December 20, 2014

Washington Budget Report: Apr. 26, 2010

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Senate Committee Moves Forward with Budget Resolution

2010-2015 Budget Projections

The Senate Budget Committee has approved a budget resolution that calls for deficits to be reduced $671 billion below the levels in the President’s budget over five years. The resolution envisions that deficits will be reduced to 3% of GDP by 2015, compared to 4.3% in the President’s budget. For 2011, the committee's projected deficit is 8.4% of GDP ($1.26 trillion).

It is encouraging that the Senate budget resolution sets a higher deficit reduction goal, freezes non-security discretionary spending for three years, enforces discretionary spending targets with multi-year caps, and provides a reserve fund to help ensure that any savings from recommendations of the President’s bipartisan fiscal commission will be used for deficit reduction. The resolution, approved Thursday, also assumes that Alternative Minimum Tax (AMT) and estate tax relief will be paid for after two years in accord with the new pay-as-you-go law. This assumption accounts for much of the improved outlook in the final three fiscal years of the plan.

These are fiscally responsible goals. However, they will not be met unless Congress actually votes to offset AMT and estate tax relief proposals and abides by the discretionary spending caps without resorting to gimmicks such as questionable "emergency" spending designations. This will require political courage that policymakers have repeatedly failed to demonstrate when considering similar proposals in recent years.

It is troubling that the resolution includes a reconciliation instruction that requires only a token amount of $2 billion in deficit reduction when the annual budget is approaching $4 trillion and the projected deficit over the five years covered by the plan totals $3.9 trillion. This suggests that the intent behind the instruction may not be significant deficit reduction as much as the use of expedited reconciliation procedures for other purposes. Sen. Judd Gregg (R-N.H.) successfully offered an amendment creating a new point of order against reconciliation bills with spending that exceeds 20% of the deficit reduction target. This was a positive addition.

The next step will be consideration of the budget resolution by the full Senate. The Concord Coalition commends the Senate Budget Committee for taking the fiscally responsible step of moving forward with the budget resolution this year and urges the House Budget Committee to do the same.

President's Bipartisan Commission Urged to Engage the Public in Search for Fiscal Solutions

With President Obama’s bipartisan fiscal commission preparing for its first meeting tomorrow, some lawmakers are wisely urging its members to put a high priority on public engagement and listening to the views of Americans around the country.

“Public forums should be scheduled in every corner of the country,” said the Blue Dog Coalition, a group of House Democrats who stress fiscal responsibility, in a letter to the commission. Reps. Frank Wolf (R-Va.) and Jim Cooper (D-Tenn.), who co-sponsored legislation that would have created a somewhat different commission, also wrote the president’s panel last week. They warned that listening to the views of the public was essential to avoid a report “destined to collect dust on a bookshelf.”

Wolf and Cooper also worry that the commission, which was established Feb. 18 and has a Dec. 1 deadline to make recommendations, is off to a slow start and could end up rushing its work.

At least some commission members appear open to the calls for public engagement, and the group’s leaders have already discussed holding hearings around the country.

Final recommendations will require the approval of 14 of the 18 commission members, a high hurdle that many analysts say will be hard to clear. Obama appointed six members and congressional leaders appointed the rest.

The President will open the commission’s meeting on Tuesday at the White House. Other scheduled speakers are Federal Reserve Chairman Ben Bernanke, White House Budget Director Peter Orszag, and former CBO Directors Rudy Penner and Robert Reischauer.

Deficit Panel Should Avoid Short-Term Distractions and Focus on Long-Term, Structural Problems

President Obama handed his bipartisan fiscal commission two very ambitious assignments: Find ways to balance the budget excluding interest payments by 2015 and to “meaningfully improve” the long-term fiscal outlook.

That may be too much to ask, particularly with a Dec. 1 deadline. So Concord Coalition Executive Director Robert L. Bixby offers a simple suggestion for the commission: Leave the short-term goal to the regular budget process and focus on the more important long-term goal. 

