ELECTION 2008

ISSUE: The U.S. is on a dangerous fiscal path. The total federal debt has increased from $5.6 trillion at the end of FY 2000 to more than $9.4 trillion in FY 2008.

In January 2008, the Congressional Budget Office reported to Congress that "the United States continues to face severe long-term budgetary challenges....Ongoing increases in health care costs, along with the aging of the population, are expected to put substantial pressure on the budget in coming decades....Economic growth alone will be insufficient to alleviate that pressure, as Medicare and Medicaid and, to a lesser extent, Social Security require ever greater resources under current law."

In 2007, U.S. Comptroller General David Walker told the Senate Budget Committee that "our current financial condition is worse than advertised. Our long-term fiscal outlook is both imprudent and unsustainable....Long-term fiscal simulations by GAO, CBO and others all show that we face large and growing structural deficits driven by rising health care costs and known demographic trends."

In 2007, Fed Chairman Ben Bernanke delivered a similar warning to the Senate Budget Committee, observing that because of rising entitlement costs a "vicious cycle may develop in which large deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits....Ultimately, this expansion of debt would spark a fiscal crisis....[T]he effect on the U.S. economy would be severe."

Major Candidates' Positions (in alphabetical order):

Hillary Clinton: Senator Clinton has called for "returning to fiscal responsibility and moving towards balanced budgets," and developing "a set of budget rules similar to those we had in the 90s which required us to fund new expenditures with new revenues or cuts in other areas."

To address rising Medicare costs, Senator Clinton proposes to “eliminate the prohibition in federal law that prohibits the Secretary of HHS from negotiating prescription drug prices in Medicare” and “reduce overpayments to private managed care plans.”  In order to reduce the overall rise in health care costs, Clinton proposes: a “national prevention initiative,”’ a new “paperless health information technology system,” “transform(ing) care of today’s chronically ill population,” “end(ing) insurance discrimination to help reduce administrative costs,”“creation of an "independent Best Practices Institute,” “smart purchasing initiatives,” and “common-sense medical malpractice” reform.

On Social Security, Clinton pledges "to shore up the solvency of Social Security while protecting the life-long, inflation protected defined benefit of Social Security." Senator Clinton opposes the Obama proposal (below) to increase the amount of income subject to Social Security payroll taxes as a means of covering the impending shortfall. [WBR Background: The amount of income currently subject to Social Security payroll taxes is $102,000. Social Security will begin to pay out more than it takes in by 2017.]

John McCain: Senator McCain voted against President Bush's 2001 and 2003 tax cuts, but now pledges to "make the Bush income and investment tax cuts permanent."

Regarding the growth of entitlements, McCain’s website says that he “has proposed comprehensive health care reforms that will reduce the growth in Medicare spending” and on Social Security “believes that we may meet our obligations to the retirees of today and the future without raising taxes."

McCain pledges to " veto every pork-laden spending bill and...will seek the line-item veto to reduce waste and eliminate earmarks that...restrict America's ability to address genuine national priorities."

[WBR Background: The Congressional Budget Office estimated in January 2008 that extending the 2001 and 2003 tax cuts would result in revenue losses of "about $3.4 trillion from 2008 through 2018." (CBO, Budget and Economic Outlook, January 2008, p. 99.) FY 2008 earmarks constitute less than one-half of one percent of Federal spending, less than $15 billion, as compared to the projected FY 2008 deficit of $410 billion (President's Budget, Table S-8). Regarding use of the line item veto, in 1998 the United States Supreme Court struck down the Line Item Veto Act of 1996 as unconstitutional.]

Barack Obama: Senator Obama “believes that a critical step in restoring fiscal discipline is enforcing pay-as-you-go (PAYGO) budgeting rules which require new spending commitments or tax changes to be paid for by cuts to other programs or new revenue.”

Regarding Medicare, Obama pledges to "reduce waste in the Medicare system, including eliminating subsidies to the private insurance Medicare Advantage program, and tackle fundamental health care reform to improve the quality and efficiency of our healthcare system." He "supports closing the 'doughnut hole' in the Medicare Part D prescription drug program."

Regarding Social Security, Obama “believes that the first place to look for ways to strengthen Social Security is the payroll tax system. Currently, the Social Security payroll tax applies to only the first $97,500 a worker makes [as of 2007]. Obama supports increasing the maximum amount of earnings covered by Social Security and he will work with Congress and the American people to choose a payroll tax reform package that will keep Social Security solvent for at least the next half century.” He opposes raising the retirement age. [WBR Background: In 2008, the amount of income subject to Social Security payroll taxes is $102,000.]