April 29, 2017

Washington Budget Report: June 28, 2010

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We will not publish next week as the nation celebrates its birthday and Congress is in recess. Our next issue will be Monday, July 12.

House Majority Leader Warns of Challenges in Attacking Long-Term Deficits

House Majority Leader Steny Hoyer stirred considerable discussion in Washington with a thoughtful speech last week emphasizing the need to develop a credible long-term deficit reduction plan even as the economic recovery continued.

Such a plan, he said, could provide better context for considering things like whether to permanently extend certain tax cuts. And he challenged fellow lawmakers to take a realistic look at the forces that were driving long-term structural deficits.

“Unfortunately, we can blame our long-term deficit on policies that are almost universally popular,” Hoyer said. “We’re lying to ourselves and our children, however, if we say we can maintain our current levels of entitlement spending, defense spending and taxation without bankrupting our country.”

A panel discussion that followed Hoyer’s speech and subsequent commentary explored a number of important issues on the federal budget, as noted in a blog posting by Joshua Gordon, policy director for The Concord Coalition. Gordon argues that members of Congress generally know what needs to be done but lack the political courage to act.

The United States is hardly alone in worrying about high deficits, as last weekend's international gathering in Toronto -- the G-20 meeting -- made clear. The national leaders there endorsed cutting government deficits in half by 2013.

With No Budget Resolution, Talk in Congress Turns to Incomplete Substitutes

At a time when lawmakers are under public pressure to show greater fiscal responsibility, Congress has chosen to ignore its fundamental duty to pass a budget resolution for the coming year.

Instead, some on Capitol Hill are talking about approving a “budget enforcement resolution.” But what they have been discussing in recent days would fall far short of the fiscal discipline that could be imposed by a regular budget resolution.

Cliff Isenberg, Concord's chief budget counsel, says in a blog post that the budget enforcement resolution idea appears to be similar to a “deeming resolution,” a procedural shortcut that has been used in past years. A real budget resolution, however, provides a detailed framework for at least five fiscal years, complete with anticipated deficit figures.  It  could also include reconciliation instructions that may be needed for deficit reduction and compliance with the new PAYGO law.

Isenberg says it is troubling that members of Congress are using the work of the President’s bipartisan fiscal commission as an excuse for not passing a budget. While approving a responsible measure with credible enforcement mechanisms would require difficult decisions, he adds, “that is what it means to govern.”

"Doc Fix" Problem is Rooted in Flawed Formula

Congress late last week agreed to extend the so-called “Doc Fix” for five months at a cost of $6 billion. But a permanent fix would cost around $210 billion over 10 years. And the longer we wait for a permanent solution, the more expensive it will be.

Instead of patchwork fixes, Congress needs to confront the underlying problem -- a flawed formula. At the heart of the debate is the sustainable growth rate (SGR) system -- the formula to determine how much doctors get paid for services under Medicare.

The SGR was created in 1997 to tie physician payments to physician costs and economic growth. It was a time of low health care inflation in the “managed care” era, primarily because physicians decreased the volume and complexity of their services. So the formula initially worked well.

But the formula eventually began calling for larger and larger cuts to meet the target. Beginning in 2003, Congress has repeatedly postponed the cuts, and so the target gets further and further away from actual reimbursement levels. It now would require a 21 percent cut in payments. But fixing it without increasing the deficit would require large cuts in other programs or tax increases -- not very popular alternatives.

Ideally, a fix would have been included in overall health care reform, and initially it looked as if that might happen. However, increased deficits from the fix and an unwillingness to support offsets caused it to be removed from the discussion. It is worth pointing out that the health care law's deficit reduction does not depend on the physician payment cuts actually being allowed to take place.