October 22, 2014

Washington Budget Report: March 27, 2012

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House To Vote on Budget Plans

House lawmakers this week are considering the 2013 budget proposed by Rep. Paul Ryan (R-Wis.) as well as alternatives that were put forth yesterday by House Democrats, the Republican Study Committee, the Congressional Black Caucus, the Congressional Progressive Caucus and others.

The House Budget Committee last week narrowly approved the Ryan plan, which calls for significant changes in Medicare, the elimination of many tax breaks and lower spending on annually approved discretionary programs than under last year’s Budget Control Act.

The full House is expected to take action on the plan later this week. Ryan, chairman of the budget committee, unveiled the plan last week. On Wednesday it won that committee’s approval on a 19-18 vote, with Democrats and two Republicans in opposition.

The Ryan plan has the backing of the Republican leadership in the House. In many ways it resembles the budget that Ryan proposed and the House approved last year, but there are some significant differences as well.

Democrats have objected to various parts of the Ryan budget and complained that its lower spending cap violated a deal that had been negotiated last year. House Democrats said their alternative, based largely on President Obama’s proposed budget, takes “a balanced approach to meeting the nation’s fiscal challenges” while protecting the social safety net and providing tax relief for working families.

Last week the Concord Coalition praised Ryan for including plans to rein in health care spending, seeking tax simplification and improving his proposed premium support system for Medicare in ways that could draw more bipartisan support.

But Concord has criticized the Ryan budget for deficit reduction numbers that depend on “a broad array of policy choices that are not spelled out and seem unrealistic.” The budget fails to specify what tax breaks would end; given the proposed tax 10 percent and 25 percent tax brackets, it is likely that almost all tax expenditures would have to be eliminated.

Unlike the recommendations of the President’s bipartisan fiscal commission, the Ryan plan fails to devote any of the revenue from base-broadening reforms to deficit reduction. The plan has also created uncertainty about what would happen to automatic cuts in domestic and defense spending that will start taking effect next January under current law.

Supreme Court Considers Health Care Law

The U.S. Supreme Court is hearing arguments today on the constitutionality of a provision in the 2010 health care law that will require most Americans to buy health insurance or face financial penalties.

This is the second day of oral arguments over the Affordable Care Act (ACA), which  revamps the health care system. On Monday the court heard arguments about whether it could decide the case now rather than waiting until after the government began collecting the penalties.

An 1867 law restricts lawsuits that could restrain tax collections in advance, and some argue that the penalties are essentially taxes. Questions and comments from the justices yesterday, however, indicated that they intend to rule on the case sooner rather than later.

The Concord Coalition has applauded the ACA’s attempt to pay for expanded coverage in a deficit-neutral manner, but many of the cost-containment measures may be difficult to maintain over time and others rely on unproven strategies that are worth pursuing but might not turn out to be effective.

For that reason, Concord has criticized efforts in Congress to do away with the law’s Independent Payment Advisory Board (IPAB), which was designed to help rein in Medicare costs if they increase too rapidly. Last week the House approved a bill to abolish the panel.

If the Supreme Court were to strike down the ACA, Congress would need to quickly pass new cost-control measures that are at least as strong as those in the law. If the court rejected key financing provisions, elected officials should not keep the more popular parts of the legislation without ensuring that they will be paid for in a responsible way.

Report Notes Tax Reform Hurdles

Despite considerable congressional interest in eliminating many of  the tax breaks that favor some individuals over others, a new report by the Congressional Research Service (CRS) warns of a number of complexities in attempting to broaden the tax base.

“In a nutshell,” says Concord Coalition Chief Economist Diane Lim Rogers, “the report could be called ‘Base Broadening Is Hard to Do.’ ”

The CRS report says there are more than 200 “tax expenditures” that cost the government more than $1 trillion a year in revenue. The 20 largest ones account for 90 percent of that lost revenue.
CRS notes the political popularity of the largest tax subsidies and calls attention to the administrative challenges in taxing previously untaxed income.

The CRS study suggests it would be difficult for base-broadening efforts to produce more than $100 billion to $150 billion a year in additional revenue.

“I think we could actually do better,” Rogers writes in a blog posting this morning. For example, she says, “there are ways to substantially reduce the cost of the most expensive tax expenditures to make the reductions more palatable from a distributional perspective while still raising enough revenue to support a decent amount of rate reduction.”

Read more with New Report on Tax Reform: Base Broadening Is Hard To Do

Student Loan Debts Under Scrutiny

Student loan debt appears to have recently surpassed $1 trillion, far higher than previous estimates had indicated, according to the federal Consumer Financial Protection Bureau (CFPB).

“Unlike other consumer credit products, student debt keeps growing at a steady clip,” said Rohit Chopra, the bureau’s student loan ombudsman, in a speech last week to an Austin conference. “Students borrowed $117 billion in just federal student loans last year.”

The CFPB, established in 2010, is conducting what it describes as “the first major effort to understand the size of the student loan market,” which it supervises. Chopra called the study’s initial findings “sobering” and indicative of a market that is “too big to fail,” a term that has come to signal possible risks to the stability of financial markets.

His remarks came several weeks after Federal Reserve Chairman Ben Bernanke warned Congress that the rapid growth in student loan debt required “careful oversight” from regulators. On a personal note, Bernanke said in congressional testimony that his son was likely to run up $400,000 in debt by the time he graduated from medical school.

“Too much debt,” Chopra said, “means too much risk for a generation of young people, many of whom are struggling in today’s economy.”

The Concord Coalition points out that Washington is also putting younger Americans at risk by building up enormous federal debts and other unfunded government liabilities that, absent reform, will weaken the economy and diminish the U.S. standard of living. Excessive student loan debt  also makes it more difficult for young people to set aside money for everything from their first homes to their retirements.

“The financial services industry, the higher education community, and policymakers all bear responsibility to address the underlying causes of the growing debt levels,” Chopra said. His agency plans to release the full results of its study on student loans this summer.