CHN: State of Union Address Foreshadows Fiscal 2007 Budget

President Bush’s annual State of the Union address on January 31 foreshadowed his plans for the Fiscal 2007 budget, which will be released February 6.
Most significantly, the President proposed expanding Health Savings Accounts (HSAs), tax-free savings accounts created in the 2003 Medicare law that can be used to pay deductibles and out-of-pocket costs of health care provided through a high-deductible health insurance plan. Many economists and analysts point out that HSAs offer the greatest benefits to those at the highest tax brackets who need help with health care the least. HSAs drive up the cost of health care for low-income and sicker people who would be more likely to stay in traditional lower-premium plans. Further, higher out-of-pocket costs will induce many lower-income people to avoid seeking necessary care, which could eventually result in health problems that are more costly to treat. The idea behind HSAs is to create a greater incentive for people to avoid unnecessary health care costs, but research shows that the vast majority of health care costs are spent on the ten percent of people who have major illnesses or disabilities, situations in which health care cannot be safely avoided. Critics also argue that some ways of expanding HSAs could even encourage employers to stop providing coverage, making health care further out of reach for the average worker. (For more information, see the recent paper released by the Center on Budget and Policy Priorities at

The President’s speech included other proposals that could affect services for moderate- and low-income families. The President pledged, as he has in previous budget cycles, to reduce or eliminate a number of programs his administration deems to be not successful. He will propose to save $14 billion in fiscal 2007 by eliminating 140 programs. The President called for reducing or eliminating 150 programs last year and 65 programs the year before that and each time Congress has largely declined to do so. The sorts of programs targeted for elimination last year included the Safe and Drug Free Schools program, Upward Bound for low-income high school students, and Hope VI funding for revitalizing public housing. Although funding has been cut for these programs, Congress rejected the President’s plan to eliminate them.

The President also announced a proposal to “train 70,000 high school teachers to lead advanced placement courses in math and science, bring 30,000 math and science professionals to teach in classrooms, and give early help to students who struggle with math so they have a better chance at good, high-wage jobs.” This proposal would be one prong of his American Competitiveness Initiative, which would also increase federal funding for scientific research and make permanent the research and development tax credit. Educators generally agree with the need for more focus on math and science, but the new initiatives are hardly adequate to make up for other shortfalls in federal education policy, such as underfunding the Leave No Child Behind Law by $40 billion over the past five years.

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