July 23, 2014

Washington Budget Report: Feb. 14, 2012

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Obama’s Budget: Strengths and Shortcomings

President Obama’s new budget calls for substantial tax reform, higher taxes on the wealthy, cuts in some programs and additional spending in others. The plan drew heavy criticism from Republicans and mixed reviews from The Concord Coalition and other non-partisan analysts.

Robert L. Bixby, Concord’s executive director, described the plan as resembling a Rorschach test: “Interpreting Obama’s budget depends a lot on which proposals and projections you emphasize.” He said it is important to focus not on how much deficit reduction is claimed but on “where spending, revenues, deficits and debt end up as a percentage of the overall economy, and whether the policy assumptions for getting there are credible.”

On the positive side, Obama’s budget recognizes that the country’s fiscal challenges cannot be met by focusing only on further restraint in the discretionary  spending that Congress approves each year for domestic programs and defense. Elected officials must also focus on entitlement spending, health care costs and the tax system.

The President continues to call for doing away with many of the special provisions in the tax code that favor some taxpayers over others, worsen the deficit and make tax returns unnecessarily complex. His efforts to achieve some incremental savings in various areas are noteworthy as well.

It is disappointing, however, that the administration has not shown greater commitment to the broad structural reforms that were recommended by his fiscal commission as well as other bipartisan groups.

Bixby also faults the administration for some of its numbers, including $850 billion in “war savings” that were not going to be spent anyway. “And while the President plans to save some money by letting certain tax cuts expire for the wealthy this December, those ‘savings’ would be more than wiped out by his proposal to extend the tax cuts for everyone else,” Bixby said.

It would be difficult to pursue some of the policy initiatives in the President’s plan while complying with recently enacted budget restraints. For example, the proposed budget calls for major new domestic investments while at the same time promising to stick with caps that are projected to cut discretionary spending to its lowest level in the past 50 years.

Read more with Concord Coalition Gives Mixed Reviews to the President’s Budget

Limiting Tax Breaks Can Help Cut Deficits

In recent years President Obama has repeatedly suggested limiting the tax benefits on itemized deductions to 28 percent, a proposal that the Congress Budget Office has estimated could raise $293 billion over 10 years.

Diane Lim Rogers, chief economist for The Concord Coalition, calls it a “great idea” because it would reduce a large tax subsidy that favors higher-income households – while at the same time improving the economic efficiency of the tax code and reducing the government’s need to borrow more money.

In its new budget proposal for Fiscal 2013, Rogers notes, the administration expands on this idea by proposing that the 28 percent limit apply not only to itemized deductions but to a host of other tax breaks that disproportionately benefit upper-income taxpayers while pumping up the federal deficit. These include breaks for employer-sponsored health insurance and retirement  contributions.

“All these current tax preferences would be limited to that which a taxpayer in the 28 percent tax bracket could enjoy,” Rogers writes in a blog posting today. “As a result, the administration estimates the broader proposal would raise $584 billion over 10 years—about double the revenue raised from the itemized deduction proposal alone.”

The itemized deduction limit, she says, would be “a piece of cake to implement.”  But she warns that implementing the broader part of the President’s new proposal would be more challenging.

Read more with The President’s Proposal to Limit Itemized Deductions Is Still a Great Idea

GOP Leaders Float New Payroll Tax Plan

House Republican leaders say they could introduce legislation this week to extend the Social Security payroll tax holiday through the end of the year without offsetting the cost. The announcement Monday came after continued haggling between Democrats and Republicans over extending the temporary tax cut as well as unemployment benefits and the “doc fix,” a delay in scheduled cuts in Medicare reimbursement rates for doctors.

Most lawmakers in both parties say they want to extend these policies. But they have been unable to agree on how to pay for them, with accusations of procrastination and bad faith in conference committee talks flying in both directions. The current extensions, approved late last year, are scheduled to expire at the end of this month.

Speaker John Boehner and other House Republican leaders characterized their new proposal in a statement Monday as a “backup plan” that would ensure continuation of the payroll tax cut while negotiations continued over the other extensions.

While their announcement was seen by some as a big political concession on the payroll tax cut, Democrats also expressed concern about the idea of separating that popular issue from the other proposed extensions.

Congress needs to pay for long-term recurring policies like the doc fix. Ideally, the short-term measures that help support the economy would be paid for as well, although it makes sense to phase in offsets so as not to blunt the policies’ immediate economic effects. 

Insurer Shifts Focus to Health Care Quality

The nation’s largest private health insurer is launching a plan to move away from the traditional fee-for-service system that many analysts say bears much of the blame for excessive medical spending.

Under traditional fee-for-service plans, compensation for providers of medical care is based on individual services. The Concord Coalition and other advocates of health care reform have long argued that this creates powerful incentives to provide excessive and sometimes even harmful treatments rather than focusing on medical outcomes.  And rising medical costs, coupled with an aging population, are a critical factor in the long-term structural deficits in the federal budget.

UnitedHealth Group Inc. is introducing a plan that could tie some of the compensation for providers to goals such as avoiding hospital re-admissions and ensuring that patients receive certain screenings, according a Feb. 9 story in The Wall Street Journal. In some cases, failure to meet certain standards could result in lower payments.

UnitedHealth began sending information about the changes to employers in late January. While the new plan appears to be particularly extensive, it comes as other insurance providers are also changing their reimbursement policies to focus on quality standards as well as promote more primary care. This is momentum in the right direction.