December 8, 2016

The (Tab)ulation

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Tuesday, December 6, 2016 - 9:54 AM

No sooner had Steven Mnuchin confirmed that he was the President-elect’s pick for Treasury secretary than he raised eyebrows in both parties by saying that the new administration’s tax plan would not give an overall tax cut to high-income households.

“Any reductions we have in upper-income taxes will be offset by less deductions so that there will be no absolute tax cut for the upper class,” Mnuchin said. He also said the new administration’s tax plan would provide “the most significant middle-income tax cut since Reagan.”

These comments seemed to contradict the tax reform section of the Trump campaign website, which said taxes would be reduced “across-the-board.” Mnuchin’s statement, in a CNBC interview last week, is also at odds with the work of independent analysts who say the Trump campaign’s plan would deliver substantial tax cuts to high-income taxpayers.

Mnuchin’s comments raised...
Tuesday, December 6, 2016 - 9:20 AM

How the incoming Trump administration handles health care policy is perhaps the most consequential question hanging over the nation’s budgetary outlook.

That’s why policy analysts are scrambling to read the tea leaves on health care amid conflicting signals. Republicans seem to have one foot on the gas pedal and one foot on the brakes.

For example, recent developments have led to intense speculation on whether the new administration will rapidly work to reform Medicare. On the campaign trail, candidate Trump was adamant that he would not touch the program other than by cutting waste, fraud and abuse. However, his selection of a strong Medicare reform advocate, House Budget Committee Chairman Tom Price (R-Ga.), to become secretary of Health and Human Services raises the prospect that something more might be contemplated.

House Speaker Paul Ryan, another strong advocate of Medicare reform, has indicated that he is still planning to push the issue soon, even as senior Senate Republicans have voiced caution. 

So it is understandable if some confusion has arisen as to the direction and pace of Medicare reform.

But the tension between speed and deliberation is best exemplified by the congressional Republicans’ developing strategy for delivering on their campaign promise to “repeal and...

Tuesday, December 6, 2016 - 9:17 AM

Budget experts urged the incoming Trump administration and congressional leaders to address the country’s long-term fiscal challenges at two events in Washington last week. 

The first event, hosted by the Bipartisan Policy Center (BPC), featured the authors of a new report titled Fixing Fiscal Myopia. The report presents five chapters, each by a different budget expert, covering topics such as the framing of long-term budget projections, other countries’ experiences with long-term budgeting, and goals for reforming the budget process.

“Given the documented long-term fiscal challenges facing the country, budgeting with our heads in the sand is no longer a viable strategy,” writes Bill Hoagland of BPC and Phil Joyce of the University of Maryland in the report’s final chapter. “If the budget process is to focus more effectively on the long term, a fiscal goal should be agreed to by the president and Congress.”

The second event, hosted by the Committee for a Responsible Federal Budget, centered around the publication of a memo to President-elect Trump about the fiscal challenges he will...

Monday, December 5, 2016 - 1:44 PM

National health expenditures grew by 5.8 percent in 2015, pushing health care spending to 17.8 percent of the economy, up from 17.4 percent in 2014. This marks the second year in a row spending has grown more quickly than the economy, following a stable period from 2009 to 2013. 

The numbers come from a new report by actuaries at the Centers for Medicare and Medicaid Services (CMS). Increased spending had been widely expected, given expanded insurance coverage through the Affordable Care Act (ACA). The insured population rose from 86 percent of the country in 2013 to 90.9 percent in 2015. 

The actuaries said that in addition to spending on the newly insured, faster growth was driven by increased use and intensity of health care services and rapidly increasing spending on prescription drugs -- which grew by 9 percent after even more dramatic growth of 12.4 percent in 2014.

Slow growth in Medicare spending stands out as a bright spot in the report. While overall Medicare spending grew by 4.5 percent, on a per-enrollee basis spending only grew by 1.7 percent because the number of beneficiaries increased by 1.5 million. 

Even with moderate cost growth, more clearly needs to be done to slow health...

Tuesday, November 15, 2016 - 10:01 AM

The Affordable Care Act (ACA) dramatically altered the individual insurance market by forcing insurers to insure anyone regardless of health status or pre-existing conditions. It also eliminated caps on coverage. 

These changes have been popular. When elected officials say they support banning insurance companies from discriminating against individuals with pre-existing conditions, they are supporting this part of the ACA. One of what many people consider the “good parts” of the legislation.

Here is the rub -- you can’t just keep these “good parts” and repeal “the rest” of the ACA.

This is why: Health insurance is expensive. It is more expensive when medical costs are high and less expensive when medical costs are low. Thus, insurance costs can go up or down based on how small and sick the insured population is. (For the moment let’s leave aside that costs are also dependent on how much we pay doctors and hospitals for their work.) 

The big federal government health care programs -- Medicare (about 43 million insured) and Medicaid (62 million) -- tend to have enough people enrolled that there is a predictable mix of the healthy and the sick. For those programs, spending is more dependent on the number of people being provided with health insurance.

You can reduce that spending by...

