November 24, 2014

Washington Budget Report: Feb. 7, 2012

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Fiscal Warnings to Heed

Congressional Budget Office Director Douglas Elmendorf and Federal Reserve Chairman Ben Bernanke both have reminded lawmakers of the challenges ahead if policies are not enacted to place our nation on a fiscally sustainable path.

In testimony before the House and Senate Budget Committees last week, Elmendorf detailed new CBO projections that deficits would total $1.1 trillion this year and $3.1 trillion over the next ten years -- even under some optimistic assumptions.

He said the aging of the population and rising health care costs would continue to significantly increase mandatory spending for programs such as Social Security, Medicare, and Medicaid. If the spending is combined with revenues that remain close to the historical average, Elmendorf warned,  “the resulting deficits will increase federal debt to unsupportable levels.”

The Concord plausible baseline, which applies more realistic assumptions about future policy decisions to the CBO’s data, shows annual deficits remaining in the trillion-dollar range throughout the next decade, totaling almost $12 trillion in new debt.

Concord Coalition Executive Director Robert L. Bixby said recently that CBO’s projections and Concord’s estimates show that Washington needs “a comprehensive plan that spreads the burdens and sacrifices fairly, and includes all major areas of the budget: entitlement programs, domestic discretionary spending, defense and taxes.”

At a second House Budget Committee hearing last week, Bernanke said the “prospect of unsustainable deficits has costs, including an increased possibility of a sudden fiscal crisis.”  He added: “To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time.”

Bernanke is scheduled to testify this week before the Senate Budget Committee.

Work Continues on Payroll Tax Cut, Jobless Benefits

A congressional conference committee resumes work today on legislation to extend unemployment benefits and a temporary cut in the payroll tax that provides funding for Social Security. Partisan differences – particularly on paying for the extensions -- led Congress late last year to only approve short-term measures that expire at the end of this month.

The new legislation could also postpone a sharp cut that is scheduled in Medicare payments to doctors – something Congress has frequently done in the past rather than approve a realistic structural reform of the payment system.

The Treasury is replacing the lost revenue from the payroll tax holiday, essentially increasing the federal deficit to help pay current Social Security benefits. While this is designed to provide short-term support for the economic recovery, it underscores the often-denied link between Social Security and the rest of the federal budget.

A conference committee meeting last week largely avoided the difficult question of paying for the extensions as lawmakers focused on other issues, including regulations on industrial boilers. Democrats and Republicans traded complaints about unnecessary diversions from the key issues that need to be addressed by the end of the month.

The conference committee could hold as many as three public sessions this week. Congressional leaders in both parties have, in partisan terms, expressed impatience with the committee’s work.

On Friday Senate Majority Leader Harry Reid of Nevada said Democratic leaders had started drafting their own version of a package to extend the payroll tax, unemployment benefits and the doc fix. He warned that he would bring this measure to the floor if the conference committee fails to reach agreement soon.

On Monday House Speaker John Boehner and Majority Leader Eric Cantor issued a statement lamenting the “lack of progress” by the committee, calling on it to “immediately focus on some of the spending cuts that are in the House-passed bill.”

Economic Analysis on Eligibility Ages

Age 65 isn’t what it used to be, and longer life spans in the United States are expected to strain both government and private resources for supporting older Americans. That’s led to proposals to increase eligibility ages for some retirement benefits.

Diane Lim Rogers, chief economist for The Concord Coalition, discusses this issue in her most recent column in the Christian Science Monitor. She cites a recent Congressional Budget Office report that explains that if the eligibility age for Medicare were gradually increased from 65 to 67, for example, annual Medicare spending would decline by 5 percent.

A frequent criticism of increasing the Social Security eligibility age is that many lower-income people would lose income because they hold physically demanding jobs that are difficult to continue in their later years.

But Rogers explains that benefits do not have to be cut in a one-size-fits-all way.  Most proposals for Social Security and Medicare reform, in fact, would trim benefits or raise taxes primarily at the top of the income distribution.

"If lawmakers are going to cut spending and deficits,” Rogers says, “they will have to cut overall benefits on average. There's no way around that. But cutting benefits for those who can afford to work longer, both financially and physically, can spare – and perhaps even strengthen – the benefits for those who cannot easily work longer."

Rogers also spoke on this topic recently on southern California public radio station KPCC.

Read more at Working Beyond 65 Can Be Good. Is It Right? (Christian Science Monitor)

Debits & Credits

SEEKING COMPROMISE FOR A GOOD CAUSE: Senate Budget Committee Chairman Kent Conrad (D-N.D.) says new CBO projections underscore the need for bipartisan cooperation to achieve $4 trillion in deficit reduction over 10 years: “We will not solve this problem unless both sides, Democrats and Republicans, are willing to move off their fixed positions and find common ground.”

RESOLVED TO AVOID A BUDGET PLAN: While he’s happy to criticize House Republican budget plans, Senate Majority Leader Harry Reid says Democrats – for the third year in a row -- won’t even bring a budget resolution up for a vote in the Senate. “We don’t need to do it,” he argues, because he thinks legislation approved last summer to raise the debt limit is sufficient.  Given the failure of the Super Committee, however, it is disappointing that there will be no Senate budget resolution to build on the debt limit law by offering a specific path for deficit reduction.