August 21, 2014

Washington Budget Report: Aug. 10, 2010

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The Washington Budget Report will publish every other week during the congressional recess. We will not publish next week.

Good News in Medicare Report Isn't As Good As It Sounds

Medicare Projections, 2010-40

Good news comes and goes rather quickly in the  2010 Medicare Trustees’ Report, says Concord Executive Director Bob Bixby. The report begins by saying that this year’s health reform bill substantially improved Medicare’s finances. But it also warns that future Medicare expenditures “are likely to exceed the intermediate projections shown in this report, possibly by quite large amounts.”

In a blog posting today, Bixby says the trustees' report as a whole should be viewed as “yet another wake-up call as to how much more needs to be done.” As the trustees themselves warn, “The financial projections in this report indicate a need for additional steps to address Medicare’s remaining financial challenges.”

Even with the assumed improvements from health care reform, Medicare will still claim increasing amounts of general revenues in the future, putting a growing strain on the rest of the federal budget. Most of the health care bill’s Medicare savings and added payroll tax income have been dedicated to an expansion of Medicaid and to subsidies to help some people buy health insurance. Key assumptions in the official Medicare projections that involve physician payments as well as payments to non-physician providers are also problematic.

So the policymakers who are now trumpeting the “good news” in the trustees report, Bixby says, must accept the responsibility to show the budgetary discipline that will be required if certain optimistic assumptions don’t hold up. “The temptation,” he says, “will always be to not do so, but that is the path to fiscal ruin.”

Delaying Social Security Reform Will Only Make the Job Harder

Social Security Projections, 2010-40

Since Medicare will put far more pressure on the federal budget than Social Security will in the future, some people question whether the country really needs to worry about Social Security reform.  Yes, we do.  As Diane Lim Rogers, Concord’s chief economist, writes in a new blog posting, the Social Security trustees’ report last week reminds us that time is not on our side; the country’s demographic changes mean that Social Security’s problems, left unaddressed, will steadily worsen.  So delaying reform will only make the job harder.

“We would not want to implement immediate changes that would weaken the economic recovery, nor would we want to place undue burdens on current retirees and lower-income workers,” Rogers writes.  “But we could begin to develop reform plans now, and there are many reasonable options available that could quickly improve the program’s 75-year outlook.”

It wouldn’t be right to leave the job to future generations because they will have problems of their own. The trustees note that if the average age of the U.S. population continues to rise late in this century, even more changes could be required after  2084 to keep Social Security solvent.

Defense Secretary Sets Good Example With More Belt-tightening at the Pentagon

Defense Secretary Robert Gates forged ahead this week with more cost-cutting and efficiency efforts at the Pentagon, providing a good example for other government leaders to set better budget priorities. Some of the measures he announced Monday have enough bite, however, that substantial congressional resistance is expected.

Gates plans to close the Joint Forces Command in Norfolk, Va., which Pentagon officials said would be the first time in their memory that a major military command would be completely shut down. Gates also ordered steady reductions in the use of contractors, a freeze on the number of generals and admirals with the likelihood of eventual cuts in that number, other staffing freezes, elimination of various boards and commissions, and consideration of military base closings.

This is in addition to other cuts and efficiencies that the defense secretary has announced this year. Given the growing concern about the nation’s deficits, Gates argues that the Pentagon cannot expect the big annual funding increases it has received in the last decade, and so must save money in some areas to pay for needed improvements in others. The Concord Coalition believes that deficit reduction efforts in the coming years must include defense spending, and we support Gates' efforts to put military dollars to better use..

Legislation to Help States Offers a Model for Re-ordering Budget Priorities

Returning briefly from its summer recess, the House of Representatives today approved a bill that would spend $26 billion to ease state budgetary woes. The Senate passed the measure last week. This money would be used to prevent budget cuts and layoffs, with $10 billion designated for education. According to the Congressional Budget Office (CBO), such state aid is a relatively effective way to support the economy. 

It is notable that the new spending in the bill was offset with revenue increases and cuts in other spending, so that it would not add to the deficit. This will likely be the model for policymakers attempting to continue economic relief.

Concord applauds that effort. Moving money from lower priority items -- either spending or tax loopholes -- to higher priority items is the definition of budgeting. For economic relief, the test should be whether non-partisan economists like those at the CBO suggest we can get a good bang for the buck. Then we should shift money from the policies that don’t meet those tests to ones that do.