America's Fiscal Constitution (53 page)

Clinton let the new House leaders take the initiative in drafting a proposal to balance the budget. Speaker Gingrich seized the opportunity and used value-laden rhetoric to embolden congressional Republicans. He described a balanced budget as “the only thing that gives you the moral imperative to change the whole structure of the welfare state.”
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At a meeting in February 1995, House Republican leaders—including the new chairmen of the Ways and Means and Appropriations Committees—committed to prepare a plan that would balance the unified budget by 2002. House Budget Committee chairman, young John Kasich of Ohio, warned that such a plan would require fundamental changes to Medicare, which enjoyed broad, bipartisan support. Gingrich replied: “You only get the moral authority to truly change things if you’re offering something that is as definitive as balance.”
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Both Kasich and Gingrich would prove to be correct.

The House quickly passed a constitutional amendment to balance the unified budget by 2002.
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When the amendment failed by one vote in the Senate on March 2, 1995, Gingrich announced that he would use the existing constitutional powers of Congress over spending and taxation to balance the unified budget by 2002.

Clinton respected the authority of a balanced budget and acknowledged the need for a credible plan to achieve that goal, although he proposed to do so in ten years rather than Gingrich’s seven. Some White House staff members expressed concern that any definite plan to balance the budget would require substantial reductions in the projected growth of Medicare and Medicaid, since the 1990s budget ceilings had already capped the growth of defense and most other domestic programs. The president insisted, however, that he intended to offer a realistic plan to balance the budget in order to get Americans to “listen to me about progressive programs.”
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Gingrich successfully united Republicans in Congress in support of a single budget plan. He invited Republican House members to a retreat
that featured a discussion of options for balancing the budget, briefings on budget math, shadow votes on hard trade-offs, and coaching from pollsters on how best to describe their plans to reduce the rate of growth in medical programs. Republican members of Congress, however, had not campaigned on a platform to cut Medicare. In light of a 1995 annual report from the Medicare Trustees predicting that hospitalization insurance would exceed its payroll tax revenues by 2002, Republican congressional leaders decided to claim that their plan would “strengthen” Medicare.

Gingrich also proposed to extend the budget ceilings imposed by the Budget Enforcement Act of 1990, which he had voted against. Majority Leader Dole and Budget Committee Chairman Domenici welcomed Gingrich’s embrace of a balanced budget and spending restraint, but they harbored reservations about his commitment to a $500-per-child tax credit pushed by Norquist and a coalition of organizations with religious ties.
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This “pro-family” tax cut would require corresponding cuts in Medicare to balance the budget. Dole found it difficult to publicly oppose a tax credit that had been endorsed by both the Speaker and Senator Phil Gramm of Texas, who was then considered the Kansas senator’s principal rival for the Republican presidential nomination in 1996. As a result, Dole acquiesced to the tax credit and other cuts totaling $245 billion over the seven-year period.
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In order to balance the budget, those tax cuts forced Republican congressional leadership to further reduce planned Medicare and Medicaid spending. The White House responded with a multiyear balanced budget plan containing smaller tax cuts and accordingly smaller cuts in Medicare and Medicaid.

Gingrich’s bold budget plan gained momentum during the summer of 1995. He could count on a solid majority in the House, a bare majority in the Senate, and a president who would not contest the goal of a balanced budget. Because Clinton agreed with the concept of balancing the budget within a fixed period of time, by August 1995 Gingrich asserted that he and Clinton were merely “arguing detail.” Gingrich would soon learn that Americans viewed the trade-off between taxes and medical services as an extraordinarily important detail. In 1995 the old “pay as you go” budget planning principle had forced federal leaders to offer realistic alternatives for bringing federal spending in line with estimated revenues.

Congressional Democrats complained that the president had conceded budget leadership to Gingrich, but Clinton’s genuine commitment
to restoring fiscal discipline commanded respect from some Republicans. Senator Barry Goldwater encouraged Gingrich to work with Clinton: “He’s a Democrat, but I do admire him. I think he is doing a good job.”
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The process for building consensus on top-line budget numbers had distracted congressional committees from the job of writing the specific appropriations required to fund the government during the fiscal year beginning October 1, 1995. Republicans who chaired committees were forced to grapple with harsh choices in order to meet overall budget goals. To cut Medicaid, for example, they had to choose between cutting funds for either assisted living facilities for Americans with severe disabilities or prenatal services for pregnant women. When the new fiscal year began on October 1, Congress had passed only two of the thirteen required appropriations bills. It voted for a six-week extension. During the extension Congress funded the government with a continuing resolution, which maintained funding at the levels of the prior year’s budget. At the end of the six weeks, Congress still had not passed the necessary appropriations bills. House Majority Whip Tom DeLay, who had become an effective enforcer of partisan discipline, stated that if the president vetoed another continuing resolution and shut “the government down, we’ll keep it shut down until the president signs a bill or an agreement in writing about what he will do.”
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The battle between competing plans for balancing the budget focused public attention on the trade-off between taxes and the cost of Medicare and Medicaid. The principal difference between the White House and Republican plans was clear: the Republicans wanted lower taxes and more cuts in medical services. Gingrich expressed his belief that “if [Republicans] solve Medicare,” the party would be able to “govern for a generation.”
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In prior sessions of Congress policy experts had outlined ideas for constraining medical outlays without restricting services or eligibility. Realistic options to do so were limited. For decades federal administrators and private insurers had tried new techniques to limit the rise in medical costs. Even when their efforts made progress, costs still rose as a result of new types of medical treatments and the care of a population that lived longer. Some attempts to cut short-run costs could drive up the cost of services in the long run. For example, pressures to reduce fraud led to expensive
record-keeping and billing systems, while incentives to shift patients with chronic conditions to care outside of hospitals contributed to the explosive growth in home health care.
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As a result, the drive to curb costs inevitably led to a choice between limiting payments to providers or shifting more costs to the beneficiaries. And at some point even those alternatives would affect services, either because low reimbursement rates would discourage physicians from offering services or because beneficiaries could not afford higher costs.

