Congressional Quarterly reports that congressional Democratic leaders and the White House are close to an FY 2010 budget deal. According to CQ, the emerging details are:

• Include reconciliation instructions to move healthcare reform and student loan reform legislation as a filibuster-proof reconciliation bill. (Note: Reconciliation instructions in the budget resolution do not include programmatic details, but the assumptions are that health care reform will aim for universal coverage and cost saving measures; and student loan reform will seek to replace guaranteed student loans from private banks with direct student loans from the federal government.)

 

• Total discretionary spending for FY 2010 would be $10 billion less than the $1.096 billion requested by the President.  (The House had proposed $7 billion less than the President's request, and the Senate $15 billion less--so the tentative agreement lies between House and Senate.)

 

• Senate Budget Chairman Conrad indicated that negotiators had discussed the issue of a commission or task force to address the unsustainable growth of entitlements, particularly Medicare and Medicaid, as well as tax policy.  (However, the Budget Resolution is not a law and could not, itself, establish a commission unless it was entirely comprised of members of Congress.)

 

• House Budget Chairman Spratt said the negotiators are working on the issue of including incentives to re-enact "statutory PAYGO" -- the budget enforcement mechanism of the 1990s that used the threat of automatic budget cuts to enforce the requirement that all new tax cuts and entitlement spending be offset by revenue increases and/or spending cuts.  The re-enactment of PAYGO has been called for the fiscally conservative Blue Dog Democrats as a trade-off for allowing extension of the expiring middle class tax cuts to move forward without offsets.  (Note: CBO has projected that extension of the expiring middle class tax cuts will cost more than $2 trillion over the next 10 years-- raising serious fiscal responsibility concerns.)

 

Central Issue in the FY 2010 Budget Resolution Conference.--Controversy continued to swirl this week around the issue of whether to use the filibuster-proof budget reconciliation process to expedite health care reform legislation.

Facts.--The "regular order" in the Senate is that passage of legislation requires a simple majority (51 votes, if all Senators are voting).  However, votes on legislation can be blocked by "filibusters" through which opponents debate at length and prevent a measure from coming to a vote. Filibusters can be ended by "invoking cloture," which requires 60 votes.

The use (and threatened use) of filibusters has skyrocketed during the last decade. The "budget reconciliation" process--which is initiated by a budget resolution--allows budget-related legislation to move through the Senate protected from filibuster.

The Senate's "Byrd Rule" allows non-budgetary provisions to be stricken from a reconciliation bill.  Healthcare provisions which have no budget effect (or have a merely incidental budget impact) would have to be moved in a separate bill.

Background.--The President's Budget calls for comprehensive health care reform to rein in skyrocketing  health care costs and cover the uninsured. The budget does not include a detailed reform plan but allocates $634 billion as a "downpayment" on health care reform, funded by $316 billion in Medicare and Medicaid reforms, and $318 billion in new revenues from limiting tax deductions for upper income earners.

The House- and Senate-passed budget resolutions call for healthcare reform as a general proposition, and commit to offsetting the full costs of health care reform, but don't address details. 

The House-passed budget plan calls for using the reconciliation process to expedite passage of health care reform.  The Senate plan does not include reconciliation instructions.

As reported by Congressional Quarterly, House Speaker Nancy Pelosi (D-CA) said, "I believe it is absolutely essential that we come out of this year with substantial health care reform legislation. That is best secured by having reconciliation in the package."

At the same time, Senate Budget Committee Chairman Kent Conrad (D-ND) opposes using reconciliation.  In addition, Roll Call has reported Senate Republicans threatening legislative reprisals if the filibuster-proof procedure is used."If they go down that road, I think the fur is going to fly," said Senate Republican Conference Vice Chairman Joh Thune (S.D.)

President Obama announced on April 18 the nomination of Jeffrey Zients to be the White House "Chief Performance Officer" responsible for reviewing the effectiveness of federal programs.  Zients would also serve as OMB Deputy Director for Management -- a position requiring Senate confirmation.

OMB Director Orszag blog on the appointment of Zients

On April 20, the President followed up the nomination with a directive to departments and agencies to "cut a collective 100 million dollars in the next 90 days."  As examples of the type of cuts the President is looking for, the White House issued a press release that included items such as identifying improper farm payments, consolidating offices, and transitioning to electronic records.  The proposed cuts amount to 0.003% of the Federal budget.

