Congressional Budget for the United States Government for the Fiscal Year 2006

CONGRESSIONAL BUDGET FOR THE UNITED STATES GOVERNMENT FOR THE FISCAL YEAR 2006

BREAK IN TRANSCRIPT

Mr. GRASSLEY. I rise in opposition to the Feingold amendment. I do that with a realization that there is a great need for deficit reduction. Who can find fault with the objectives of Senator Feingold's amendment? Those objectives are good.

I am going to demonstrate that his proposal is not realistic. It also ignores the reality of the tax relief of the current law. It unwisely ignores a bipartisan will to maintain current tax relief for millions of taxpayers. Without maintaining existing tax policy, if we would just let that expire, we would have the biggest tax increase in the history of the country without Congress acting. It seems to me if we are going to have the biggest tax increase in the history of the country, Congress ought to make the decision to do it.

I will talk about how the Senate Finance Committee approaches tax policy. We have used pay-go on taxes, but we do it outside of the budget. Two kinds of tax relief bills have come out of the Finance Committee in the last 4 years. One set of bills contained widely applicable tax relief. Those bills, if you take them together, and they were done under reconciliation, were bipartisan. I emphasize that because everyone around the country thinks everything around here is partisan. But these tax cuts were bipartisan and they were net tax cuts for virtually every American taxpayer. Those bills enacted in 2001 and 2003 did not contain offsets.

The secondary category of bills our committee works on would cover all other bills coming as part of our committee business. Those bills dealt with specific categories of tax relief. I will give some examples: A charitable giving tax bill, the bill to deal with exports in manufacturing, a bill to deal with the Armed Forces tax relief for our folks in Iraq putting their lives on the line--there are many other examples of tax relief fully offset by our committee.

In a few rare cases, such as the energy tax relief, for example, bills were partially offset. Now, this pattern is applicable during my chairmanship of this committee, and it is fair for me to say there was a similar pattern occurring when my Democratic colleague and counterpart, Senator Baucus, was chairman of the Senate Finance Committee.

By and large, then, the Senate Finance Committee, when dealing with tax policy, has produced revenue-neutral bills. The exceptions occurred when there was bipartisan support for widely applicable tax relief. And I emphasize the word ``bipartisan.''

By the way, had we not responded with that bipartisan tax relief, there would have been no widespread economic stimulus that resulted. In other words, the economic depression that set in with the NASDAQ losing half of its value in the year 2000, and then with the September 11 attack on New York City and the resulting downturn in the economy, we would not have had in place an economic stimulus to bring back economic growth to where we are now.

Chairman Greenspan said tax relief was responsible for the economic turnaround.

Also, we had the most recent Nobel economic prize winner tell us that our tax relief in 2001 and 2003 was not as big as it should have been to get the maximum economic stimulus. But we have had an economic turnaround justifying, without question, those tax relief packages.

So let me be clear. With tax policy outside the budget, the Finance Committee has, in effect, operated on a pay-go basis. The exceptions were built into the budget, and those exceptions had bipartisan support.

I would like to challenge any of the critics of this budget to show the same record on the spending side. No, it seems like others want to spend. And all of these amendments that are being offered are adding up to positive proof that the same people who are against tax relief do not want to reduce the deficit. What they want to do is spend more money.

If I could ever find from the other side how high taxes had to be, how high they had to be to satisfy their appetite to spend money, I might go that high, if I knew I never had to go any higher. But I cannot ever get any consensus about that. So the only conclusion you come to: taxes can never be high enough.

The other point is, I might be willing to vote for some increase in taxes if every dollar increase in taxes resulted in a lower deficit, went to the bottom line to lower the deficit. But, no, every time we raise $1 of taxes around here, it is a license to spend $1.10, $1.20, and sometimes more. So we need out of the other side the same concerns about spending.

