October 31, 2014

Washington Budget Report: March 21, 2012

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House Panel Considers New GOP Budget Plan

The House Budget Committee has begun considering a proposed budget that includes many elements of a plan that House Republicans approved last year but also some significant changes.

The Concord Coalition commended Budget Committee Chairman Paul Ryan (R-Wis.), who released the new plan Tuesday, for including proposals to curb health care spending and simplify the tax code. But Concord criticized his deficit reduction numbers for depending on “a broad array of policy choices that are not spelled out and seem unrealistic.”

“We have a major fiscal challenge that cannot be cured by minor tweaks,” said Robert L. Bixby, Concord’s executive director. “Chairman Ryan’s proposal fits the magnitude of the challenge, particularly in suggesting major structural changes in Medicare and Medicaid, which comprise the biggest share of projected federal program costs. These proposed changes will no doubt prove controversial but they should spark a needed debate about the most effective way to control health care costs.”

Ryan’s proposal to shift Medicare to a premium support system had been improved in ways that could draw more bipartisan interest. But Concord says the budget plan’s assumptions for discretionary spending appear unrealistic, both in the short term and longer term, and reflect an unfortunate reluctance to reduce defense spending.

The proposed budget would broaden the tax base while lowering rates, following the lead of bipartisan panels that have recommended reforms to cut back on “tax expenditures,” which are essentially spending programs embedded in the tax code.

While Bixby praised this basic approach to tax reform, he noted that Ryan’s budget fails to specify what tax breaks would be eliminated. To lower tax rates to the budget chairman’s proposed 10 percent and 25 percent brackets, Bixby said, “it is likely that almost all tax expenditures would have to be eliminated.”

The White House and congressional Democrats immediately criticized the Ryan plan. Senate Budget Committee Chairman Kent Conrad raised concerns about the proposed tax cuts for the wealthy and health care spending levels while calling the plan "unbalanced and unfair."

Democrats also complained that Republicans were reneging on a spending agreement that was negotiated last year as part of the Budget Control Act. On Tuesday Conrad announced that he would formally file budget allocations matching the levels that were called for in that law.

Read more with Concord Coalition Commends Paul Ryan for Proposing Major Entitlement and Tax Reform But Key Details Must Be Filled In

CBO Highlights Key Points in Obama’s Budget

The Congressional Budget Office (CBO) estimates that under President Obama’s proposed budget for 2013 deficits would drop for a few years but then rise again, totaling $6.4 trillion over the coming decade. Federal debt held by domestic and foreign investors would increase to $18.8 trillion by the end of 2022 – equaling 76 percent of the Gross Domestic Product, up from 68 percent at the end of 2011.

The new analysis, released Friday by CBO, supports the concern voiced by The Concord Coalition in February that the President’s budget, despite tax reform proposals and some other positive elements, fails to chart a sustainable long-term course for the country.

As the CBO analysis confirms, the biggest policy initiative in the administration’s budget is the proposal to permanently extend the 2001 and 2003 tax cuts for all taxpayers except for those at the top of the income scale. The cost: $3.5 trillion, plus hundreds of billions of dollars in additional interest payments.

The administration also wants to reduce the future impact of the alternative minimum tax and make other changes in certain tax and spending policies. All told, the budget would directly add to federal borrowing by $2.9 trillion and require $.6 trillion in additional interest payments, according to the CBO.

Conflicting claims of “deficit reduction” and “deficit increases” cloud the current federal budget debate. These claims differ because they depend entirely on the projections that are used as starting points for the calculations. The administration is starting with projections that enable it to claim to be reducing deficits where the CBO, focusing on a different baseline, sees an increase.

Such confusion related to starting points is why Concord urges elected officials and the public to focus on the bottom-line figures. The new CBO analysis shows federal debt held by investors, for example, rising from $10.1 trillion at the end of 2011 to $15.2 trillion in 2017, and continuing on to $18.8 trillion by the end of 2022.

The CBO notes that Obama’s budget does not include the automatic spending reductions that are required by last year’s Budget Control Act because of the failure of the  congressional “super committee” process last fall. This omission, CBO says, would boost spending by $1 trillion over 10 years.

The administration, however, has proposed alternative measures to replace the automatic cuts. If Congress were to approve those alternatives, the savings could offset the loss of the automatic cuts.

In making its latest projections, the CBO used somewhat more pessimistic economic assumptions than the administration, especially regarding wages and salary income. This caused CBO to anticipate both lower revenues and lower federal spending.

But the overall differences on the bottom-line numbers for the next decade are not large. Ideally, this should make it easier for elected officials in both parties to agree that, despite last year’s spending cuts, a more comprehensive approach to long-term fiscal reform is needed.

Using the CBO’s new data and reasonable assumptions about future policy decisions, Concord has updated its Plausible Baseline projections.

Honest Discussion Needed on Transportation Priorities

In a 74-22 vote last week, the Senate passed a two-year highway bill authorizing about $109 billion in spending. The previous authorization bill was enacted in 2005 and expired in 2009. Since then Congress has approved several extensions, and the most recent one expires at the end of this month.

Attention now turns to the House where the leadership must decide whether to vote on the Senate bill, consider another short-term extension, or try again to build support for a five-year $260 billion bill approved by the House Transportation and Infrastructure Committee earlier this year. Speaker John Boehner has not scheduled a vote on the House bill because many Republicans are concerned about its cost. Democrats oppose the bill due to funding cuts and provisions such as a proposal to use oil drilling revenues as an offset.

A gap between spending needs and gas tax revenues flowing into the Highway Trust Fund has made agreement on a new bill difficult in recent years.  Since 2001, outlays have generally exceeded revenues in the trust fund.  Earlier this year, CBO estimated that the two accounts that fund the highway trust fund would be unable to meet obligations within two years.

An honest discussion of the trade-offs needed to fund transportation priorities should be on the agenda when a final bill is negotiated. Spending from the trust fund should be limited to the revenues collected, and policymakers should end the practice of funding new spending with deficit-financed transfers from the general fund of the Treasury. Policymakers should agree on realistic spending levels that reflect a bipartisan consensus of actual needs. When revenues in the trust fund fall short of these levels, any additional spending should be paid for with credible offsets that are sustainable over the long term.

Read more with The Highway Bill: Guideposts for Policymakers

Cost Estimate Confusion on Health Care

Is the 2010 health care legislation now projected to cost substantially more than previously estimated? No, but as Concord Coalition Policy Director Joshua Gordon explains in a new blog posting, there has been considerable confusion on the subject.

The cost estimates for the legislation, he writes, “are still tracking pretty closely to the trajectory projected by the Congressional Budget Office (CBO) in 2010.” But the CBO recently updated its cost estimates for one part of the Affordable Care Act (ACA). That part will require nearly all Americans to obtain health insurance and will create the exchanges, subsidies and expanded Medicaid program to help provide that coverage.

Some people have treated the CBO’s update as though it involved projections for the entire ACA, which it does not. And while some of the CBO’s new cost estimates are higher than earlier projections, this is simply because the older estimates were for an earlier 10-year period.

“Since the legislation has very little cost until 2014,” Gordon explains, “the difference between the two estimates can be almost entirely explained by the fact that the new estimate covers an additional three years of fully implemented insurance coverage.”

Read more with The Costs Remain the Same