While these various management initiatives are important and useful, the Concord Coalition urges the Administration to follow-up on the February Fiscal Responsibility Summit with a focused and concerted effort to address the long-term fiscal crisis facing the nation. Under current projections, by 2030: Medicare, Medicaid, Social Security, and Interest on the Debt will consume all federal revenues. Significant action is needed -- as soon as possible -- to curb the rapid growth in entitlement spending and maintain the federal revenue base. The longer action is delayed, the more difficult the task.

In a lecture earlier this week at Harvard, Congressional Budget Office (CBO) Director Doug Elmendorf underscored the nation's unsustainable budget path due to the rapid growth of Medicare, Medicaid, and Social Security. In a summary of his speech, the CBO Director blogged:

"In discussing the next 10 years, I began with the observation that CBO’s baseline projection of the budget deficit for 2010 through 2019 (that is, the deficit we project under current laws and policies) was more than $4 trillion.  Then I explained that, compared with current law, President Obama’s budget would both cut taxes and raise outlays considerably over the next 10 years.  In rounded figures, we estimate the President’s budget proposals would produce:

• Revenue reduction: $2.1 trillion.
  – Extend elements of 2001-2003 tax cuts (which are scheduled to expire in 2010 under current law and are treated as such in the baseline):  $1.9 trillion.
  – Index the Alternative Minimum Tax (which is not indexed to inflation under current law and is treated as such in the baseline): $450 billion.
  – Other proposals: $250 billion increase.
• Programmatic outlay increase: $1.7 trillion.
  – Refundable tax credits: $500 billion.
  – Adjust Medicare physician payments (which are scheduled under current law to be reduced by 21 percent in 2010 and more in subsequent years, and are treated as such in the baseline): $300 billion.
  – Defense discretionary (which is assumed in the baseline to keep pace with inflation) $150 billion.
  – Other (about half nondefense discretionary, which is assumed in the baseline to keep pace with inflation): $800 billion.
• Resulting increase in net interest on the debt: $1.0 trillion.

"The resulting budget deficit for 2010 through 2019 would be more than $9 trillion according to our projections.

"I also told the students that, while these proposals would require legislation, many would would continue policies already in place (for example, holding steady tax rates set in the 2001-2003 legislation) or maintain historical relationships (for example, preventing nondefense discretionary spending from falling to nearly the smallest share of GDP in my lifetime, as would occur under the baseline projection). 

"The aspect of the budget that is anomalous by the standards of the past several decades—under both the baseline and the President’s budget—is outlays for Social Security, Medicare, and Medicaid.  Specifically, under CBO’s estimate of the President’s budget for 2019:

• Revenues would be close to their pre-recession share of GDP and historical average share of GDP.
• Spending on all programs except Social Security, Medicare, and Medicaid would be below their pre-recession share of GDP and historical average share of GDP.
• While at the same time, spending on Social Security, Medicare, and Medicaid would be a record share of GDP.  The result is large and growing budget deficits.

"Looking beyond the next 10 years, federal outlays under current law for Medicare and Medicaid, in particular, will substantially outpace GDP growth.  CBO is now in the process of updating its long-term budget projections and will release these projections when they are completed.  However, the key message of these long-term projections is not in doubt:  U.S. fiscal policy is on an unsustainable course." (emphasis added)

 

CBO Director Doug Elmendorf used his blog on Wednesday to explain why there may be no Social Security COLAs (cost of living adjustments) for several years.

Elmendorf said Social Security checks will likely remain at current levels through 2012 and rise by only 0.8 percent in 2013. 

This is because annual Social Security COLAs are linked to an index measuring certain consumer prices which is not projected to rise until 2012. 

This is in stark contrast to the 5.8% COLA received this year due to the spike in energy prices in 2008.

The near absence of inflation in 2010, 2011, and 2012 will also mean that the amount of income currently subject to the Payroll tax ($106,800) will not increase until 2013.

CBO Director's Blog explaining the COLA calculation

On Thursday, Director Elmendorf released an explanation for why the absence of Social Security COLAs in 2010, 2011, and 2012 will mean Medicare premium hikes for some (absent congressional action).

CBO Director's Blog explaining Medicare premium hike