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“A Briefing on the Congressional Outlook”
Summary of Remarks by
Wendell Primus
Senior Economic Adviser to Speaker of the House Nancy Pelosi
March 1, 2007
Dr. Primus spoke on three subjects: Income distribution, the President’s budget, and health policy.
Dr. Primus analyzed income distribution during various time frames: periods of recession, periods of economic expansion, and in the four years before and after welfare reform in 1996. In the periods 1979-1989 and 1989-2000, macroeconomic conditions were similar, but in the first period, the bottom quintile lost ground, whereas in the second period, they gained ground. Still, overall, income inequality rose in the 1980s and 1990s.
The various recessionary periods held different fortunes for people of different incomes. During the 1979-1982 recession, the bottom quintiles lost the most ground, whereas in the 1989-1992 recession, the loss was more evenly distributed. In the most recent recessionary period, 2000-2003, income loss was most prominent among the tails.
The 1989-2000 expansionary period was notable in that children’s poverty declined. This was explained more by the Earned Income Tax Credit (EITC) and low unemployment than by welfare reform.
In light of these trends, some members of Congress were concerned about easing the plight of those in the lower income quintiles. They also had broader economic concerns, such as maintaining fiscal responsibility and curbing growth in interest paid on foreign debt.
The President has also expressed concern about the federal debt and so stated in the most recent budget submission that he would like to see the federal budget balanced by 2012. The Congressional Budget Office has questioned some of the President’s assumptions about balancing the budget. In this context, the Blue Dog Democrats are particularly keen on reinstituting a PAYGO policy.
PAYGO is particularly relevant to health care policy, where, without increased governmental revenue, cuts to health care providers will be necessary. A proposed cut includes a reduction in subsidies to managed care companies, which could reduce the federal budget over five years by sixty billion dollars.
Various stakeholders, from pharmaceutical companies to health care providers, have much at stake in any health care reform. Drug companies could potentially lose a lot of money in health care reform, and more attention will need to be paid to the impact of health care reform on the availability of follow-on biologics, the smallest but fastest-growing segment of drugs.
Dr. Primus opined that Congress spends too much time on the budget resolution process; time that could be better spent crafting legislation on other matters.
After Dr. Primus gave his prepared talk, he fielded inquiries on the following subjects:
The effect of the EITC on the economy: Dr. Primus referred to a 1990 summit on income, and noted the participants’ desire to make the tax system more progressive. As such, support for the EITC was bipartisan.
To decrease income inequality, should we make our border less porous to low-income workers, and more porous for high income, highly skilled workers? Dr. Primus responded that most immigrants contribute to our economic growth and that we need to be producing more highly skilled workers ourselves.
How will the loss of revenue from fixing the alternative minimum tax be compensated for? Dr. Primus speculated it will be paid for by those in the top 10% of the income distribution.
Will there be new taxes on oil companies? Dr. Primus joked that such decisions will be postponed.
Didn’t welfare reform cause an increase in labor force participation? Dr. Primus responded that welfare reform did help increase labor force participation, but it also cut benefits retrospectively, for those previously eligible. It could have been introduced without the cuts.
Health care reform: The recent case of the boy who died for lack of dental coverage illustrates the hardship of cutting benefits and underfunding dental benefits. Dr. Primus argued that a Democratic Secretary of Health and Human Services could implement a prescription drug benefit in a way as to not increase cost.
Greenhouse gases: Dr. Primus expects legislation on reducing greenhouse gases in the current Congress.
Before his appointment to Nancy Pelosi’s staff in March, 2005, Dr. Primus was the Minority Staff Director at the Joint Economic Committee. Prior to that position, Dr. Primus had been the Director of Income Security for the Center on Budget and Policy Priorities in Washington, D.C. and had also served as the Deputy Assistant Secretary for Human Services Policy at the Department of Health and Human Services in the Clinton Administration and as Chief Economist for the House Ways and Means Committee. Dr. Primus’ talk can be heard on our podcast recording (NEC Podcast #7)
Rapporteur: Richard Levy
