WASHINGTON -- The Concord Coalition said today that the President's FY 2008 budget focuses on two appropriate goals: restoring balance by 2012 and narrowing the long-term deficit. Concord reiterated its concerns that certain key policy assumptions used by the administration to project a swift decline in the deficit are not realistic. However, it welcomed the new proposals for reducing Medicare premium subsidies and limiting the tax exclusion of employer provided health insurance.
"If the President is willing to show flexibility in how these important goals are achieved, and if the new Democratic majority in Congress is willing to show similar flexibility by not declaring the budget ‘dead on arrival,' then constructive bipartisan negotiations can begin on making both goals a reality," said Robert L. Bixby, Executive Director of The Concord Coalition.
"It is understandable that Democrats and Republicans will have different priorities, but they now share a common goal of balancing the budget by 2012 and a recognition that long-term fiscal policy is unsustainable. These shared goals, and the new balance of power in Washington, provide an opportunity for meaningful cooperation. Both sides must recognize that they cannot achieve their goals if they try to do so with proposals that only appeal to narrow partisan interests. How they handle this challenge is a test of whether they got the message from the last elections that it is time to abandon the bunkers and head for the negotiation table," said Bixby.
"It would be all too easy for both sides to dig in their heels and leave all the hard decisions to the next Congress and the next president. Doing so, however, would be irresponsible. It would also be a squandered opportunity for both sides. The American people want to see action, and they are hungry for leadership," said Harry Zeeve, National Field Director of The Concord Coalition.
The Concord Coalition made the following initial observations about specifics in the budget:
- The President's goal of restoring balance by 2012 is one that Concord supports. It should be noted, however, that this goal includes the "off-budget" Social Security surplus. The "on-budget" total in 2012, under the President's budget, is a deficit of $187 billion. The Concord Coalition thus supports further efforts to restore a balanced budget excluding the Social Security surplus.
- Four key policy assumptions used in the President's budget to show balance by 2012 produce savings on paper that will be very difficult to achieve in reality. These savings are even more questionable given the lack of detail in the budget as to how they would be achieved. Specifically, the budget assumes:
- Revenue neutral reform of the Alternative Minimum Tax (AMT)
- A sudden drop-off in new funding for the wars in Iraq and Afghanistan (from $175 billion in 2007 to zero in 2010)
- Substantial programmed cuts in Medicare physician payments, and
- Annual increases in non-security appropriations that are below inflation.
- The cumulative budget savings from these assumptions is roughly $600 billion over 5 years and $200 billion in 2012 alone.
- The "record revenue" of FY 2006 must be viewed in perspective. The claim is true in dollar terms but, as the administration is quick to point out when discussing the deficit, a better measure is how they compare to the size of the economy. The current level of revenues, 18.4 percent of GDP, is about average over the past 40 years, and down from when the President took office (20.9 percent of GDP in 2000).
- Tax cuts remain the main priority in the budget. The revenue loss from the President's tax proposals, including extension of expiring tax cuts over 5 years ($599 billion) is more than 10 times the proposed savings from mandatory spending ($46 billion).
- In light of all this, revenue neutral reform of the AMT is fiscally responsible and complies with the concept of applying pay-as-you-go budgeting to taxes as well as spending. As yet, however, neither party has proposed a way to do it. Because this issue will be a challenge for Democrats as well when they craft their budget resolution in the coming weeks, the question of how to provide revenue neutral AMT relief offers a target of opportunity for bipartisan negotiations on broader tax reform.
- Another opportunity for bipartisan negotiation is the President's proposal to end the exclusion of employer provided health insurance from income. This "tax expenditure" costs about $200 billion in forgone revenue and encourages very expensive policies that leave employees with few, if any, out-of-pocket costs and little cost consciousness. The President's proposal would end the exclusion and use the initial savings for new health insurance deductions and exclusions. Whether or not Democrats agree with the specifics, this proposal is worthy of consideration because it puts a major tax break on the table and implicitly accepts the pay-as-you-go concept for tax initiatives.
- A final promising area for bipartisan negotiations is the proposal to introduce income-related premiums to Medicare's prescription drug program. This concept is an equitable way to reduce the rising burden of entitlement spending -- not just for Medicare, but for all major federal benefit programs. It recognizes that Medicare is a highly subsidized program. Premiums cover only 25 percent of program costs. General revenues cover the rest. Given the large general revenue subsidy and the need for long-term savings from what most concede is an unsustainable path, beneficiaries who can afford to pay more of their fair share should do so.
- The income-relating proposal should be viewed in the long-term context and not as a proposal whose need is driven by the quest for a short-term balanced budget. The prescription drug benefit was unaffordable when enacted. This proposal, if fully implemented, would only shave about $2 trillion from a long-term unfunded obligation of $32 trillion for Medicare as a whole.