September 3, 2014

Washington Budget Report: July 24, 2012

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Forum to Focus on Europe’s Crisis and Possible Impact on U.S.

As Europe’s debt crisis worsens, American officials and analysts have expressed growing concern about the potential damage it could inflict on the United States. Many also wonder what lessons this country can draw from Europe’s difficulties.

The Committee for Economic Development (CED) and The Concord Coalition will present a public forum this Thursday morning in Washington that will address these and related issues, with a particular focus on the implications for U.S. fiscal policy.

Senate Budget Committee Chairman Kent Conrad will deliver the keynote speech. The forum will also feature Stephanie Riso, a fiscal policy expert from the European Union, and a panel of four American economists: Douglas Elliott, a Brookings fellow; Simon Johnson, an MIT professor; Joseph Minarik, senior vice president and director of research at CED, and Diane Lim Rogers, Concord’s chief economist. Ed Andrews, a former New York Times economics correspondent, will serve as moderator. (See link below for more program information.)

“Because the American and European economies have become so interconnected, we must be concerned about the risks that Europe’s problems pose to our own economy,” says Robert L. Bixby, Concord’s executive director. “With a fragile recovery, high government debt and unsustainable fiscal policies, the United States is not in a good position to withstand new shocks.”

While the United States is certainly not Greece or Spain, we can learn from Europe’s struggles to strike the right balance between short-term economic policies and long-term fiscal reforms designed to bring down high government deficits.

“Instead of more partisan brinksmanship,” Bixby said, “elected officials in the United States should be pursuing responsible fiscal and economic policies that would reassure Americans that we are not heading down the same path as the more problematic countries in Europe.”

CBO Issues New Estimates on Affordable Care Act

The Congressional Budget Office (CBO) today estimated that repealing the 2010 Affordable Care Act (ACA) would increase federal budget deficits between next year and 2022 by around $109 billion, only a small change from previous estimates. The CBO suggests that this can also be considered a rough estimate for how much the ACA reduces the deficit over the same time period.

The CBO cautions, however, that its estimates are uncertain because the projected effects of the law are themselves “highly uncertain.” The law contains some provisions that are projected to cost the government money, but others that would save money or provide additional revenue.

Also updated were CBO’s estimates of the budgetary effects of just the ACA’s health insurance coverage provisions in light of last month’s Supreme Court decision, which allows states to choose whether or not to expand eligibility for coverage under their Medicaid programs.

The budget office now estimates that these coverage provisions would have a net cost of $1,168 billion from 2012 to 2022, a net reduction of about $84 billion from estimates last March. This slightly reduced spending would come about because even with some states opting out of the relatively cheap Medicaid expansion and pushing some uninsured onto the more expensive private insurance exchanges, the “lower Medicaid enrollment (is) expected to more than offset the increase in costs from greater participation in newly established exchanges.”

House Moves Forward on Appropriations

On Capitol Hill last week, the House continued to make progress on Fiscal Year 2013 appropriations bills as the full House passed the defense bill with a 326-90 vote, and a subcommittee approved the Labor-HHS-Education bill. 

The defense bill includes almost $606 billion in funding -- $518 billion in non-war funding and $88 billion for overseas contingency operations such as the war in Afghanistan. The White House has threatened to veto the bill because it exceeds spending levels for defense that were included in last year’s Budget Control Act (BCA).

The Labor/HHS/Education bill approved by a House subcommittee last week includes a total of $150 billion in discretionary funding and would rescind most funding to implement the 2010 health care law. In a worrisome development, the bill would eliminate two agencies devoted to studying health care effectiveness and would prohibit all economic research at the National Institutes of Health.

Without the information from such research, it would be exceedingly difficult to lower health care costs in the future -- and would thus lead to much higher budgetary costs than would be saved by the bill’s cuts. The next step for the bill will be consideration by the full Appropriations Committee, though no meeting has been scheduled yet.

In the Senate, the Appropriations Committee has reported several of the bills, though none have been considered on the Senate floor. Senate Majority Leader Harry Reid has indicated that floor consideration of any of the individual bills is unlikely over the next few months due to a disagreement with the House over the budget allocation for the bills.