The Feingold amendment is not realistic about current tax relief. Senator Feingold's amendment would undo the tax policy resources in the budget. Let me explain why. The budget's tax cut number covers expiring tax relief. It extends all widely applicable tax relief. It includes it all. The number covers dividends and capital gains. It also covers, through the year 2010, provisions the critics say they support: tuition deduction, low-income savers credit, small business expensing. The number also covers for 1-year provisions critics say they support: business extenders such as R&D, sales tax deductions, the alternative minimum tax hold harmless.

The number includes offsets that will get us $20 to $30 billion. So we are talking about $70 billion net. I repeat, that is $70 billion net. It covers a gross tax cut of $90 to $100 billion. That number covers all of the items that folks, particularly on the other side of the aisle, say they are for.

Now, critics cannot say they are for these items and not provide room in this budget for those tax cuts. You cannot have it both ways. So a vote for the Feingold amendment is a vote against expiring tax relief that a lot of these folks say we ought to pass.

Realistically, there is probably around $30 billion in offsets. Realistically, there is about $100 billion in costs. That is a realistic position. For instance, we have heard a lot about the alternative minimum tax. ``When are you going to do something about it?'' is a question from the other side. The cost of a 1-year hold harmless on the alternative minimum tax is $30 billion. That is $30 billion for AMT for 1 year alone. So don't tell people back home you are for AMT relief if you vote for the Feingold amendment.

Let's go through some of these other expiring tax relief provisions. Deduction for State and local sales tax: It is covered in the number in the budget. It is important for States such as Nevada, Washington, Florida, and South Dakota.

BREAK IN TRANSCRIPT

Mr. President, we have a savers credit, an incentive for low-income savers. It is covered in the budget number. Deduction for college tuition: It is covered in the budget number. Extension of research and development tax credit--it is important to lots of States--it is covered in the budget number. Extension of wind and alternative energy tax credit: It is covered in the budget. I know that is important to a lot of people, a lot of people who are critics of this budget.

So you cannot have it both ways. If you exclude room in the budget for tax relief, you cannot say you support that same tax relief. The two positions are not in sync. The budget resolution provides room for tax relief. So a vote for the Feingold amendment is a vote against expiring tax relief. You cannot have it both ways. Either you are for a budget that has a realistic plan to maintain current tax relief--and this budget has that realistic plan--or you are for the Feingold amendment, which means you are not serious--not serious--about maintaining current tax relief levels.

Now, the Feingold amendment is also a stealth tax increase. The premise of the Feingold amendment is that tax relief should be treated less favorably--less favorably--than spending. How can that be, you might ask? Well, here is the answer. Entitlement spending such as Social Security and Medicare and discretionary spending can grow under the Feingold notion of pay-go. Contrariwise, much of the current law of tax relief expires, and in some cases tax relief, such as the AMT hold harmless, runs out after year's end. That is 9 million tax filers, mostly middle-income families, who are hit by the Feingold regime.

There is no comparable hit on the spending side. See the bias for tax increases automatically, and no bias against spending increases. Entitlement spending would continue to grow without limit under the Feingold amendment. So the Feingold amendment backstops runaway entitlement spending. Taxpayers are left out. Taxpayers are out in the cold under the Feingold regime. A vote for the Feingold amendment is a vote against status quo tax relief and a vote for status quo spending. That does not sound like evenhanded fiscal discipline to me.

So I urge a vote against the Feingold amendment because it is defective on these several points. And most importantly for me, as the chairman of the Senate Finance Committee, it ignores the Finance Committee's prudence under both Democratic chairmanship and Republican chairmanship. It ignores the reality of current tax relief which is expiring. It contains a stealth tax increase on at least 9 million taxpayers who are going to be caught up in the alternative minimum tax. It creates a double standard by treating a dollar of out-of-control spending more favorably than a dollar of current tax relief.

I yield the floor.

BREAK IN TRANSCRIPT

Mr. GRASSLEY. I probably will not use the full 10 minutes.