In September 1995 House leadership unveiled the Medicare Preservation Act, which reduced projected Medicare outlays by an estimated 30 percent, or $270 billion, over seven years.
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The bill sought to replace Medicare’s direct reimbursements to physicians with payments to insurers that offered managed care policies to older Americans. Because the bill limited the annual Medicare subsidy (premium support) to an amount that rose less than the estimated future costs of medical services, rising medical expenses would have to be borne through higher premiums and larger beneficiary copays.

In the fall of 1995, Gingrich and Dole attempted to rally conservative support by occasionally departing from their scripted goal of “strengthening” Medicare. In meetings with conservative activists, Dole expressed pride in his vote against the original Medicare legislation, and Gingrich claimed that his plan would let Medicare “wither on the vine.”
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In contrast, the Clinton administration proposed to retain existing Medicare while imposing new limits on the reimbursement rates for various categories of medical services. Medicare beneficiaries could continue to see the doctors they preferred rather than those who participated in a particular managed care plan. While Republicans tried to cap the annual increase in Medicaid grants at 5 percent a year, the Clinton administration proposed ceilings on the annual increase in Medicaid costs per beneficiary. The administration’s plan reduced projected Medicaid costs by $54 billion over seven years, substantially less than the $180 billion called for by the Republican plan.
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Governors in each party objected to the Medicaid limits proposed by Republican congressional leaders.

Gingrich’s options had narrowed. He could not agree to increase spending for medical services without sacrificing either various tax cuts or the commitment to balance the budget by 2002. He told the president that he would use the House’s constitutional power over appropriations
and the statutory debt ceiling to shut down the federal government unless the president refrained from exercising his veto power. Because Congress had not yet passed bills to appropriate spending for the fiscal year beginning on October 1, 1995, in November Congress passed a continuing resolution that Gingrich conditioned on higher premium rates for Medicare Part B.
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On November 13, 1995, the president vetoed that resolution.

The resulting shutdown of many federal activities dominated national headlines. The budget trade-off was framed even more starkly: Republicans wanted to raise Medicare premiums to offset their planned income tax cuts, while Democrats wanted to hold the line on premium increases and reduce taxes by less.
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Public opinion came down on Clinton’s side.

Gingrich tried to shift the debate by claiming that Clinton had refused to talk to him while they traveled to the funeral of Israeli leader Yitzhak Rabin. “It’s petty, but I think it’s human,” he said of the alleged snubbing. “They ask you to get off the plane by the back ramp. . . . Where is their sense of courtesy?”
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These comments seemed particularly petty after the White House released photographs of Clinton and Gingrich talking during the flight.

Despite the tide of public opinion, Congress passed a bill that cut projected Medicare spending by $270 billion and converted Medicaid into a block grant.
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Gingrich called it “the most decisive vote on the direction of the government since 1933.”
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On December 6, 1995, Clinton vetoed the bill using the pen President Johnson had used to sign the original Medicare bill in 1965. He expressed his willingness to sign a bill that balanced the budget in seven years without the Medicare cuts and tax cuts.

Public support for Gingrich’s approach to the budget further diminished after the second federal shutdown, from December 16, 1995, to January 6, 1996. The shutdown ended when Majority Leader Dole took over negotiations for the Republicans and agreed to an unconditional continuing resolution, the extension of the 1990 budget ceilings, and an increase in the debt ceiling. Gingrich vowed to implement the House budget plan one year at a time.

Accounts of the 1995 budget showdown, which strengthened public approval of Clinton’s job performance, often focus on political tactics and style. That type of analysis underestimates the impact of the public’s verdict on the trade-off between taxation and medical services. Gingrich engaged in high-profile debate with Clinton about that trade-off,
and experienced the consequences of defending a minority opinion. The following year Gingrich would ride the power imparted by strong public support when he worked with Clinton, and against many congressional Democrats, to pass a bill ending federal public assistance to many unemployed mothers of dependent children.

In his 1996 State of the Union address, Clinton proclaimed the end of “the era of big government.”
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Later that year he beat Bob Dole decisively in the presidential election, and Democrats picked up seats in both the House and Senate. Perot received 5 percent of the presidential vote, but the impact of his 1992 campaign endured, since leaders of both major parties had embraced his signature issue of a balanced budget.

After the election, Gingrich said he would focus on “four years of incremental achievements” rather than “four years of obstruction while we scream about values.”
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The president told his economic team that he was determined to balance the budget in his second term.

The president, Chief of Staff Erskine Bowles, and Republican congressional leaders including Senator Domenici revived negotiations to balance the budget by fiscal year 2002. Budget math in 1997 again compelled federal leaders to try to address projected growth of Medicare and Medicaid. The White House and congressional Republicans agreed to give Medicare beneficiaries the option—but not the obligation—to participate in managed care plans, or HMOs, which would receive subsidies based on average Medicare reimbursements. Their agreement also curbed the annual growth in payments to doctors and clinics to the level of growth in the economy.