President Clinton Submits FY 2001 Budget Proposal.

• Author: Dotson, Betsy
• Position: Statistical Data Included

On February 7, 2000, President Clinton sent Congress the administration's $1.84 billion Fiscal Year 2001 budget. This budget is premised on scrapping the discretionary spending caps imposed by the Balanced Budget Act of 1997 (P.L. 105-33), which were largely ignored in the FY 2000 budget enacted by Congress. Instead of making deep cuts in spending, as the budget law mandates, the President's budget allows discretionary spending to increase by about 4 percent over this year's level to pay for a range of new initiatives. The budget assumes a $2.2 billion Social Security surplus over the next 10 years, all of which would be used for debt reduction. It also assumes $746 billion in non-Social Security surplus over this period, devoting nearly half that amount to paying down the debt. The remainder would be dedicated to strengthening Medicare and financing a portion of proposed tax cuts.

The budget also proposes targeted tax cuts costing about $351 billion over 10 years, of which $256 billion are paid for out of the surplus, and the remainder paid for with numerous offsets. The tax cuts include expansion of the earned income tax credit and tax breaks for investments in low-income areas, marriage penalty relief, new retirement savings accounts, modifications to the alternative minimum tax, and more generous tax relief for child care, long-term health care, and higher education.

The President's budget contains numerous provisions that affect state and local governments, some of which have previously been endorsed by this administration. These include pension and benefit proposals, tax-exempt bond proposals, and other issues.

Retirement Plans

The administration's FY01 budget contains several initiatives concerning further participation in retirement plans. To promote individual retirement account (IRA) contributions, employees would be permitted to make contributions on a pretax basis through payroll deductions. An accelerated vesting schedule would be provided for qualified retirement plans, requiring full vesting after completion of three years of service. Pension portability would be increased by allowing rollovers between and among qualified retirement plans, section 403(b) annuities, section 457(b) plans, and traditional IRAs. The purchase of service credits in governmental defined benefit plans would be facilitated by permitting state and local government employees to use funds from 403(b) or 457 plans to purchase service credits on a tax-free...