Bush wants to means-test middle-class benefits

Bush wants to means-test middle-class benefits
By Caroline Daniel and Krishna Guha in Washington
Copyright The Financial Times Limited 2007
Published: February 5 2007 18:56 | Last updated: February 5 2007 18:56


President George W. Bush presented his $2,900bn budget to Congress on Monday, setting the stage for a confrontation with Democrats by making greater means-testing for middle-class benefits a central part of his proposals to address entitlement reform.

The budget represents a challenge to parts of the system of entitlements enacted as part of the Great Society agenda of the 1960s, with plans to cut Medicare spending, the main publicly funded health insurance programme for those over 65, by raising premiums for wealthier recipients.

That could save $66bn over five years, according to budget estimates, and up to $9,000bn during the next 75 years, according to some analysts.

Michael Franc, vice-president for government relations at the Heritage Foundation, said Mr Bush had considered means-testing as part of Social Security reform. “Now there is a shift to applying it across the board for all entitlements. The big change concerns the wealthy. Democrats want to tax them more. Republicans say they want to make them pay more for their middle-class benefits and shoulder more of the burden.”

The progressive tilt was also underlined, Mr Franc said, by Mr Bush’s recent proposals to extend healthcare insurance by limiting large tax deductions for some employer-funded schemes, and his plans to cap the amount of farm subsidies granted to a single entity.

The budget underscored Mr Bush’s political priorities for his final two years, with proposals to aggressively fund defence, the Iraq war, homeland security and US diplomatic operations generously. According to budget forecasts, the deficit will decline from 1.8 per cent in fiscal 2007 to 1.6 per cent in fiscal 2008, before declining further to turn into a surplus of 0.3 per cent of gross domestic product in 2012.

Democrats, however, expressed doubts about the budget, with one committee chairman dismissing the rise in defence spending to a record $481bn, as “staggering”, while others questioned the political viability of the entitlement cuts. John Spratt, chairman of the House budget committee, said: “I doubt that Democrats will support this budget,” while Max Baucus, chairman of the Senate Finance Committee, said the proposed Medicare cuts “are more than the president has asked from any previous Congress during his administration”.

In addition to the proposals to increase means-testing in Medicare and other plans intended to slow the growth in entitlement spending in the long term, the budget set out to demonstrate it is possible to eliminate the federal deficit by 2012 while making the Bush tax cuts permanent. Energy policy was also confirmed as an important legacy issue in the budget with plans to encourage more aggressive use of renewable fuels.

Grover Norquist, president of Americans for Tax Reform, welcomed Mr Bush’s focus on fiscal conservatism.

“Balancing the budget by 2012 and making the tax cuts permanent is important, but more important is that by 2012 the share of GDP the government spends is set to fall from 20.3 per cent to 18.3 per cent.”