Tax Cut and Medicare Proposals Top Domestic Agenda
On Tuesday, January 28, President Bush spoke to the nation in the annual State of the Union address. While roughly half of the speech was dedicated to preparing the country for a war with Iraq, the president also addressed domestic policy issues by standing behind his $674 billion “economic growth plan,” presenting scant details about a Medicare overhaul plan that would shift the federal entitlement program toward privatization, and encouraging increased funding for religious organizations to run social programs.

President Bush used part of the address to urge Congress to pass his 10-year, $674 billion tax cut package. Bush defended the proposal – which many critics charge is tilted toward the wealthy – as an economic plan that would help boost the sagging economy and create jobs. The plan would eliminate taxes on corporate dividends paid to investors, provide tax cuts for married couples, and increase the child tax credit from $600 to $1000. These changes were originally going to be phased in over several years under Bush’s 2001 tax proposal (PL 107-16). The plan would also accelerate tax rate reductions from the 2001 tax package.

In addition, Bush discussed an overhaul agenda for Medicare, but did not provide many specifics. He emphasized the need for a prescription drug benefit through Medicare, while also discussing plans to restructure the system so that patients would be encouraged to opt for private health care providers. Advocates warn that one problem with the plan is that rural seniors who only have access to Medicare would be penalized by a plan where only those patients who choose private plans would be eligible for the prescription drug benefit. Bush’s proposal – which is intended to cut Medicare costs in the long term – would increase federal spending for Medicare by roughly $400 billion over the next ten years. Many lawmakers believe that an overhaul is unlikely this year, but that a prescription drug benefit plan could pass this session.

Perhaps one of the most contentious domestic policy items proposed by Bush during his State of the Union address was a plan to designate $600 million in vouchers over the next three years to drug and alcohol rehabilitation programs. The funding would go toward vouchers for an estimated 300,000 people, who could use the federal dollars to pay for drug and alcohol treatment – including religion-centered programs.

While lawmakers engaged in the requisite applause and standing ovations during the speech, many have raised concerns about some of the President’s proposals. Democrats have come out against Bush’s tax cut plan, stating that their alternative would have a short-term stimulative effect and would treat all taxpayers fairly. They have also charged the President with under-assessing education and homeland security needs. The Democratic response to the State of the Union – delivered by Washington state governor Gary Locke – stated that Bush’s “upside-down economics” would not provide the needed economic stimulus, and would exacerbate future fiscal problems. In addition, Democrats weighed in on Bush’s Medicare privatization plan, stating that the proposal would put many vulnerable seniors at risk.

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