Mr. President, I have the utmost respect for the Senator from Oregon and the Senator from New Mexico. They are both members of the committee I chair. They are contributing members, very serious members of the Committee on Finance.

They are people who care deeply about providing health care coverage for our most vulnerable citizens.

I have listened with interest as my friend from Oregon talked with great passion about providing mental health services for these fragile individuals receiving public health services.

I share the commitment of the Senator from Oregon and the Senator from New Mexico to providing the necessary care to individuals with disabilities, our senior citizens, and mothers and their children.

And yet, knowing all this, I also have a concern that if their amendment passes, we will fail to enact meaningful improvements to the Medicaid system. If we fail to do that, we could ultimately end up hurting the very same individuals for whom we show so much concern.

I understand that the key feature of the Smith-Bingaman amendment would create a bipartisan Medicaid commission. I have said for a while there needs to be a common language associated with Medicaid reform. Republicans and Democrats alike do not agree even on what the word ``reform'' means when it is applied to Medicaid. Some believe it means curtailing costs. Others believe it means expanding coverage. A Medicaid commission could help bring us together in developing common themes and ideas of needed reforms.

However, the need to make some critical changes to Medicaid that would capture savings over the next few years and the creation of this commission are not mutually exclusive. We could have both.

If we simply let the program function in the way that it has been over the next few years, States will continue to be squeezed and will have no choice but to begin curtailing services for the elderly and the disabled. To some extent that has been happening in some States.

Everyone needs to realize when a State makes a decision to not serve Medicaid people and to save State dollars, that saves money at the Federal level, but that is not the wisest way to do this. The Federal Government should not be saving money because the States cannot do the things they need to do. What we need to do is give the States more leeway on serving their people in that particular State without assuming that we here in Washington have all the answers.

Quite frankly, we would be better off working together to see what could be saved, and save State dollars in an intelligent, rational way, and, at the same time, save Federal dollars in an intelligent, rational way, rather than making States do it in a crisis environment, which ends up saving us money at the Federal level. That is why it is necessary that we work together with the States to save this money. But you can also set up a commission that would make long-term suggestions on the change.

Now, I know that curtailing services for this class of people helped by Medicaid is not a scenario that Senators SMITH and BINGAMAN want to see unfold.

First, the Medicaid drug payment system is in significant need of reform. The average wholesale price system clearly overpays for drugs. Just as we took the average wholesale price out of Medicare in the Medicare bill 2 years ago, it seems to me we can and must change this payment system in Medicaid.

AWP, average wholesale price, is a flawed system, and we all know it. AWP is more known today as ``Ain't What's Paid,'' instead of what it really meant to say, ``Average Wholesale Price.''

Capturing savings by making this commonsense improvement is not inconsistent with a commission. While there is much that we can learn from a commission, we do not need a commission to tell us that the average wholesale price system of paying for drugs is flawed.

A recent General Accounting Office study showed that the best price system is also significantly flawed. If States are not getting the best price, it costs both the Federal Government and the State governments.

There is another Medicaid problem that we know about, and that is a proposal to crack down on the schemes that are currently legal whereby seniors divest themselves of their assets in order to qualify for Medicaid.

Mr. President, there is a virtual cottage industry that instructs seniors on how to give away their homes, properties, cars, and other assets in order for them to qualify for Medicaid. Surely, no one would agree this is in the best interest of the Medicaid Program, and surely you don't need a commission to tell us this.

The President has rightly put on the table new regulations that will govern asset transfers that allow a senior to go on Medicaid for long-term care. This commonsense proposal, as well, is not one that we need a commission to make and could ultimately save dollars so States can continue to spend the money on those who cannot afford care, as opposed to spending money on people who can afford care. This would be serving the elderly and the persons with disabilities who are very low income.

While the change the President is suggesting is simple, we must, in addition, continue to discuss the proper role of Medicaid and long-term care. The commission Senators SMITH and BINGAMAN are proposing would be very useful in that context. However, we should not let the perfect be the enemy of the good. There are things we can do this year to make improvements in the Medicaid Program, and we should do that.

