September 16, 2014

Washington Budget Report: June 14, 2011

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Budget Talks Kick Into Higher Gear

Congress and the White House are accelerating their budget and debt limit negotiations amid growing concerns about the economic recovery and the possibility that a political stalemate could trigger turmoil in the financial markets.

After only one meeting so far this month, the bipartisan talks chaired by Vice President Joe Biden are scheduled for three sessions this week, starting today. Some officials have suggested that these talks, involving key lawmakers and presidential aides, could reach an agreement well before Aug. 2, when the Treasury says it will no longer be able to avoid default under the current debt limit.

But fundamental differences between the two parties remain, particularly over the question of additional tax revenue. With huge deficits projected for the coming decade, The Concord Coalition has urged elected officials to keep all options on the table.

Last Wednesday Fitch Ratings, echoing concerns voiced recently by two other ratings agencies, threatened to downgrade the U.S. government’s credit rating if Congress fails to increase the debt ceiling by early August.

In addition to the Biden talks, a small bipartisan group of senators are continuing their promising work on a comprehensive, long-term fiscal plan, briefing about 20 Senate colleagues last week on possible proposals.

Elected officials and others worry over weakening job growth and a survey released by the Federal Reserve on Wednesday that pointed to higher energy prices, severe weather and other challenges to the economic recovery. Fed Chairman Ben Bernanke last week reiterated his view that putting government finances on a sustainable long-term path could provide immediate economic benefits.

Misconceptions About the Medicare Board

Much of the political debate over health care costs continues to focus on who should pay them rather than how to curb their growth. Republicans want private insurers and individuals to pay while Democrats want the government to be the predominant payer for millions of Americans, notably retirees with Medicare.

Either way, the primary driver of health care costs will be what doctors tell their patients. This is why the Independent Payment Advisory Board (IPAB), created by the 2010 Affordable Care Act, is so important in the effort to control costs. The IPAB will be made up of 15 experts -- confirmed by the Senate --  who will represent  participants in the health care system.

Contrary to what some IPAB critics charge, the board will be specifically prohibited from rationing Medicare benefits, increasing costs for beneficiaries, and raising taxes. But as Concord Coalition Policy Director Joshua Gordon explains in a CNN.Money guest column and a new Concord blog posting, the IPAB will ensure that “promising innovations in cost control will get fair trials based on medical expertise” and will encourage changes in the financial incentives affecting doctors, hospitals and other providers.

“Ultimately,” Gordon writes, “in a country struggling mightily with unaffordable health care costs now, and destined to struggle even more in the future, the IPAB is one of the institutions that give some hope that if we figure out how to control costs, we just might be able to put that knowledge to use.”

A Civil Approach to Tax Policy

Although Justice Oliver Wendell Holmes once described taxes as “what we pay for civilized society,” political debates over taxes have often been anything but civilized. In recent weeks differences over tax policy in Washington have remained a major obstacle for elected officials who are trying to develop deficit-reduction plans.

But Diane Lim Rogers, chief economist for The Concord Coalition, believes that Republicans and Democrats in Washington should be able to find common ground on some tax reforms that could meet the goals of both parties. Such reforms could simplify and streamline the tax code, help improve the nation’s fiscal outlook and contribute to a stronger economy.

Rogers will explore such issues in a new column, “Taxes for a Civilized Society,” in the weekly magazine Tax Notes. The column will focus on the federal budget, tax policy and deficit reduction.

In her inaugural column, Rogers explains that "being civilized" about taxes means recognizing their contribution to the federal budget as a whole, improving the system so it can efficiently and equitably collect sufficient revenue, and encouraging policymakers to reach agreement on policies that will promote the common good.

Tighter Military Budgets, Better Oversight on Aid Needed

With Congress increasingly concerned about military spending in Afghanistan and elsewhere, Leon Panetta signaled last week that as the next secretary of defense he would carefully rein in spending. The former director of the Office of Management and Budget said that he and outgoing Defense Secretary Robert Gates -- who has emphasized the need for greater efficiency and priority-setting --  “pretty much walk hand-in-hand on these issues.”

Also last week, a report by the Senate Foreign Relations Committee suggested that much of the American aid to Afghanistan has fueled corruption and failed to thwart violence. According to the report, U.S. financing has helped create “a culture of aid dependency” that hinders Afghanistan’s prospects for future self-sufficiency. The report underscores the need to ensure more effective use of U.S. tax dollars.

In an encouraging sign that the Pentagon is serious about getting long-term costs under control, Deputy Defense Secretary William Lynn acknowledged last week that the Pentagon would not be exempt from deficit reduction efforts. Lynn said that while the military was able to address new threats after the 9/11 terrorist attacks by increasing funding, “it’s clear we’re not going to have that luxury for the foreseeable future.”

Debits & Credits

Let’s Not Go There: Former CBO directors Douglas Holtz-Eakin, Robert Reischauer and Rudy Penner vigorously warned congressional skeptics last week that a federal default, even for a brief period, could have disastrous consequences. "Little defaults, big defaults; default's a bad idea period, and there should be no one who believes otherwise," Holtz-Eakin said.

High Hopes Aplenty: GOP presidential hopeful Tim Pawlenty suggested last week that the U.S. economy could grow 5 percent a year for the next decade – far above the 3.2 percent average for the last half century. How would the country achieve this marvelous feat, which the former Minnesota governor noted would slice projected deficits by 40 percent “before we made a single budget cut”? Well, he explained, simply setting this goal would “inspire the actions needed to reach it.”