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Tobacco Revenue Drives Debate As GOP Champions Medicare

By Andrew Taylor, CQ Staff Writer

The first official Republican response to President Clinton's poll-tested plans for new spending is a cautious fiscal 1999 budget blueprint that hews closely to last year's budget accord.

The Senate Budget Committee approved the draft budget resolution March 18 in a 12-10 party-line vote after a two-day debate that focused mostly on a fight over how to spend tobacco-related revenue that may never materialize.

The panel's action did little to clarify the ultimate outcome of this year's budget debate. Congressional Republicans and the administration continue to talk past each other.

And before negotiating with the White House, Republicans must agree among themselves. There is no sign of that. Instead, Republicans remain severely divided over tax cuts and what to do with any new tobacco revenue. Many senior Republicans have floated trial balloons, but no consensus has emerged on which ones will stay aloft.

About the only thing both sides can agree on is that the tight budget "caps" on appropriated spending are sacrosanct. Still, much of the energy of both the White House and Republicans has been directed toward finding ways to spend more than the caps allow. They would do this by using, to an unprecedented degree, savings from mandatory programs to finance more discretionary appropriations.

The Senate Republican plan ignored Clinton priorities such as new spending programs for child care, education and health. In his Feb. 2 budget submission, Clinton proposed financing a raft of initiatives with $66 billion in new revenues that would flow from a settlement of lawsuits between the major tobacco companies and the states.

Republicans moved to parry Clinton's plans to use tobacco money to finance new domestic spending without breaking the appropriations caps. They forged a political link between the tobacco revenue and the popular Medicare program, proposing to deposit any tobacco-related revenues into the Medicare trust fund that pays hospital bills.

GOP Senate leaders cast the maneuver as vital to saving financially troubled Medicare, the federal health insurance program for the elderly. But even some panel Republicans all but acknowledged that the real purpose of the move was to provide a politically potent counter to Clinton's popular spending plans -- just as he had stymied Republican plans for tax cuts with his call to "save Social Security first."

Said GOP Sen. Phil Gramm of Texas: "People understood the president when he said 'save Social Security first.' I think they will understand when we say, 'save Medicare first.' "

Sen. Budget Committee Chairman Pete V. Domenici, R-N.M., perhaps resorting to hyperbole, claimed that directing the tobacco money to any purpose besides Medicare "hastens the demise" of the program. But Republicans are split on the issue. House Speaker Newt Gingrich, R-Ga., has said he wants to devote the tobacco money to tax cuts.

Sen. Richard J. Durbin, D-Ill., said: "Sen. Domenici has trumped us politically by saying 'save Medicare first,' just as we trumped Republicans by saying let's save Social Security with the surplus. So we're kind of at a standoff in terms of strategy."

Set against the backdrop of a $1.7 trillion budget, the amount of money provoking the quarrel is relatively modest. The Congressional Budget Office estimates that the Clinton budget would increase spending by $118 billion over five years and break the 1999 budget cap by $12 billion.

But in this election-year climate, the White House is also seeking political gain from the debate. Clinton is spoiling for a fight. On the day that the Budget Committee wrapped up work, Clinton trumpeted his plans for federal grants to help schools reduce class size and his efforts to promote child care and to permit uninsured senior citizens to buy into Medicare. At the same time, he attacked the Republicanblueprint.

"These are very important things," Clinton said of his initiatives. "We can afford to do these things. But there are some troubling signals coming out of Washington that the Republican budget may not embody this commitment to education and our future."

The modest blueprint apparently was not a universal hit among Senate Republicans. Junior panel member Rod Grams, R-Minn., sharply criticized the Domenici draft as permitting too much government and not enough in tax cuts. He voted for the plan only reluctantly: "I've got a 'no' vote in my pocket, but I'm not going to use it tonight," he said.

Non-Binding Recommendations

In a year in which the Senate is not planning on a budget reconciliation bill to write new tax and spending policy into law, passing the annual budget resolution is largely a procedural exercise. (The panel measure includes no reconciliation instructions.) Other than the yearly lump sum allocation to the Appropriations committees, which control one-third of the budget, the spending recommendations are non-binding. Domenici's blueprint puts the appropriations totals at levels set by last year's omnibus spending cut bill (PL 105-33). The fiscal 1999 discretionary spending handed out by appropriators would total $561 billion in outlays. Of that, defense would receive $267 billion, $2.6 billion less than in fiscal 1998. Domestic programs would get $295 billion, a $6.2 billion increase.