We should eliminate wasteful practices and we should help States get the flexibility they need to better manage their programs, saving both Federal and State dollars.

We know Medicaid's share of State budgets is growing at an unsustainable rate. Medicaid spending is growing so fast that it is beginning to rival education as a cost in some States.

If we take no action this year, we will continue to put States in the position of having to choose between supporting education and providing services to vulnerable populations.

I am going to continue to work with Secretary Leavitt. He has been working with a bipartisan group of Governors to identify areas of agreement for making changes in Medicaid.

I will commit the Finance Committee to a bipartisan process, where we keep in mind principles that guide us in producing better Medicaid. The Finance Committee will look at proposals that produce shared savings for the Federal Government and our State funding partners. The Finance Committee will look at proposals that emphasize State flexibility through voluntary options for States. The Finance Committee will do this while making a commitment not to eliminate coverage for Medicaid beneficiaries.

But I cannot be more adamant that doing nothing has negative consequences. If we don't eliminate wasteful practices, if we don't provide States the necessary flexibility--and that is something the Governors are asking for--and if we don't provide States relief, they are simply going to do what they have to do: cut people off the rolls in order to balance their budgets.

Doing nothing is far worse for Medicaid beneficiaries than a rational, reasoned approach to protecting and strengthening the program.

While I appreciate the intent of my colleagues, I must oppose the Smith-Bingaman amendment, and I urge my colleagues to oppose it as well.

BREAK IN TRANSCRIPT

Mr. GRASSLEY. I yield myself such time as I might consume.

Mr. President, some on the other side on several different occasions have trotted out several multiple arguments against the tax relief reconciliation instructions to the Finance Committee that I chair. Now, I am not going to get into any debate over whether budget reconciliation can, in fact, be used for tax legislation because there has been plenty of precedent established over the years in the Senate, whether the Senate has been controlled by Republicans or controlled by Democrats.

As an aside, though, I find it intriguing to consider the views of some on the other side feeling so strongly, as they have indicated, that partisan tax increases such as the 1993 tax hike legislation should enjoy expedited reconciliation process, and somehow our using that this year is wrong. They care not a whit about raising $1 trillion in taxes as was done in the 1993 tax bill on a party-line vote under the process that is called reconciliation, but talk about bipartisan tax relief in reconciliation and somehow they get very irate.

It seems to be a big double standard, so I come to the floor not to debate these points. Rather, I want to tell you why we should have a reconciled tax relief package.

Let's look back just to the last Congress as a precedent. In that Congress, late in an election year, we passed a couple of tax relief proposals that were allegedly supported on both sides of the aisle. With an election facing them, many on the other side reluctantly supported extension of the family tax relief proposals. Keep in mind that conference vehicle was opened a year earlier--a year earlier. You would think something that passed just before the election should have been considered over the course of a year, but it was not. You would think it would be simple, by how it finally passed, but there were obstacles put in the path of it all the time.

We were not as lucky when we took up the FSC/ETI legislation. That bill was drawn up in a bipartisan way by Senator Baucus and this Senator. The bill came out of the Finance Committee with only two dissenting votes, and those dissenting votes were Republican votes. Despite the bipartisan support, it actually took two cloture votes and the threat of a third cloture vote to break a Democrat filibuster on a tax relief bill Democrats claimed to support.

I have a chart behind me that represents goalposts on a football field. Tax relief bills have a way of becoming political footballs. We brought up the FSC/ETI legislation on March 3, 2004, and did not complete it until May 11, more than 2 months later, the same year. That is over 2 months to do a tax relief bill that had unanimous support from Democrats on my committee. Members, sometimes for partisan reasons, sometimes for other reasons, decide to filibuster by amendment or other tactics.

Now referring to another bill, referring to the charitable tax relief bill that we call the CARE Act, let me point out that we were unable to go to conference because of Democratic leadership objections over the years 2003 and 2004. Also, do not forget that we were unable to get energy tax relief because of a filibustered conference report.

