The Honorable John Kasich
Chairman
Committee on the Budget
309 Cannon Building
Washington, DC 20515

Dear Mr. Chairman:

As required by Section 301(d) of the Congressional Budget Act of 1974, this letter transmits the views and estimates of the Committee on Ways and Means on those aspects of the Federal budget for the fiscal year 2000 which fall within the Committee's jurisdiction.

With the enactment in 1997 of the Balanced Budget Act and the Taxpayer Relief Act, the Congress and the President sought to end eras of federal government deficits and insure long-term economic growth. The economic and budgetary results of recent policies have been remarkable.

The U.S. economy experienced strong GDP growth of 3.7 percent in 1998, capping an eight year period of expansion. Inflation over the past year remained dormant at 1.6%, and is projected to remain low for the foreseeable future. Unemployment is at the lowest level recorded in the post-war period, and interest rates also remain low. Enactment of major welfare reform legislation has returned people to work and led to declines in the welfare rolls to the lowest levels in 30 years.

Total federal revenues exceeded spending in fiscal year 1998 by $70 billion, producing the first unified federal budget surplus in almost 30 years. Estimates from the Congressional Budget Office indicate that the cumulative unified federal budget surplus over the next 10 years will be nearly $2.3 trillion -- $745 billion higher than was projected just last August. According to CBO, the surplus materialized sooner than anticipated because of the sharp increase in revenues relative to GDP. Individual income taxes are responsible for most of the recent increase. The increased surplus projection also assumes extension of discretionary spending controls, begun in 1993. However, legislation enacted since August actually reduced projected surpluses by $51 billion over the 10 year period, largely because of higher projected outlays stemming from enactment of the Omnibus Appropriations Act. The proper use of expected surpluses is now receiving considerable attention. For example, the President has proposed a framework that would use 62% of unified budget surpluses over the next 15 years for Social Security.

A key challenge ahead is to sustain and extend the current economic expansion. A major threat is the continued instability of global markets, most recently evidenced in South America. The federal budget and the major entitlement programs within the jurisdiction of the Committee face looming pressures as a result of long-term demographic changes, most notably the aging of the baby boom generation. In the short term, total taxes and other government receipts are at an historic peacetime high of 20.7% in relation to GDP. The income and payroll tax burden for a select group of middle income taxpayers with children has been offset, in part, by the child tax credit. Addressing the pressures of changing demographics, ensuring continued economic growth into the future, and reducing the overall tax burden remain high priorities for the Committee.

I. Major Legislative Issues with Budgetary Impact

A. Social Security - The Committee will continue to work towards achieving bipartisan solutions to address the long-term solvency of the Social Security program. The Committee began that effort in January 1999 by initiating a series of hearings to examine various issues affecting the well-being of individual recipients and the long-term solvency of the program. This effort will include a review of the President's framework, specific reform proposals, and the experiences of other countries in making reforms to their retirement insurance programs. The Committee also expects to consider legislation to provide real opportunities for Disability Insurance and Supplemental Security Income recipients with disabilities to return to productive and self-sufficient lives.

B. Tax Issues -- The Committee will work to develop additional tax relief measures focusing on promoting continued economic growth and addressing inequities in the tax code. The Committee may also consider time-sensitive tax matters, such as tax provisions that will be expiring in the near future, and other appropriate tax provisions.

The Ways and Means Committee expects to continue examination of fundamental changes to the Federal tax system with the goal of replacing the current income tax (and other Federal taxes) with a new tax system.

At an appropriate time, the Committee would provide the necessary financing mechanism and trust fund provisions required for comprehensive Superfund reform legislation.

II. The Fiscal Year 2000 Budget

The Committee is currently reviewing the President's FY 2000 budget. This process began with a hearing on the President's budget proposals on February 4, 1999, with Treasury Secretary Rubin, and will be continued in subsequent hearings. The President's budget has proposed a net tax increase of $46 billion over the next five years, through a $34 billion increase in tobacco excise taxes, based on OMB and Treasury estimates, and reinstatement of Superfund taxes. The budget also included an additional $19 billion over 5 years from the proposed "recoupment" of a legal claim against a portion of the $246 billion tobacco settlement by the States. The budget also included numerous targeted tax proposals, and a $1.8 billion reduction in Medicare payments over 5 years. Final assessments of the Administration's spending priorities will be completed shortly. At that point, we will be prepared to assist you in developing fiscal priorities for the coming budget year.

III. Other Committee Initiatives

A. Trade -- The Committee supports the expansion of trade opportunities, adherence to trade agreements and rules, and the elimination of trade barriers. Therefore, the Committee supports prompt action on legislation establishing fast-track procedures for implementing new trade agreements. In addition, the Africa Growth and Opportunity Act and CBI enhancement legislation remain priorities. Two existing programs will be subject to renewal. The Generalized System of Preferences program is set to expire on June 30, 1999. The cost of extension through 2000 is approximately $523 million. The Trade Adjustment Assistance program for workers, NAFTA-related Transitional Adjustment Assistance, and Trade Adjustment Assistance for firms, are set to expire on June 30, 1999. The cost of extension through 2000 approximately $46 million.

The goal of the Committee is to expand trade and create the economic base and tax system that American firms and workers need to compete in the global marketplace. At the same time, we also must ensure that our trading partners are playing by the rules of trade and that American firms and workers are protected from unfair competition.

B. Medicare - Medicare reforms in the Balanced Budget Act of 1997 extended the life of the Part A Hospital Insurance Trust Fund until 2010. The Act also created the National Bipartisan Commission on the Future of Medicare, with a reporting date of March, 1999. The Committee awaits the work of the Commission, and will review its recommendations accordingly.

C. Human Resources -- The Committee will be diligent in its oversight of the impacts of the 1996 welfare reform law. This will include the impacts on labor force participation, child poverty, child support enforcement, and the Supplemental Security Income program. A particular focus will be on the adequacy of child protection programs. Any resulting

legislation would be prepared in a budget neutral fashion. Additionally, the Committee expects to review the unemployment insurance (UI) system, including administrative financing of the program.

IV. Public Debt Limit

The current statutory public debt limit is $5.95 trillion, a level that will not be reached until some point beyond fiscal year 2009 under current law CBO projections.

V. Other

In previous years, we have forwarded to the Committee on the Budget a current copy of our Committee print entitled "Background Materials and Data on Programs within the Jurisdiction of the Committee on Ways and Means."

We look forward to working with you and your Committee as we continue to promote those policies that promise to grow the nation's economy and secure a brighter future for all Americans.