Federal Budgets and Revenue Update

February 4, 2005
Volume 11, Number 2

An Information Service of the NCSL Budgets and Revenue Committee

CBO SAYS MANDATORY HEALTH SPENDING ON UNSUSTAINABLE COURSE

Congressional Budget Office Director Douglas Holtz-Eakin testified before the Senate Budget Committee on February 2. Director Holtz-Eakin reported that the federal government is currently facing a projected budget deficit of $368 billion in 2005, excluding costs for U.S. military operations in Iraq. He also noted that health care costs for baby boomers and the elderly are projected to rise over the next 10 years and beyond, claiming an even larger share of mandatory spending for Medicaid, Medicare and Social Security, and making current fiscal policy what he termed “unsustainable.”

WHITE HOUSE SEEKS MORE FUNDING FOR MIDDLE EAST OPERATIONS

On February 1, President Bush asked for an additional $80 billion in funding for operations in Iraq and Afghanistan. This amount would drive war spending since the September 11^th attacks passed $300 billion, according to CBO, and drive this year’s projected deficit to $427 billion, according to a senior administration official. The White House anticipates that it can halve the budget deficit by 2009, despite the new spending. The President is set to unveil this budget request for fiscal year 2006 on February 7.

LEAVITT GIVES SPEECH ON MEDICAID REFORM PROPOSALS

On February 1, Health and Human Services Secretary Mike Leavitt gave a speech during which he outlined some of the Administration’s FY 2006 budget proposals for Medicaid. The Administration proposes to reduce federal Medicaid expenditures by at least $60 billion over 10 years. This would be accomplished by:

Prohibiting/reducing the use of “financial loopholes,” such as intergovernmental transfers ($40 billion in savings over 10 years);
Changing the basis for drug purchases under Medicaid from “average wholesale price” to “average sale price.” ($15 billion in savings over 10 years)
Addressing the “transfer of assets” issue where individuals divest income and assets to qualify for Medicaid, typically for nursing home care. ($4.5 billion in savings over 10 years).

Secretary Leavitt said the Administration would not propose a block grant or cap spending for mandatory Medicaid beneficiaries.

TREASURY ANNOUNCES ADDITIONAL FUNDING FOR IRS ENFORCEMENT

The Treasury Department announced on February 1 that the President’s FY2006 budget request will include additional funds to crack down on tax evasion. “The vast majority of Americans pay their taxes,” Treasury Secretary John Snow stated. “The IRS is committed to striking a balance between catching those who would avoid paying and providing excellent service to all taxpayers," Snow continued. The request for an additional $500 million in enforcement activities represents an additional 7.8% over funding provided in FY2005. The increase will provide additional resources to examine more tax returns, collect past due taxes and investigate cases of tax avoidance.

SPRING FORUM AROUND THE CORNER; BRING YOUR MIT

Baseball returns to the nation’s capitol this spring, along with the return of NCSL’s Spring Forum. The Spring Forum is scheduled for April 14-16, 2005. Come learn about what to expect from the new Congress and new Cabinet heads. The Forum’s website is http://www.ncsl.org/forum/. The deadline for registration is MARCH 31, 2005. Don’t delay!

For more information contact NCSL staff: Molly Stauffer, Nick Steidel.