The House Ways and Means Committee quickly turned down President Bush's proposals to trim Medicare costs by $5 billion and halve the capital gains tax rate.
The panel, which has jurisdiction over tax and entitlement legislation, on Thursday approved a report by voice vote which said it has no intention of approving either of those requests from the new president."While the committee will work diligently in this area, it is not reasonable to expect providers or beneficiaries to absorb the level of reductions proposed by the administration in the Medicare program for fiscal year 1990," the committee report said.
The report did not mention the capital gains tax directly, but nonetheless made clear the committee backed the position of Chairman Dan Rostenkowski, D-Ill., that Bush's proposal would violate the spirit of fairness in the income tax overhaul Congress approved in 1986.
"While it may be appropriate for the committee to examine selective income tax issues in the 101st Congress, the committee does not anticipate consideration of major income tax changes or re-opening of any fundamental feature of the 1986 Tax Reform Act," Thursday's report said.
Bush has proposed cutting the tax rate on capital gains about in half, to 15 percent, contending the government would actually take in more money at the lower rate because of increased economic activity.
Democrats and many economists say the proposal would be a revenue loser and a giveaway to the rich.
Congressional analysts released a new estimate Thursday showing that after an initial jump in revenue next year, cutting the capital gains tax would reduce tax collections and cost the government $24.2 billion over the next six years.
"After an initial, and illusory, revenue gain, the president's proposal is shown for what it is, a tax break for the wealthy that will significantly increase the deficit," said Rostenkowski, in a statement calling for Bush to withdraw the proposal. "It's a bad idea and should be discarded," he said.
The administration and Congress agree the cost of Medicare has been soaring as the elderly population increases and medical fees grow faster than the general rate of inflation. Without restraints, the program would grow from $84.5 billion this year to $97.5 billion next year, according to White House estimates.
In an effort to contain costs, Bush in his $1.16 trillion budget proposed holding Medicare spending to $92.5 billion next year by imposing limits on payments to hospitals and doctors who treat Medicare patients, and by cutting back the program's extra payments to teaching hospitals.
"If these modest reforms are adopted, the growth in Medicare payments between 1989 and 1990 will be reduced by $5 billion," the budget said.
The committee, however, said it was not reasonable to expect either providers or recipients of Medicare to absorb the level of reductions proposed by the president, totalling $23.5 billion over three years.