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Washington Budget Report: April 24, 2013

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Simpson and Bowles Again Show a Way Forward

Alan Simpson and Erskine Bowles, who led a national fiscal commission to a bipartisan set of recommendations in late 2010, have released a new budget plan that shows once again that a mix of spending cuts and revenue increases can rein in deficits without short-term damage to the economy.

“It is not a plan for partisan purists,” Concord Coalition Executive Director Robert L. Bixby writes in a new blog post, “and that is why it could play a vital role in the coming months as Democrats and Republicans struggle to find a way forward on a budget compromise.”

The new Simpson-Bowles plan picks up where talks on comprehensive fiscal reform broke off last December between President Obama and House Speaker John Boehner. Simpson and Bowles describe it as “an effort to show both sides that a deal is possible; a deal where neither side compromises their principles but instead relies on principled compromise.”

The original Simpson-Bowles plan won support from a bipartisan majority of the National Commission on Fiscal Responsibility and Reform more than two years ago. Washington has made some progress on budget reform since then, primarily from tight spending caps on appropriations and a tax rate increase for upper-income households.

But as Simpson and Bowles point out, more remains to be done to alter the long-term growth trajectory of federal debt.

They propose $2.15 trillion in savings from policy changes over the next 10 years, which would reduce interest costs by another $350 billion. In addition to specific programmatic reforms, the plan would adopt a new government-wide measure of inflation (“chained CPI”) that many economists consider more accurate than what is currently used.

There would be an additional package of reforms that includes an illustrative Social Security solvency plan and restraints on federal health care commitments beginning in 2018.

“A noteworthy feature of this plan is that it is not a random catalogue of spending cuts and tax increases designed solely to reduce the deficit,” Bixby says. “The recommended policies are aimed at improving the efficiency and effectiveness of government programs, including health care delivery and provisions of the tax code.”

He also points out that the changes would mostly be phased in to avoid a sharp economic contraction.

BPC Suggests Key Changes in Health Care

The Bipartisan Policy Center’s (BPC) Health Care Cost Containment Initiative released a comprehensive plan last week to increase efficiency, reduce costs and reorient the nation’s health care system to make it more patient-centered.

As Concord Coalition Policy Director Joshua Gordon explains in a new blog post, the plan targets the largest health care levers that federal policymakers have: Medicare and the tax code -- specifically the exclusion of employer-provided health care from taxation. The plan, as scored by health policy experts, would reduce budget deficits over the next 10 years and then continue to lower the trajectory of the federal debt.

The BPC’s health care leaders reached bipartisan agreement after a year of discussion, painstaking research and stakeholder outreach -- an accomplishment that suggests their conclusions might be more than just a legislative pipe dream. In fact, Gordon says, the BPC plan might make a good “grand bargain” if a more comprehensive one can’t be reached.

While the budgetary “score” would be lower than for a grand bargain such as Alan Simpson and Erskine Bowles have suggested, this smaller deal would still reflect the core values and essence of their plan: Limiting tax expenditures and reforming Medicare.

Conference Focuses on Fiscal Challenges and Launches Rudman Center

Prominent experts on the federal budget as well as current and former lawmakers honored the late Warren B. Rudman while echoing his calls for broad fiscal reforms in a national conference Monday in New Hampshire. The event was co-hosted by the University of New Hampshire School of Law, The Concord Coalition and New Hampshire Public Radio.

Rudman, who represented New Hampshire for two distinguished terms in the U.S. Senate, was a founding co-chair of Concord up until his death last year. Monday’s conference marked the formal launch of the law school’s Warren B. Rudman Center for Justice, Leadership and Public Policy.

“Warren Rudman was a wise and courageous political leader who focused on the broad public interest – a man of strong principles who still understood the importance of thoughtful compromise,” said Robert L. Bixby, executive director of The Concord Coalition. He said Concord looked forward to working with the Rudman Center to preserve Rudman’s legacy.