Finding long-term solutions to the nation’s unsustainable fiscal outlook is what originally motivated members of Congress to propose a statutory commission. But when that failed and the President stepped in to establish an executive commission, he added the short-term goal.
 
Simply determining which baseline to use in assessing the required deficit reduction in 2015 would get commission members bogged down. They can’t know what it would take to reach that goal before they know what actions Congress will take this year.

Concentrating on the long-term goal, however, the commission might be able to find some common ground on issues such as reforming Social Security, curbing cost increases in Medicare and Medicaid, and improving the tax code.

New Study on Health Care Legislation Raises Uncertainties on Cost Estimates, Indicates Wider Coverage

New health care legislation will increase national health spending by an estimated $311 billion over the next decade, according to a report by Richard Foster, chief actuary of the federal agency that administers Medicare and Medicaid. He cautioned, however, that estimates of the financial impact of the legislation are “very uncertain” because “the scope and magnitude of these changes are such that few precedents exist for us in estimation.”

He estimated that 34 million more people would gain health insurance coverage, up from the 32 million estimate that was widely cited during congressional debate.

Although some provisions in the legislation would help to reduce the growth of health care costs, Foster wrote, “their impact would be more than offset though 2019 by the higher health expenditures resulting from the coverage expansions.” Over the long term, Foster said, the legislation has the potential to slow the rate of health care cost growth, provided that it is fully implemented and maintained.

Foster noted a number of risks that The Concord Coalition has also identified. These include the difficulty of maintaining provider payment reductions over time, restraints on the Independent Payment Advisory Board, and structural flaws in the new disability and long-term care program (CLASS) that may render it unsustainable due to adverse selection.

Budget Implications of Climate Change/ Energy Legislation

In the weeks ahead, climate change and energy issues are likely to be in the news again. Recently there has been much discussion on Capitol Hill about a potential bipartisan climate change proposal in the Senate. Energy issues were also in the spotlight last week as several senators raised deficit-related concerns about proposals to shift offshore drilling revenue from the Treasury to the states.

While The Concord Coalition has not taken positions on energy and environmental policy issues involved in the debate, the senators' concerns are a timely reminder that many of the proposals raise significant budget issues.

Proposals to auction greenhouse gas emission permits or to lease federal lands for oil and gas drilling would raise significant revenue. According to the Congressional Budget Office (CBO), climate change bills passed by the House and reported by the Senate Environment and Public Works Committee last year would raise nearly $1 trillion over ten years. The Treasury also receives billions of dollars a year from mineral and energy production on federal lands.

Yet few policymakers have seriously considered using climate change revenues for substantial deficit reduction. Lawmakers also continue to consider drilling proposals that would spend revenues currently going into the Treasury.

Policymakers must break the habit of viewing new revenues as little more than new spending opportunities. When nearly a trillion dollars in new revenues may be available, the fiscal challenges facing our nation require deficit reduction to be on the agenda.

President Nominates Reform-Oriented Doctor to Key Health Care Post

A pediatrician with a reputation for improving both the quality and efficiency of health care has been tapped to run the Centers for Medicare and Medicaid Services, a job that will play a central role in implementing the new health care legislation.

President Obama nominated Dr. Donald Berwick, a Harvard professor who is president of the Institute for Healthcare Improvement in Cambridge, Mass. The institute’s work includes helping hospitals around the country adopt measures to avoid patient deaths.

The nomination is subject to confirmation by the Senate, where there is speculation that hard feelings over health care reform will spill over into the confirmation process.

Obama praised Berwick as someone who “has dedicated his career to improving outcomes for patients and providing better care at lower cost.” Sen. Chuck Grassley of Iowa, ranking Republican on the Senate Finance Committee, said he would need to “explore the nominee’s preparedness” for challenges that will include “implementing the hundreds of billions of dollars in Medicare cuts and the biggest expansion of Medicaid in its history.”