The other substantive provision in the GOP plan would build room under the budget caps to provide $18.5 billion in additional outlays for highway construction over five years without raiding other discretionary programs to finance the increase. The resolution would permit the Appropriations Committee to use $19 billion in offsets from the mandatory side of the federal ledger to pay for the new highway spending, which is included in the just-passed $214 billion reauthorization (S1173) of highway and mass transit programs. Such mandatory offsets are often claimed by appropriators to finance discretionary spending, but never to the degree anticipated this year.

The Budget Committee markup did little to signal the outcome of GOP senators' clash with Clinton. If Republicans do not pass a reconciliation bill -- the House wants to, the Senate does not -- the battle will probably play out over the summer as Congress advances the 13 annual appropriations bills. The bipartisan atmosphere that permeated last year's appropriations cycle is expected to evaporate as Republicans deny funding for many Clinton initiatives. The White House strategy is to extract end-of-session concessions as a condition of signing appropriations bills and allowing Republicans to go home to campaign.

"The absolute fencing of tobacco [revenue] for only one purpose . . . makes it much more difficult to accomplish the ends of the appropriations bills through other means," said top White House lobbyist Lawrence Stein. "It closes down the range of options and in so doing bodes ill for an early departure this year."

Tobacco Battles

Much of the March 17-18 markup involved lengthy and repetitious debate over tobacco issues.

Democrats accused Domenici of virtually killing prospects for legislation to implement the tobacco settlement. They want to claim the revenue for anti-smoking programs and health research. By placing procedural roadblocks in front of any effort to devote tobacco revenue for anything other than Medicare, the budget would remove incentives for those trying to pass legislation, Democrats said. Under the terms of the resolution, any attempt to spend new tobacco-related revenue for non-Medicare-related programs would be subject to a point of order that would require 60 votes to waive.

"Every major tobacco bill introduced in the Congress and the proposed resolution between state attorneys general and the tobacco industry last June included new funding for these initiatives," said Kent Conrad of North Dakota, the Democrats' point man on tobacco legislation. Under the GOP budget resolution, he said, "none of these bills could be brought to the Senate floor without facing a budget point of order. Not one."

Domenici countered with a Columbia University study that estimated that 14 percent of Medicare costs are due to tobacco-related illnesses and said that Medicare should claim the tobacco money instead of new Washington-based social programs.

And Republicans said Democrats were making too much of the 60-vote barrier to devoting tobacco proceeds for purposes other than Medicare. Any tobacco bill that passes will have to be bipartisan enough to garner 60 votes anyway, said Majority Whip Don Nickles, R-Okla. Republicans said it was silly to fight over tobacco-related revenue when the tobacco bill may not be enacted.

"I'm not going to pull up a [tobacco] bill on the floor . . . unless it has pretty strong support and a bunch of Dems. And I don't see it," Nickles said.

The panel approved, on a bipartisan 14-8 vote, a non-binding sense of the Senate amendment offered by top committee Democrat Frank R. Lautenberg of New Jersey that "comprehensive tobacco legislation should increase the price of each pack of cigarettes sold by at least $1.50" within three years.

Nuts and Bolts

The battles over tobacco overshadowed the discussion of Domenici's draft resolution, which, except for additional highway spending, would rubber stamp last year's balanced-budget and tax laws. The budget anticipates:

Spending. A federal budget totaling $1.73 trillion in fiscal 1999, a 3.6 percent increase from fiscal 1998 levels of $1.67 trillion. Surplus. A surplus of $8 billion in 1999, $1 billion in 2000, $13 billion in 2001, $67 billion in 2002, and $58 billion in 2003. Five year total: $147 billion.

Taxes. No net tax cut, though the plan envisions five-year tax cuts of $30 billion, offset by new tax revenues or reductions in mandatory spending programs. Senate Majority Leader Trent Lott, R-Miss., said he wants that figure to rise to $45 billion, but finding offsetting spending cuts to finance a larger tax cut will prove difficult.

Transportation. Funding for highways would be increased by $25.9 billion in contract authority over five years and $18.5 billion in outlays above levels anticipated in last year's budget agreement. Mass transit would receive $5 billion in additional budget authority but no actual outlays within the five years.

The additional transportation money would be offset by spending cuts that include: reversing a Department of Veterans Affairs policy that would compensate veterans for all smoking-related illnesses, instead of those caused by smoking during their term of service ($10.5 billion over five years); Medicaid and food stamp administrative cost reforms ($1.9 billion and $1.7 billion, respectively); and cuts in social services block grants ($3.1 billion).

© 1998 Congressional Quarterly Inc. All rights reserved.
In CQ News This Week

Saturday March 22, 1998

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