So what happens? Reconciliation creates an opportunity for certainty. Reconciliation, obviously, is not my first choice. Reconciliation prevents must-do tax legislation from becoming political footballs, as you see the goalposts move from time to time. In this case, I had hoped that those who say they want to address issues such as alternative minimum tax hold harmless would not filibuster. If you say you care about expiring provisions that are going to expire this year, such as the college tuition deduction, you should care about reconciliation--if you want to get that done. It will be tough enough to address expiring tax relief provisions. There is demand for revenue of about $90 to $100 billion in this budget, and tax relief numbers of $70 billion. That means I have to find offsets for about a fourth of that, of $20 billion to $30 billion over 5 years, just to keep taxpayers where they are now. Not more tax relief--stopping existing tax policy from ending and having automatic increases in taxes. That will be tough enough without political football tactics of filibusters by amendment or otherwise, as we saw over the course of last year, that I am just using for an example.

But it is a lesson to be learned--to have a process in place where people who say they are for tax relief cannot say they are for tax relief and then stall the process forever and ever. Necessarily, I have to have a reconciliation option in this Finance Committee playbook. I appreciate the Budget Committee's efforts of providing that option. I urge my colleagues to retain that option. Otherwise you are not being realistic when you tell the folks back home that you support extending these tax relief provisions.

In other words, I would like to have us avoid the environment where people can say they are for something but then stall for 2 months to finally get it done, moving the football goalposts down the field. What reconciliation does is it gives us an opportunity to get done what people say they want done.

There are a lot of tax provisions that have to be worked on this year that have almost unanimous support. People can say they are for them but put roadblocks in the way, or move the goalposts to keep them from happening. Reconciliation is going to protect us from that sort of activity.

I yield the floor and reserve the remainder of my time.

BREAK IN TRANSCRIPT

Mr. GRASSLEY. Mr. President, the amendment by the Senator from Maine and the Senator from Oregon about the noninterference clause will not result in savings, and it is going to undermine a drug benefit that is not even up and running yet. I don't know how you can propose changes in legislation that effectively doesn't get started until January 1, 2006. How do you know things are not going to work until you have had some experience with it?

I have urged everybody to hold off on changing anything in the prescription drug bill until you actually see it functioning. It seems to me to be very difficult to work on a piece of legislation like this and try to change it before it has been operational.

First and foremost, let me be clear about something again. The Medication Modernization Act does not prohibit negotiations with drug companies. That could not be further from the truth. In fact, it requires the Medicare plans to negotiate with drugmakers for better prices. These negotiations are at the heart of the new Medicare drug benefit plan.

The absurd claim that the Government will not be negotiating with drugmakers comes from a noninterference clause in the Medicare law. This noninterference clause does not prohibit Medicare from negotiating with drugmakers. It prohibits otherwise the CMS from interfering with those negotiations that are provided for.

Let me be clear, the noninterference clause is at the heart of the bill's structure for delivering prescription drug coverage. This clause ensures those savings will result from market competition, rather than through price fixing by the Center for Medicaid Services bureaucracy.

Here is what is so funny about what we are discussing today. The same noninterference clause language that we have in the law right now was in the Daschle-Kennedy-Rockefeller bill and the Gephardt-Dingell-Stark bill in 2000. The Daschle bill was in 2002; the Gephardt bill was in the year 2000.

I want to read for you what this says:

In administering the prescription drug benefit program established under this part, the Secretary may not (1) require a particular formulary or institute a price structure for benefits; (2) interfere in any way with the negotiations between private entities and drug manufacturers, and wholesalers; or (3) otherwise interfere with the competitive nature of providing a prescription drug benefit through private entities.

Now, where did that language come from? It comes from the bill introduced by Senator Daschle and cosponsored by 33 Democrats, including Senator Kerry. They all thought their approach, which was incorporated in our legislation passed in 2003, and has now been dubbed by opponents of it, including the sponsors of this amendment, as ``preventing Medicare from negotiating,'' was a fine approach when it was suggested from the other side of the aisle.

