November 23, 2014

Washington Budget Report: Sep. 14, 2010

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Amid Uncertainty, Projections Show Health Reform Legislation Will Slightly Raise Spending Over Next Decade

Updated estimates by a federal agency indicate that spending on health care will rise from 17.3 percent of GDP last year to 19.3 percent in 2019 -- 0.3 percent higher as a result of this year’s health reform legislation and a few other changes.

According to the Center for Medicare and Medicaid Services (CMS), by 2019 about 32.5 million more individuals will have health insurance. That would be nearly 93 percent of the population, compared to 83 percent before the legislation.

Concord Coalition Policy Director Joshua Gordon notes in a new blog post, however, that the report doesn’t offer hard numbers on the growth of health care costs over the long term. The recent Medicare trustees report, though, suggests that the cost-control efforts in new legislation could gradually produce modest savings.

But both CMS and the trustees note tremendous uncertainty in coming to any conclusions on overall health care costs -- especially over the long term -- from such a complex piece of legislation. What is also clear, Gordon says, is that the relatively benign projections on the cost of the reform legislation will depend on Congress sticking to the cost controls that were built into it.

Secretary of State: Debt Level Is a “National Security Threat”

In a speech to the Council on Foreign Relations, Secretary of State Hillary Clinton last week called the debt level “a national security threat” that sends “a message of weakness internationally.” The debt, Clinton said, “undermines our capacity to act in our own interest, and it does constrain us where constraint may be undesirable.”

Her warning is appropriate and comes at a key time, as Congress considers additional tax breaks and the President’s bipartisan fiscal commission works on possible recommendations for later this year. The State Department, meanwhile, is taking over many of the operations in Iraq from the military.

Clinton indicated that the department could become more efficient in some areas. She also urged Congress to set priorities: “Whether one is a Republican or a Democrat, a conservative, a progressive, whatever you call yourself, there is no free lunch, and we cannot pretend that there is without doing grave harm to our country and our future generations.”

Another warning about U.S. debt comes from The World Economic Forum. It reported last week that large deficits and a weakened financial system have made the United States less competitive. In two years the country has slipped from first in global economic competitiveness to fourth -- behind Switzerland, Sweden and Singapore.

Policymakers Should Pay for Any Additional Infrastructure Spending

Last week President Obama called for an additional $50 billion in infrastructure spending, which he argued would create jobs and help the nation to compete in the global economy. It is encouraging that the administration has said that it will work with Congress to fully pay for the plan.

Obama once again proposed creating an infrastructure bank to increase coordination and use federal dollars to leverage private and state funding.  At a 2008 hearing, then CBO Director Peter Orszag cautioned that while creating entities to finance projects outside of the appropriations process could allow federal spending to support more projects, "they are not sources of free money."  If the bank were to have the authority to issue its own debt, it could incur higher interest costs than the Treasury and potentially expose the government to the risk of default.

CBO Director Doug Elmendorf testified earlier this year that infrastructure spending directly increases employment as workers are hired for construction projects. However, he pointed out that "infrastructure projects often involve considerable start-up lags." CBO has ranked infrastructure spending as less effective than proposals such as a payroll tax reduction that would work more quickly.

Economic stimulus and fiscal responsibility need not be mutually exclusive. When $50 billion in additional infrastructure spending is on the table, offsets such as increasing the gas tax or cutting spending in other areas should also be a part of the discussion.

Fiscal Responsibility, More Effective Options Are Neglected in Talk About Extending Bush Tax Cuts

There’s talk of a political compromise on extending the Bush tax cuts but Diane Lim Rogers, The Concord Coalition’s chief economist, worries that fiscal responsibility is still taking a back seat. In a blog post today, she writes: “This is the same kind of ‘compromise’ on fiscal policies we've seen for the past decade: ‘I'll let you have your favorite deficit-financed policies (even those I don't like) if I can have some of mine (that you don't like), too.’ ”

Rogers finds it troubling, for example, that there has been some discussion of raising the threshold for “middle-class” tax relief to families with incomes of up to $1 million a year.

She does not find the economic stimulus argument for the tax cuts very persuasive because other types of tax cuts, according to the nonpartisan Congressional Budget Office, would provide more “bang per buck” in helping the U.S. economy recover.

As for the longer term, deficit-financed tax reductions will actually hurt economic growth. It would make far more sense, Rogers argues, to reform the tax system in ways that broaden the tax base and provide sufficient revenues to cover government expenses.

"Fiscal Solutions Tour" Experts Focus on Possible Answers to Difficult Challenges

At a press briefing Wednesday in Washington, Concord Coalition Executive Director Robert L. Bixby and other budget experts stressed the importance of finding fair, effective solutions to the nation’s fiscal and economic challenges.

The briefing, held at the National Press Club, marked the launch of the Fiscal Solutions Tour, which is being conducted by Concord with support from The Peter G. Peterson Foundation. The tour is designed to foster informed public dialogue in cities around the country by presenting diverse perspectives on how to move the federal budget onto a responsible path.

The tour will begin on the West Coast with programs in San Francisco (Sept. 23) and San Jose (Sept. 24). The tour will later visit Des Moines (Sept. 30); Portsmouth, New Hampshire (Oct. 7); Philadelphia (Oct. 22) and Chicago (Nov. 12).

Bixby was joined at the briefing Wednesday by David M. Walker, president and CEO of the Peterson Foundation; Douglas Holtz-Eakin, president of the American Action Forum; Bill Novelli, a professor at Georgetown University, and Isabel Sawhill, senior fellow in Economic Studies at Brookings.

“Fortunately, the country has options that could put it on a more sustainable course – one that would make our country stronger rather than weaker for coming generations, “ Bixby said.

Walker added: “Given the sheer magnitude of the fiscal challenges we face, a narrow or ideologically driven approach will not work. All options need to be on the table and we need to adopt a plan of action soon.”