The President and Senate Democrats support the levels included in last year’s Budget Control Act. House Republicans have proposed further cuts to the overall allocation for appropriations, which would require cuts to domestic spending priorities if the bill exceeding the BCA’s defense spending level is enacted.

Over the next several weeks, attention is likely to turn to the continuing resolution necessary to prevent a government shutdown if -- as expected-- all of the bills are not passed prior to the beginning of the new fiscal year.

 

Growing Fiscal Pressures on the States

State governments face severe fiscal problems that threaten their ability to meet their obligations to citizens, public employees and creditors, according to a report released last week by the State Budget Crisis Task Force.

“The conclusion of the Task Force is unambiguous,” warned Paul A. Volcker and Richard Ravitch, the panel’s co-chairs. “The existing trajectory of state spending, taxation, and administrative practices cannot be sustained. The basic problem is not cyclical. It is structural.”

Volcker is a former Federal Reserve chairman who also serves on The Concord Coalition’s Board of Directors. Ravitch is a former lieutenant governor of New York. The task force of budget experts focused on six heavily populated states -- California, Illinois, New Jersey, New York, Texas and Virginia – but said other states had similar problems.

The report emphasizes the connection between the fiscal difficulties facing the federal government and those confronting the states, warning that “the federal budget crisis will have serious spillover effects on state and local governments.”

The task force identifies five other key fiscal threats for states: Medicaid spending growth, underfunded retirement promises, narrow and eroding tax bases with volatile revenues, fiscal stress in local government, and state budget laws and practices that “hinder fiscal stability” and mask imbalances.

Recommended solutions include greater transparency in government, more multiyear planning, state tax reform, more responsible management of pension plans and “prompt attention” to the possible effects of federal deficit reduction on the states.

 

Washington Must Do More Than Just Part of the Job

Although true fiscal reform will require changes throughout the federal budget, many elected officials continue to focus on only one slice of it: domestic spending programs for which Congress approves annual funding.

But cuts in this domestic “discretionary” spending can’t do the job alone, as Paul Hansen, western states regional director for The Concord Coalition, explains in a recent guest column in the Jackson Hole News & Guide.

Instead of taking a comprehensive approach, Hansen says, elected officials “keep coming back to the same places to look for more and more savings, and they never get the larger deficit-reduction job done.” Some popular programs involving what many people consider basic government functions “have been disproportionately targeted for cuts, producing inefficiencies, public frustration and poor long-term policies.”

Natural resource conservation programs, Hansen writes, provide a telling example: “The portion of the federal budget that covers all environmental and natural resource funding, called Function 300, has been cut substantially in recent decades. Thirty years ago, almost 4 percent of federal spending went to these programs. Today, this line item receives less than 1 percent, just $35 billion.”

‘Fix the Debt’ Aims for Bipartisan Cooperation

The "Campaign to Fix the Debt" was officially launched last week in Washington with the goal of pushing Congress to pass a comprehensive fiscal reform plan no later than July 4, 2013. The non-partisan initiative involves an array of organizations, business leaders and former public officials.

“On fiscal matters, neither political party can impose its will on the other, and that it is not likely to change after the election,” said Sam Nunn, a member of the campaign’s steering committee who is also a co-chairman of The Concord Coalition. “Successfully tackling our fiscal challenges requires members of Congress to come together across party lines with a balanced plan that will strengthen the economy, reassure markets, and save future generations from an unbearable debt burden.”

Chairing the “Fix the Debt” campaign are Ed Rendell, former Democratic governor of Pennsylvania, and Judd Gregg, former Republican governor and senator from New Hampshire and a member of Concord’s Board of Directors.

The new campaign also includes Erskine Bowles and Alan Simpson, the chairmen of the National Commission on Fiscal Responsibility and Reform. Bowles served as White House chief of staff in the Clinton administration, and Simpson was a Republican senator from Wyoming.

The Concord Coalition welcomes the initiative and endorses its core principles. “We plan to work collaboratively with the campaign to build understanding and support for a comprehensive fiscal sustainability plan,” said Concord Executive Director Robert L. Bixby.

The debt is approaching $16 trillion, and Congress will likely need to pass another increase in the debt ceiling before the end of the year. This week the Government Accountability Office estimated that last year’s delays in raising the debt limit increased the Treasury’s borrowing costs by $1.3 billion in 2011.