October 23, 2014

Washington Budget Report: June 3, 2014

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A Bipartisan Panel Could Encourage Social Security Reform

Rep. John Delaney (D-Md.) and Tom Cole (R-Okla.) have introduced a bill that would create a commission tasked with restoring the 75-year solvency of Social Security.

The bill would require the leaders of both parties in both chambers of Congress to appoint three members each to the commission, with the President naming a 13th commissioner. At least two commissioners would be policy experts who do not currently hold elected office.

Nine of the 13 members would be required to approve recommendations, which would be sent to Congress within one year of the panel’s first meeting. The recommendations would get expedited consideration by Congress.

In an ideal world, we would not need another commission to deal with an obvious solvency problem that has been brewing for many years. Nevertheless, it is encouraging to see two lawmakers reach across the aisle to acknowledge one of the nation’s biggest fiscal challenges and propose a process for dealing with it.

Social Security is currently running cash deficits, paying $68 billion more in benefits than it collected in dedicated revenues last year. This gap is projected to worsen over time as more baby boomers retire and longevity increases. Unfunded obligations over the traditional 75-year valuation period for Social Security total $9.6 trillion according to the most recent trustees report.

This proposal, introduced Friday, comes at a particularly opportune time, as the most recent Social Security Trustees Report projected that recipients of Social Security Disability Insurance would face an across-the-board cut of 20 percent to their benefits if no reforms are enacted by late 2016. While Congress will undoubtedly pass legislation to prevent such cuts, lawmakers should try to address the entire system’s long-term solvency.

In the end, elected representatives will have to make the difficult decisions that effective reform will require. But a commission that produces solutions with meaningful bipartisan support could provide a catalyst for congressional action.

House Panel Advances Six More Costly Tax Extenders

Last week the House Ways and Means Committee voted to advance bills making six more expiring tax provisions permanent without offsetting the lost revenue.

If these six bills are all enacted, they would increase budget deficits by $400 billion in the first ten years. The single largest provision in the package would permanently extend and expand bonus depreciation, which was originally meant to be a temporary stimulus measure when it was enacted in 2009.

This continues an alarming trend in recent weeks by the House to make temporary tax breaks permanent without offsetting them. The total cost of tax extenders endorsed by Ways and Means in recent weeks is approximately $800 billion—and not a dollar of it is paid for.

These bills violate the pay-as-you-go standard and would effectively erase all new revenues generated by last year’s fiscal cliff deal. Congress should abandon this piecemeal strategy of charging individual tax extenders on the nation’s credit card and instead pursue comprehensive tax reform.

Specialty Drugs Could Strain Health Care Budgets

A new prescription drug has the potential to upend the nation’s health care system and dramatically increase costs for federal health care programs and state budgets.

The drug, called Sovaldi, is a highly effective treatment for Hepatitis C -- an infectious disease that is the most common blood-borne illness in the country, afflicting more than 3 million individuals. But the drug’s price is $1,000 per pill and the treatment is normally given for 12 weeks, making the cost at least $84,000 and often substantially higher.

The National Coalition on Health Care, which has undertaken a “Campaign for Sustainable Rx Pricing,” estimates that the cost to treat every infected individual would exceed the annual spending on all other prescription drugs combined.

Even if only a part of the infected population were treated, it would dramatically increase insurance premiums, widen the gap in Medicare’s finances, and severely damage state budgets due to the stress that the drug costs would place on an already cash-strapped Medicaid system.

Sovaldi is seen as just the leading edge of a new class of designer drugs whose manufacturers will have nearly unrestrained pricing power in our current prescription drug market. Developing a new way to encourage innovation within a sustainable health care system will be crucial for the nation’s finances. We do not have a lot of time before something must change.

Lawmakers Continue Poor Habits with Defense Appropriations Mark-Up

House Lawmakers returned to their old habits during a markup of the $570.4 billion defense appropriations bill, protecting expensive weapons projects favored by lawmakers while ignoring many of the cost-saving initiatives the Pentagon proposed in its Fiscal 2015 budget request.

Like the defense authorization bill approved last week by the House, the defense appropriations bill ignores many of the cost-saving reforms the Pentagon has proposed to keep spending within the spending caps set by the Budget Control Act and modified for Fiscal 2014 and 2015 by the Bipartisan Budget Act of 2013. After Fiscal 2015, spending caps for all discretionary spending will be lower than the caps for the Fiscal 2014 and 2015.

Some of the reforms the bill ignores include retiring an aircraft carrier, smaller housing allowances for soldiers and a lower annual raise in basic pay. The appropriations bill even calls for purchasing more Growler and F-35 aircraft than what is prescribed in the authorization bill.

To stay within the spending caps this year set by the Bipartisan Budget Act of 2013, appropriators cut funding from operations and maintenance accounts, although they took steps designed to protect readiness operations. So far operations and maintenance accounts have absorbed the majority of cuts to military spending.

The appropriations bill also includes the Overseas Contingency Operations (OCO) account, which funds overseas operations, including the war in Afghanistan, and is exempt from BCA spending caps. Lawmakers have recently criticized other lawmakers and military leaders who transfer funding from the military’s base budget to the OCO to avoid sequestration and lower spending caps.

The last two weeks have shown that policymakers refuse to make the difficult decisions on reforms to reduce military spending while maintaining a strong and balanced force. Policymakers should seriously consider reforms the Pentagon has proposed or put forward their own proposals reforming military spending.