November 22, 2014

Washington Budget Report: July 12, 2010

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CBO Report Spotlights Difficult Choices That Must Be Made

We can’t keep this up. That’s the central message in a new report from the Congressional Budget Office that looks out over the next few decades and explains why the federal government is on an unsustainable course.

The CBO report presents two scenarios. One is based on current law, including the assumptions that more Americans will be paying the alternative minimum tax (AMT) and that the tax cuts enacted in 2001 and 2003 will expire, while non-defense discretionary spending would decline to the lowest percentage of GDP since World War II. Under this scenario, federal debt held by the public would climb from an estimated 62 percent of GDP this year to about 80 percent by 2035.

The other, more plausible scenario, assumes several changes in current law that are widely expected. One is that most of the 2001 and 2003 tax cuts would be extended along with AMT relief. Another is that scheduled Medicare payment cuts to doctors will not happen and that some cost restraints from this year’s health care legislation would not continue after 2020 (because according to CBO they “might be difficult to sustain”). Under this scenario federal debt would soar past its historical peak of 109 percent of GDP by 2025 and would hit 185 percent in 2035.

Joshua Gordon, Concord’s policy director, says in a blog post that the differences between the two scenarios show clearly that although Congress makes incremental decisions year-after-year, sometimes in order to hide the costs of current policies, the long-run budgetary impact is substantial. But, more importantly, these continual sunsets and extensions allow those policy choices to escape the scrutiny that new policies would receive.

Another key lesson in the CBO report, Gordon says, is that even if Congress follows the provisions of this year’s health care legislation, it would not sufficiently restrain the growing costs of Medicare and Medicaid. “More health care reform is needed,” he argues, “and the sooner the political system is able to build on the reforms, the better.”

President's Fiscal Commission Urged to Focus on the Long Term and Reject Traditional Notions About "Political Realities"

In a marathon session, the president’s fiscal commission heard suggestions late last month from dozens of organizations and individuals on how to fix Social Security, improve the tax system and tackle other difficult challenges facing the country.

The bipartisan commission is tasked with making recommendations to Congress and the administration by Dec. 1 on how to cut the deficit to 3 percent of GDP in the next five years as well as significantly improve the country’s longer-term fiscal picture.

Bob Bixby, Concord’s executive director, urged the commission to focus on the longer-term issues: "While I agree with the 2015 goal as a substantive matter, I worry that it could become a distraction by, in effect, engaging the commission in work traditionally handled by the congressional budget committees."

Bixby’s two other key suggestions to the panel were to reject traditional notions of “political realities” that would narrow the options, and to do as much as possible “to educate the public about the magnitude of the problem and engage them in the search for solutions.”

Additional suggestions can be sent to the commission at commission@fc.eop.gov.

With July 4th Recess Over, Congressional Hearings Will Focus on the Economy, Social Security and Taxes

As Congress returns from its July 4 recess, hearings on Capitol Hill will focus attention on the economic outlook, Social Security, future tax rates and government contracting. Lawmakers will be working against a backdrop of mounting public concern over the federal deficit, which the CBO recently projected at more than $1 trillion for the first nine months of the current fiscal year. That is only $81 billion less than the projected deficit at this time last year.

Before the recess, the House of Representatives narrowly passed a deeming resolution which will provide an allocation to the Appropriations Committee. While it has been billed as equivalent to a budget resolution, The Concord Coalition has argued that it is a weak alternative that does not provide the essential fiscal framework that could be included in a real budget resolution. 

Also, the CBO recently issued a useful report analyzing 30 different policy options that have been suggested for providing long-term financial stability for Social Security. The options include changes in the payroll tax, initial benefits, cost-of-living adjustments and the full retirement age.

Cliff Isenberg, Concord’s chief budget counsel, provides a post-recess update on these and other issues, together with links to background information, in a new blog posting.

What Is a Continuing Resolution?

Congress funds government operations through an annual appropriations process. However, Congress routinely misses the Oct. 1 deadline (the first day of the new fiscal year) for enacting appropriations bills.

When some or all of the appropriations bills have not been enacted by then, Congress passes continuing resolutions to prevent a government shutdown. Temporary continuing resolutions allow departments and agencies to continue operations, generally at existing funding levels, while Congress continues work on a final appropriations bill. Congress may ultimately choose to skip a regular appropriations bill altogether, in which case funding can be provided through the end of the fiscal year with a full-year continuing resolution.