Tuesday, September 27, 2016 - 9:31 AM

The first segment of the first presidential debate between Democrat Hillary Clinton and Republican Donald Trump was dedicated to achieving prosperity.

That provided an opportunity for the moderator to ask about -- and the candidates to talk about -- their respective plans for putting the nation’s projected debt on a sustainable path. It’s hard to see how prosperity can be achieved, or long maintained, with a debt that is projected to reach unsustainable levels.

Unfortunately, the subject was not discussed.

Trump made a couple of passing references to the debt and Clinton noted that Trump’s plan might increase the debt, but neither of them made a connection to the debt as an economic issue, much less described what they would do about it.

That’s too bad because one of these two candidates will become president in 2017 and will immediately be confronted with having to submit a budget to Congress against the backdrop of rising deficits and debt.

Each has made some expensive proposals that would have to be paid for and the American people have a right to know how they plan to do this without making the debt problem worse.

Consider what awaits the next occupant of 1600 Pennsylvania Avenue:

  • For the first time since 2009, the budget deficit is projected to increase this year,...
Monday, September 26, 2016 - 8:51 AM

Even casual observers of today’s federal budget process can see it is badly broken.

Congress has repeatedly failed to pass budget resolutions. Failure to pass appropriations bills has become the norm, forcing lawmakers to rely on continuing resolutions, bills that simply extend prior spending regardless of shifting priorities. And efforts to negotiate legislation on a long-term fiscal plan are non-existent. 

These failures enhance the argument to shift towards a “biennial” budget process that would produce funding legislation for two years at a time rather than one. Under biennial budgeting, Congress would set spending and revenue levels and complete appropriations bills in the first year of each Congress, and the second year would be used to conduct greater oversight of federal programs and ideally focus on long-term fiscal challenges.

Advocates of this approach received some heartening news recently: House Majority Leader Kevin McCarthy (R-Calif.) indicated his willingness to bring to the House floor a biennial budget reform bill that was originally introduced by Rep. Reid Ribble (R-Wisc.) and Rep. Kurt Schrader (D-Ore).

Twenty states make use of a biennial budgeting process in some form, and every administration since Ronald Reagan’s has...

Friday, September 16, 2016 - 1:13 PM

The penny plan to reduce spending by one cent on every dollar (one percent a year) has been bouncing around Washington for years but is now getting a higher profile with versions supported by the Senate Budget Committee Chairman Mike Enzi and the Republican nominee for president, Donald Trump. 

While the plan sounds simple, it allows politicians to duck any responsibility for explaining to voters which federal programs should be cut and why. Furthermore, the size of cuts required are much larger and more unrealistic than one might think from the characterization built around the idea of “one percent."

That is because government spending on programs like on Social Security, Medicare and Medicaid (which alone make up nearly half the budget) grows to take into account population changes, aging and inflation. Thus the actual amount that the government would have to cut in spending is much larger than one percent relative to that built-in growth.

In the plan’s most basic iteration, where all government spending aside from interest payments would be subject to cuts, spending would have to be cut by almost 40 percent from where it would be otherwise in the tenth year of the budgeting period. That would mean dramatically large cuts to Social Security, Medicare, and everything else. Exempting a program from...

Thursday, July 21, 2016 - 11:47 AM

The overall budget picture in Washington remains bleak as lawmakers have left town without making any meaningful progress on the appropriations process. They are now anticipating a September scramble to approve a Continuing Resolution (CR) to keep the government open after the new fiscal year begins Oct. 1. This means Congress, yet again, would be falling back on legislation that indiscriminately maintains the funding levels of the previous year, with little or no attention to the necessity of increased or decreased funding levels for important programs. 

The long-term outlook is even more dire. The Congressional Budget Office (CBO) issued yet another warning recently about the enormous pressures on the federal budget over the next 30 years. Just to maintain the current level of federal debt as a share of the economy, the nonpartisan budget office warns, would require large-scale spending cuts and/or tax increases every single year until 2046. 

It would stand to reason that the nation’s leaders would focus on such a significant problem at this critical time. Unfortunately, many of them -- along with other political candidates -- have done the exact opposite and are pandering to voters with unrealistic promises of giant tax cuts and major benefit increases, even for upper-...

Monday, May 2, 2016 - 2:44 PM

Health care cost-control efforts in the United States can often be described simply as “changing incentives.” The focus on incentives can be traced to two main circumstances:

1) The majority of politicians have opposed efforts to reduce costs simply through government price-setting, a mechanism widely used around the world to control costs.

2) The incentives in the U.S. health care system have been severely misaligned for decades, with all the actors -- from consumers to employers to insurance companies to physicians and hospitals -- having incentives to increase spending.

The most notable cost-related health care system changes of the past decade have attacked some of this misalignment and those efforts have contributed to historically slow growth rates for health care costs over the last five years.

The one area primarily untouched by those changes, prescription drug costs, is also the one area where inflation is growing rapidly, with 12.2 percent growth in 2014. Yet there appears to be an effort in the House and Senate...