September 20, 2014

Washington Budget Report: February 18, 2014

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Military Pension Reform: Blink and You Missed It

In a disappointing show of political panic, Congress last week overturned a reasonable reform it passed just last December in future cost-of-living adjustments for military pensions going to working-age beneficiaries. President Obama signed the reversal legislation last weekend.

The episode does not bode well for future reforms in military benefits – or perhaps in any “mandatory” benefits, which are not subject to annual congressional appropriations. Yet mandatory spending is a key driver of the large federal deficits projected for the coming years.

In December lawmakers approved the reform as part of a bipartisan deal on budgets for Fiscal 2014 and 2015. The provision reduced the cost-of-living increases by up to 1 percent for the pensions of beneficiaries under age 62.

January legislation addressed some obvious concerns by exempting disability retirees and some survivors. Yet veterans groups still blasted the reform, and lawmakers soon joined in the denunciations of their own handiwork.

A Senate plan even ignored the pay-as-you-go principle, which calls for new spending to be offset elsewhere in the budget. The estimated cost of repeal: $6.8 billion over the coming decade.

The House bill at least included a way to cover this cost, although not until 2023, when sequestration for Medicare and other mandatory programs is to be continued for another year. The House passed that bill Tuesday on a 326-90 vote, and the Senate approved it 95-3 on Wednesday.

We’ll see in nine years if Congress follows through on paying for the change. But that’s a long time to wait for a budget offset.

Crisis Averted, Congress Should Pursue Debt Limit Reform

Although Congress finally took action on the debt limit last week, the legislative hypocrisy on display fed public cynicism and underscored the need for debt limit reforms.

The fundamental problem is that Congress only considers a debt limit increase after it has already made the tax and spending decisions that require more borrowing. This encourages lawmakers to make irresponsible fiscal decisions and then declare themselves shocked and blameless as far as the growing debt is concerned.

Lawmakers also have decided that it sounds better to “suspend” the debt limit than to “raise” it, so technically they are merely suspending it until the Ides of March next year. But the effect is the same.

The final votes for a “clean” measure – one with no extraneous provisions – were 221-201 in the House and 55-43 in the Senate.

Traditionally, the party that does not hold the White House tries to pretend the debt is just the President’s problem. The party holding the White House vigorously objects, and there is finger-pointing all around.

We’ve just witnessed a textbook example.

Last month bipartisan majorities in the House and Senate passed a $1.1 trillion spending bill for this fiscal year. Yet last week most Republicans in the House and all of them in the Senate voted against suspending the debt limit, tut-tutting that the government was just spending too much money.

The Concord Coalition has called for debt limit reforms. Ideally, increases in the limit should be better aligned with tax and spending decisions, and tied to some relevant standard such as the growth of the U.S. economy.

 

Two-Year Budget Cycle Could Improve Oversight

The House Budget Committee last week approved a bill on a bipartisan 22-10 vote that would switch the annual congressional budget process to a biennial (two-year) cycle.

The legislation, introduced by Rep. Reid Ribble (R-Wisc.), a committee member, has attracted 100 co-sponsors, roughly a third of whom are Democrats.

Ideally, biennial budgeting would help Congress improve its allocation and oversight of discretionary spending, which makes up a third of the budget.

Congress is already using a biennial budget cycle of sorts. Late last year, the Ryan-Murray budget agreement set top-line spending numbers for Fiscal 2014 and 2015. With the recent congressional approval of spending plans for this year, appropriators now have opportunity to move forward quickly on 2015 legislation.

While process reform is no substitute for a long-term fiscal sustainability plan, biennial budgeting would be an important step in the right direction.

High and Rising Debt Keeps U.S. Future at Risk

Although Congress recently completed its budget process for this fiscal year and took action to avoid another federal debt crisis, Washington has again postponed action on the larger challenge of long-term fiscal sustainability.

“Our nation’s future remains at risk,” warns Paul Hansen, western states regional director for The Concord Coalition, in an op-ed this week in the Casper Star-Tribune. “While the annual deficit is down, the total federal debt is very high by historical standards and is projected to continue climbing – pushing the government’s interest payments upwards as well.”

Yet Congress has done little to address the major drivers of the large deficits projected within a few years, including rapidly growing social programs and subsidies embedded in the complex tax code.

“The math of fiscal reform is politically difficult for elected officials in both parties,” Hansen says. “They will need to tell fervent partisans, on the right and the left, that they cannot have something for nothing.”