In fact, at the time, this is what Senator Daschle had to say.

Our plan gives seniors the bargaining power that comes with numbers. ..... Our plan mirrors the best practices used in the private sector. For beneficiaries in traditional Medicare, prescription drug coverage would be delivered by private entities that negotiate prices with drug manufacturers. This is the same mechanism used by private insurers.

Just for the record, opponents now also have claimed that Republicans insisted on including the so-called ban in the Medicare Modernization Act that somehow we ``pushed through.'' I remind these people--and they are here right now--that the whole concept was developed by Democrats.

The Congressional Budget Office has concluded that the market-based approach in the new Medicare law will result in better, higher prescription drug cost management for Medicare than any other approach considered by Congress. That is the green eyeshade people in the Congressional Budget Office.

BREAK IN TRANSCRIPT

Mr. GRASSLEY. Okay. I quoted the Congressional Budget Office. Here is what the Congressional Budget Office said about eliminating the noninterference clause in a letter just last year:

The Secretary would not be able to negotiate prices that further reduce Federal spending to a significant degree.

The letter went on to say:

CBO estimates that substantial savings will be obtained by the private plans.

That is the way we wrote this bill and what the Senator is trying to change.

Now, we also have an analysis from the Chief Actuary for the Medicare Program. The Chief Actuary is required by law to provide independent actuarial analysis on Medicare issues. The Chief Actuary's report states the view that the Medicare prescription drug plans will achieve average cost reductions of 15 percent initially, and that these cost reductions will rise to 25 percent over 5 years.

The Chief Actuary has concluded that he does not ``believe that the current administration or future ones would be willing and able to impose price concessions that significantly exceed those that can be achieved in a competitive market.''

In fact, more astonishing, the Chief Actuary points out that if Medicare establishes drug price levels, it will reduce competition, not increase it. Their report states:

Establishment of drug price levels for Medicare by the Federal Government would eliminate the largest factor that prescription drug plans could otherwise use to compete against each other.

Further, their report points out that the past experience in the Medicare Program does not give one much, if any, confidence that Medicare will do a good job in setting prices. Far from it. As confirmed by the Actuary's report, prior to the enactment of the prescription drug bill, drugs in Part B ``were reimbursed at rates that, in many instances, were substantially greater than prevailing price levels.'' So Medicare does not have a very good track record when it comes to price negotiations.

So let me be clear: Direct Government negotiations is not the answer. The Government does not negotiate drug prices. The Government sets prices, and it does not do a very good job at that.

The bill's entire approach is to give seniors the best deal through vigorous market competition, not price controls. Again, a quote from Senator Daschle when he outlined the principles of his Medicare prescription drug benefit:

Fifth, we should take a lesson from the best private insurance companies: Cost-savings should be achieved through competition, not regulation or price controls.

Even The Washington Post editorial page wrote on February 17, 2004:

Governments are notoriously bad at setting prices, and the U.S. Government is notoriously bad at setting prices in the medical realm.

The Congressional Budget Office said that such a proposal ``could generate no savings or even increase Federal costs.''

So we did not rely on Government price-fixing but instead created a new drug benefit that relies on strong market competition, an approach relied upon by the MEND Act as introduced by Senator Daschle and cosponsored by 33 Democrats.

The new Medicare drug benefit creates consumer choices among competing, at-risk private plans. The Medicare plans will leverage the buying power of millions of beneficiaries to lower drug prices. I urge my colleagues to oppose efforts to repeal the noninterference clause and oppose efforts to get the Government involved in setting drug prices. It is a prescription for higher costs and undermining the competitive market in the Medicare bill that will result in lower drug costs. Let us not interfere with that with some sort of attempt to strike the so-called noninterference clause.

I yield the floor.

http://thomas.loc.gov/