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As Congress gets to work on President Clinton's fiscal 2001 budget, Office of Management & Budget director Jack Lew met with BW Senior Correspondent Howard Gleckman to discuss Social Security, Medicare, and taxes. In response to broad congressional support for a new prescription-drug benefit, Lew said the White House wants to link such a payment to structural reforms in the Medicare program. And he insisted that a big GOP tax cut would not leave enough room for domestic spending and Social Security. Here are edited excerpts from their conversation:
Q: The Congressional Budget Office says Congress would have to freeze all non-Social Security spending at today's levels to produce the $1.8 trillion surplus. Is that realistic?
A: If we are going to increase defense spending just to our proposed levels, a freeze means reducing everything else by 9% in 2001, by 25% in 2005, and by 40%-plus in 2010. It is just not realistic.
And Congress may well add to our defense numbers. That makes it even worse. [High surplus estimates are] creating the sense that it is easier to spend money than it really is. And that's an invitation to bigger spending and tax cuts.
We ought to have this debate up front. It ought to be a debate where everything is on the level.
Q: You have proposed reforming Medicare by increasing competition for fee-for-service care, by pumping general revenues into the trust fund to make it more solvent, and by creating a new prescription-drug benefit. Will [the White House] accept the drug benefit without the structural reforms?
A: There has to be some balance to it. Hopefully, we can get prescription drugs as part of a balanced package.
You need to add general revenues, you need to modernize benefits. But I have real concerns with reforms that create economic pressure to leave traditional Medicare. We ought to give reform a chance without creating a system where it is just too expensive to keep what we have today.
Q: You are also proposing to use general revenues to shore up the Social Security trust fund. Why do that without also pushing for structural reforms?
A: Finding the right balance between tax cuts, Social Security, and debt reduction is the key. What happens if the [budget] surplus is allocated for other purposes -- tax cuts or new spending -- and then you come to Social Security? Would we be better off if we've stacked up a bunch of new commitments and then we ask the question: "Should we use general revenues to extend the solvency [of Social Security]?" If the surplus is dissipated, it will make it more difficult to pay benefits.
We've tried to accelerate the process of debating Social Security. The President has put forward a financing approach and offered to work together on reform. We remain open to the idea, though we understand it is difficult this year.
Q: Are you saying it won’t be necessary to raise Social Security payroll taxes or cut benefits in the long run?
A: It is not realistic to say we're going to get to 75-year solvency without using a portion of the surplus.
If we can get to solvency for 50 years through reforming the financing of the program, it would greatly ease the rest of the process. Social Security is a social contract where there is an understanding that there would be changes only in very special and unusual circumstances. The presumption should be that we pay the benefits that have been earned.
If one wants to have tax cuts at the expense of paying for Social Security benefits, that's an argument that government should shrink. I don't think the people who argue most forcefully against our proposal want to take the dollars and spend them on research or defense or other purposes, they just want less government.
Q: Under your plan, more than half of all noninterest spending would go to retirement programs. Will so much government spending be allocated for Social Security and Medicare that there won't be enough for other priorities, such as children's health or education?
A: If you assume unrealistic freezes, that's a very legitimate point. But if you assume growth roughly at the rate of inflation, is that enough to take on new challenges?
We ought to be making trade-offs. We haven't proposed that we go on autopilot, where everything just grows. To those who worry that existing programs will be squeezed out, [the way] we frame the debate over fiscal policy that will very much shape what we can do. It is a false choice to say it is Social Security and Medicare that are creating the problem. Going out 20 years, there are issues that need to be addressed. But if you had the tax policy that Congress tried to pass last year, you'd have nothing left for health-care coverage. That has nothing to do with Social Security and Medicare.
EDITED BY PAUL JUDGE
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