Former U.S. Comptroller General David M. Walker and former U.S. Senator Olympia Snowe were the featured speakers at the conference, entitled “The Federal Budget and the Law: Finding a Way Forward.”

In addition, two panels included Senator Kelly Ayotte (R-N.H.), Senator John McCain (R-Ariz.), former Senator Phil Gramm (R-Tex.), former Senator Bob Kerrey (D-Neb.), former Congressional Budget Office Director Alice Rivlin, former Senator Pete Domenici (R-N.M.), Concord’s Bixby and Bill Hoagland, senior vice president of the Bipartisan Policy Center.

Peter G. Peterson, a co-founder of The Concord Coalition and chairman of the Peter G. Peterson Foundation, also spoke.

Ari Shapiro of National Public Radio moderated both panels and University of New Hampshire School of Law Dean John Broderick appeared as well.

It was repeatedly noted at the conference that Rudman’s warnings about the nation’s irresponsible and unsustainable course had proven to be on target, with the federal debt rising rapidly and the nation facing a variety of fiscal, economic and demographic challenges.

While elected officials have made some progress in curbing projected deficits, much more remains to be done. Several speakers put particular emphasis on the need for changes in the big federal entitlement programs to deal with the budget pressures from an aging population and rising health care costs.

There were also calls for fundamental reform of the nation’s tax code to simplify its provisions, improve its efficiency, encourage greater economic growth and reduce federal borrowing.

Congress Needs to Pursue 'Regular Order' on Budget Plans

The hope for "regular order" on a budget resolution stalled this week as unfortunate partisan bickering continued over whether lawmakers should proceed with a House and Senate conference committee.

Republicans on Tuesday blocked an attempt by Senate Majority Leader Harry Reid to proceed with appointments to a budget conference. Republicans have expressed concern about proceeding with conference negotiations without sufficient indications that the talks would succeed. Democrats say Republicans, who have called for regular order in the past, are now backing away from it.

The Concord Coalition has urged lawmakers to proceed under regular order to work out a compromise budget plan, since past attempts to compromise outside of the budget process have left the nation facing a series of fiscal cliffs and crises.


‘Chained CPI’ Represents a Balanced Approach

A House subcommittee heard testimony last week about the possibility of relying on a more accurate measure of inflation for the tax code and cost-of-living adjustments in federal benefits, an idea that The Concord Coalition and many economists support.

Use of this measure – known as the “chained CPI” – would help gradually reduce federal deficits and represents a balanced approach to fiscal reform, with both spending reductions and increased revenues.

To President Obama’s credit, his proposed budget for Fiscal 2014 would switch to the chained CPI for Social Security and some other spending programs as well as for the tax system. The Ways and Means Subcommittee on Social Security heard testimony on the subject last Thursday.

Jeffrey Kling, associate director for economic analysis with the Congressional Budget Office (CBO), said many analysts think the government’s traditional Consumer Price Index, or CPI, overstates increases in the cost of living because it does not fully account for changes in consumer spending patterns as the result of price changes. In addition, he said, the traditional CPI has a “statistical bias” related to limited data collection.

Ed Lorenzen, executive director of The Moment of Truth Project, was emphatic in explaining the merits of the chained CPI. He said the index, created in 2002, “enjoys broad support from experts across the political and ideological spectrum who agree that it is the best available measure for overall changes in the cost of living.”

Every serious bipartisan budget plan, Lorenzen noted, has included use of the chained CPI. He said it enjoyed very strong support on the Simpson-Bowles fiscal commission.

“Addressing our fiscal challenges will require many tough choices and policies, but adopting the chained CPI represents neither,” he said. “Eliminating the unjustified increases in spending and reduced revenues from the current inaccurate measure of inflation should be a priority for any comprehensive deficit reduction plan.”

The subcommittee also received testimony from Nancy Altman, co-chair of the Strengthen Social Security Coalition; Charles P. Blahous III, a Social Security and Medicare trustee, and BLS officials.