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Deficit Reduction Act of 2005
Federal Spending in Perspective
- In 2005, the federal government spent $2.472 trillion and took in $2.154 trillion, for a deficit of $318 billion.
- In 2005, the federal government spent $21,878 per household.
- Federal spending is up 33% since 2001.
- Spending on entitlement programs (like Medicare, Medicaid, and student loans) accounts for 53% of all program spending. It is projected to almost double over the next 10 years.
What is Budget Reconciliation?
- Budget reconciliation is a process that enables Congress to reform entitlement programs in order to cut spending. Reconciliation language may be included in the annual budget resolution.
- Until the recent passage of the Deficit Reduction Act, reconciliation hadn’t been done since 1997.
Overview of the Deficit Reduction Act (S.1932)
- The Deficit Reduction Act (S.1932) reduces entitlement spending by $38.8 billion over five years.
- Without S.1932, federal entitlement spending would have increased by about 6.4% over the next 5 years. Now that S.1932 has become law, federal entitlement spending will still increase by around 6.3%. That amounts to a reduction in the rate of growth of about 0.1%
- S.1932 was signed into law on February 8 th, 2006.
Major Details of the Deficit Reduction Act (S.1932)
- Pensions
- Raises the premiums that companies pay to the Pension Benefit Guaranty Corporation to insure their pension plans from $19 to $30 per pension plan participant. Also creates a new termination premium of $1,250 per participant to be levied on companies that terminate their pension plans. Pension provisions raise revenue to the federal government of $3.564 over 5 years.
- Student Financial Aid
- Increases borrower interest rate on federal student loans to 6.8%. Also reduces or eliminates several subsidies that benefit lenders. Saves the federal government $22.4 billion over 5 years.
- Increases loan limits for first and second-year students and graduate students. Also phases down origination fees paid by students to 0%. Provides loan forgiveness for math, science, and special education teachers, and deferment for those serving in the military. Costs the federal government an additional $5.935 billion over 5 years.
- Creates new grant program for low-income, high-achieving students in their first two years, and low-income, high-achieving students studying in math, science, or foreign language. Costs the federal government an additional $3.744 billion over 5 years.
- Medicare
- Alters federal regulations on therapy caps and inpatient rehabilitation hospitals. Also establishes time limits on rental of medical equipment. Alters reimbursement for some imaging services. Saves the federal government $13.7 billion over 5 years.
- Eliminates the 4.4% physician reimbursement cut scheduled under the Sustainable Growth Rate formula. Reimburses physicians at previous years rates. Costs the federal government an additional $7.3 billion over 5 years.
- Medicaid
- Establishes an upper payment limit for multiple-source drugs, and requires states to collect Medicaid rebates on drugs administered by physicians. Saves the federal government $3.855 billion over 5 years.
- Determines that individuals with home equity above $500,000 (or $750,000 at state option) are ineligible for Medicaid long-term care. Increases the look-back period for improper asset transfers by people seeking to qualify for Medicaid long-term care. Saves the federal government $2.433 billion over 5 years.
- Increases state flexibility in setting Medicaid co-pays and premiums. Gives states the option to provide alternative benefit packages to certain groups of beneficiaries. Saves the federal government $3.18 billion over 5 years.
- Allows states to cover certain disabled children in families with incomes up to 300% poverty. Provides funding for various demonstration projects and grants. Costs the federal government an additional $3.612 billion over 5 years.
- Provides funding for Katrina-related Medicaid coverage. Costs the federal government an additional $2.14 billion over 5 years.
- Telecommunications
- Auctions off spectrum freed-up by the transition to digital television. Raises the federal government’s revenues by $10.0 billion.
- Provides funds for subsidized digital television converter boxes, along with various public safety grants. Costs the federal government an additional $2.627 billion.
- Human Resources and Welfare
- Eliminates federal matching payments to states for spending federal child support incentive payments. Saves the federal government $1.520 billion over 5 years.
- Authorizes an additional $1 billion in child care assistance. Costs the federal government an additional $930 billion over 5 years.
- Limits federal matching funds for state foster care administrative costs. Repeals the Rosales Decision, which required that federal foster care maintenance funding be based on the income of the home from which a child is removed. Saves the federal government an additional $343 million over 5 years.
- Agriculture
- Cancels or curtails various conservation and development programs. Extends the Milk Income Loss Contract [MILC] program. Reduces some farm subsidy payments. Saves the federal government $2.709 billion.
Inglis Position: I supported the Deficit Reduction Act of 2005 as a small ($40 Billion) step toward fiscal responsibility. $40 Billion is a lot of money but it’s a small percentage of what we’re planning to spend over the next five years. From 2006-2010 the federal government is projected to spend $14,307,000,000,000 (that’s $14.37 trillion). The Deficit Reduction Act shaves off $40,000,000,000 (that’s $40 billion). Imagine it as a family budget discussion (by dropping nine of the zeros from both numbers). It’s as though the family were going to spend $14,307 over the next five years. The question is whether the family could find a way to save $40 over the next five years. I think we can.
Because reconciliation is a healthy process, I think we should do it at least every other year in Congress. In future packages, I hope that we recognize the contribution (see description above) that college students and their families made to the savings in the $40 Billion 2005 package and that we look elsewhere for savings.
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