November 26, 2014

Washington Budget Report: May 20, 2014

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Irresponsible Tax Breaks Run Into Trouble

Congressional gridlock has produced a rare positive result: Senate Republicans blocked a vote on irresponsible legislation that would have renewed dozens of expired tax expenditures without paying for them.

After a Senate vote failed to move the bill forward last week, House Republican leaders reportedly decided to delay further action on such provisions -- also known as "tax extenders" -- until at least June.

Some lawmakers in both parties as well as several conservative groups said renewing these provisions would only ensure that the code remains an inefficient system that favors certain special interests.

The Senate bill, the EXPIRE Act, would have renewed nearly all of the 55 expired provisions for two years. Violating pay-as-you-go (PAYGO) rules, this would have reduced federal revenues by an estimated $84 billion over that period.

Earlier this month the House -- in an even more egregious PAYGO violation -- approved a permanent extension of the research and development tax credit that would add $156 billion to the deficit over 10 years.

While the messy process on extenders has had a temporarily positive result for the budget, lawmakers could renew their push for them as early as this week -- or perhaps wait until after the fall elections to do so. In either case, Congress would not only be repeating past mistakes, but again delaying needed reforms to the tax code.

Aging Population Will Put Pressure on the Budget

Between 2012 and 2050, America’s 65-and-older population will almost double in size to 83.7 million, according to new Census Bureau projections.

The bureau recently released two reports -- one on the aging population and another focusing on the Baby Boom -- that make clear why fundamental fiscal reforms are needed. The demographic changes the reports examine, along with the related issue of rising health care costs, are key drivers of projected federal deficits in the coming decades.

Among the bureau’s projections:

  • There were 22 people who were 65 or older for every 100 working-age people in 2012. That figure will rise to 35 older people by 2030, and to 36 by 2050.
  • The 65-and-older population will be about 39 percent minority in 2050, up from less than 21 percent in 2012.
  • The number of baby boomers will drop from just under 77 million in 2011 to 60 million by 2030 and to 2.4 million by 2060.

Partly because of increases in life expectancy, the report indicates, people over 65 are likely to remain about a fifth of the general population between 2030 and 2050. So even the passing of millions of baby boomers will not return the country to its pre-boom demographic profile or solve its long-term fiscal challenges involving programs like Social Security and Medicare.

Summit Consensus: ‘Tough Stuff’ Still to Be Done

Politicians and policy experts from across the political spectrum agreed on one thing at a “Fiscal Summit” last Wednesday: Despite the falling deficit, our fundamental fiscal challenges have not yet been adequately addressed.

The fifth annual summit held in Washington by the Peter G. Peterson Foundation featured former President Bill Clinton and many other prominent figures.

“Fiscal reform is not an end in itself — it is a means to improving people’s lives through a growing, thriving economy,” said Michael Peterson, president and COO of the foundation.

Glenn Hubbard, an economic advisor to President George W. Bush, argued that “the focus in Washington has been on the short-term outlook when the real issue has always been long term." Others offered similar critiques.

“We gotta get to the big deal,” said Business Roundtable President John Engler. Erskine Bowles, co-chair of the Simpson-Bowles fiscal commission, said Congress had “done the easy stuff” and the “stupid stuff” (a reference to across-the-board sequestration) but continues to avoid “the tough stuff."

Alan Kreuger, former chairman of President Obama’s Council of Economic Advisors, noted that in recent years "we've seen Congress create action-forcing events--and then not act.”

Elected officials said they wanted to pursue positive steps in the next Congress.

House Democratic Leader Nancy Pelosi said she wanted to reform tax expenditures: “Put them all outside the door, and let them justify their existence as to whether they contribute to the growth of the economy.”

Rep. Peter Roskam, chief deputy whip for House Republicans, said achieving Social Security reform would be “absolutely fantastic.”