for senior citizens.

Over the next 5 years (2000-2004), these automatic across-the-board cuts would:

• Cut Medicare by $41.4 billion. Despite the fact that many Republican Members of Congress have written to the President asking that certain savings agreed upon in the Balanced Budget Act of 1997 be repealed, the GOP tax plan would cause Medicare spending to be cut by $41.4 billion from 2000 - 2004. This would impose further reductions in Medicare payments to all providers (including hospitals, physicians, home health agencies, and skilled nursing facilities).
• Eliminate Farm Safety Net Programs (Crop Insurance and CCC) by cutting $19.3 billion. Despite the fact that the Senate has just passed a bill that provides approximately $7.4 billion in 2000 emergency assistance to the Nation's farmers, the Republican plan turns around and cuts $19.3 billion from farm safety net programs, even though this is a time of nationwide low commodity prices and regional droughts that are withering crops and livestock. Simply put, while the Republicans claim to be adding $7.4 billion for farmers, their tax plan would cut more than twice as much from key programs that assist farmers.

As a result, the Agriculture Department's crop insurance program would shut down starting in 2002. Without insurance, most farmers and ranchers could not secure the financing from banks needed to operate their farms and ranches. It would also eliminate assistance to farmers through the Commodity Credit Corporation, which provides the funding for core income and price support assistance programs for farmers, at a time when many farmers are enduring the worst farm economy in decades. In addition, with U.S. agriculture heavily dependent on exports, these cuts would end USDA's export credit programs that guarantee billions of dollars of farm exports a year.

• Eliminate Veterans Readjustment, Education, and Training Benefits by cutting $3.2 billion. These cuts would deny education benefits and training to more than 450,000 veterans, reservists, and dependents who are eligible through the Montgomery GI Bill and the Vocational Rehabilitation and Counseling Programs. This would mean that these veterans, reservists, and dependents would lose access to the education and training programs many were promised (and paid into) when they enlisted. It would also mean that job and other assistance would be eliminated for 50,000 disabled veterans who have employment disabilities sustained on active duty.
• Cuts Student Loans. Guaranteed and Direct Student Loan Program borrowers would have their origination fees increased by one-half of a percentage point beginning in 2000. Over 5.5 million beneficiaries would be affected.
• Eliminate Child Support Enforcement by cutting $10.3 billion. Federal funding for Child Support Enforcement would be eliminated beginning in 2002 and many states would no longer be able to continue this critical program. In 1998, this program collected $14.3 billion on behalf of children and families, and helped many low-income families move from welfare to work.
• Eliminate Social Services Block Grants (SSBG) by cutting $4.4 billion. Beginning in 2002, SSBG would be eliminated. SSBG provides funding to States to support a wide range of programs including child protection and child welfare, child care, as well as services focused on the needs of the elderly and handicapped. The inherent flexibility of this grant helps states to target funds to meet needs in their communities.

Even With the Reduction or Elimination of These Key Programs, the Republican Tax Cuts Would Still Mean Roughly 50 Percent Cuts in Non-Defense Discretionary Spending by 2009 Cutting Medicare and eliminating of these key programs (triggered automatically by the Republican tax bill) would still not cover the full cost of the Republican tax bill. If the Republicans were to meet the President's defense budget and refrain from dipping into the Social Security surplus, they would have to make unfathomable cuts - nearly 50 percent across-the-board in domestic programs -- from education to agriculture to the FBI to the FAA to medical research by 2009. Even this analysis understates the potential harm of the Republican tax plan, because it does not allow any resources to extend Medicare solvency even though Medicare is scheduled to become insolvent in 2015 and most experts would agree that Medicare's long-term solvency could only be secured with additional resources.

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