September 16, 2014

Washington Budget Report: May 27, 2014

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Lawmakers Reject Pentagon Belt-Tightening Plans

Although Congress has set a general course for reduced military spending in the years ahead, in May lawmakers in both parties again rejected specific cost-saving measures proposed by the administration and the Pentagon.

Late in the month, the House approved a 2015 defense authorization bill of roughly $600 billion that rejects Pentagon plans to retire the A-10 “Warthog” plane, reduce spending on some ships, and increase military health care fees and copayments.

The House also voted to boost the administration’s proposed 1 percent pay hike to 1.8 percent, added the overhaul of an aircraft carrier, and rejected closure of Guantanamo. As in past years, the House refused to move forward on base closures.

“We ducked every difficult decision,” said Rep. Adam Smith of Washington, ranking Democrat on the House Armed Services Committee. Despite a veto threat, a bipartisan House majority passed the legislation on a 325-98 vote.

The Senate Armed Services Committee approved a defense authorization bill that would support some of the administration’s cost-saving measures but rejects others.

To curb federal deficits in the years ahead, elected officials must set priorities and make difficult decisions in defense spending as well as the rest of the budget. Lawmakers who dislike the administration’s proposals have an obligation to offer their own.

Next OMB Director Must Encourage Fiscal Reform

President Obama has nominated Shaun Donovan, secretary of Housing and Urban Development (HUD) since 2009, to become his new budget director.

Donovan will replace Sylvia Mathews Burwell, who became Obama’s budget director a little over a year ago but has been nominated as secretary of Health and Human Services.

“While at HUD, Donovan made critical investments to speed economic growth, while also offering new savings proposals and ensuring fiscal responsibility,” the White House said Friday. It added that Donovan “has a track record of using data to make good decisions and drive results.”

Some Republicans, however, questioned his qualifications. Sen. Jeff Sessions, ranking Republican on the Senate Budget Committee, said Donovan appeared to have “no relevant budgetary or economic experience.” The senator added that the confirmation hearing would provide "an opportunity to shed light on the fiscal dangers facing our country."

If confirmed as head of the Office of Management and Budget, Donovan will face a difficult task: Encouraging other administration officials and lawmakers to look beyond the good short-term fiscal news – a temporary drop in the federal deficit – and pursue broad reforms to put the budget on a more sustainable track for the next decade and beyond.

Unpaid Taxes Worsen Federal Budget Picture

The IRS recently estimated that 318,000 federal workers and retirees owe the government more than $3.3 billion in back taxes. That includes hundreds who work for Congress or in the federal courts, and 36 who work at the White House or related agencies.

These 318,000 delinquent taxpayers constitute 3.3 percent of the federal workforce and federal retirees. But federal workers are hardly the only problem; the IRS estimates the comparable figure for the general population is at least 8.7 percent.

Two years ago the IRS released its most recent estimate of the “tax gap,” which is the amount of total tax liabilities that are not paid on time. The agency said then that the gross tax gap for 2006 was $450 billion. Enforcement efforts and late payments dropped that figure to a net tax gap of $385 billion.

These statistics underscore the need for stronger enforcement of the tax code. The government can hardly afford to let some taxpayers off the hook. Nor is that fair to law-abiding citizens.

Congress should also reform and simplify the tax code, which is riddled with countless special subsidies for individuals, businesses and industries that undermine its public legitimacy. The complexity also makes it difficult both for taxpayers to determine what they owe and for the IRS to explain and enforce the laws.

Rising Costs for Employee Health Care

The Milliman Medical Index shows the average employer-sponsored health care plan for a family of four cost $23,215 this year, a 5.4 percent jump from 2013.

While this far exceeds the general rate of inflation, it is the smallest increase since Milliman -- a company that provides actuarial services and products to governments and businesses -- started publishing the index in 2002. Milliman cited the slow economic recovery and recent cost-containment efforts by medical providers.

But health care costs have still risen substantially over the past decade. The cost of the average employer-sponsored plan for a family of four has more than doubled from $11,192 in 2004.

With an aging U.S. population, health care will continue to strain the budgets of families, businesses and governments. While some improvements have been made, health care providers and Washington policymakers need to pursue further reforms to curb cost growth.