November 24, 2014

Washington Budget Report: July 22, 2014

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Lawmakers Continue to Spurn Pentagon Reform Plans

The Senate Appropriations Committee approved a $549 billion defense bill last week that leaves out many of the savings proposed by military leaders.

The bill, for example, would preserve weapons systems the Pentagon has not requested or wants to retire, including the A-10 aircraft. The legislation would also continue production of the Tomahawk cruise missile.

The bill promises $11.7 billion in cuts to other defense programs, largely from rescinding unobligated funds and eliminating duplication. While such savings are helpful, they should not become an excuse for unnecessary spending on outdated weapons systems and the like.

The Senate committee approved a 1 percent pay increase requested by the Pentagon, less than the 1.8 percent increase approved by the House. Both House and Senate appropriators, though, rejected other Pentagon proposals to rein in compensation costs, including reasonable health care changes.

Meanwhile, some House lawmakers have criticized the administration’s $58.3 billion request for Overseas Contingency Operations (OCO). This account is supposed to provide funding for direct combat missions and support. It is exempt from spending caps, however, and is sometimes misused to get around them.

The administration’s request includes some questionable items that have led lawmakers and defense policy experts to accuse the administration of using the account as a “slush fund.”

Cutting IRS Enforcement Would Increase Deficits

The House recently passed a short-sighted measure that would cut the 2015 enforcement budget for the Internal Revenue Service (IRS) by 25 percent.

Republicans say they are punishing the IRS for its poor response to recent scandals. But this would amount to the government shooting itself in the foot; the cuts could increase the federal deficit and diminish funding for other federal programs.

That’s because reduced enforcement will mean more tax cheating and lost federal revenue. The IRS estimates that the government takes in $4 for every dollar spent on enforcement.

The agency’s most recent figures indicate the 2006 “tax gap” -- tax liabilities that were not paid on time -- totaled $450 billion, with a taxpayer compliance rate of 83.1 percent. Enforcement efforts and late payments subsequently brought in $65 billion.

It should also be noted that IRS funding already appears inadequate in other areas. In her last annual report, National Taxpayer Advocate Nina E. Olson said the IRS can only answer 61 percent of its customer service calls.

Congress needs to deal with the problems at the IRS without encouraging tax cheats and raising the deficit.

VA Improvements Require More Funding -- and Thought

Congress should find a responsible way to address treatment delays at VA facilities, but it seems increasingly clear that this will be an expensive undertaking.

Sloan Gibson, acting secretary of Veterans Affairs, says his department needs $17.6 billion through Fiscal 2017 for additional staff, space, information technology and benefits processing.

Some lawmakers are skeptical. But the Congressional Budget Office says House and Senate VA bills would potentially increase deficits by $32 billion or more. This is down from earlier estimates but still represents a funding challenge.

House-Senate negotiations over the bills continue, with some lawmakers seeking emergency designations to avoid spending caps. There’s little justification for that; these problems have been building for years.

And as Concord Coalition Policy Director Josh Gordon noted in a blog post last month, many lawmakers have not given sufficient thought to what changes in veterans’ care really make sense.

Experts Suggest Budget Process Reforms

Wednesday was the 40th anniversary of the Congressional Budget and Impoundment Control Act, the law that created the Congressional Budget Office (CBO) and the modern budget process.

The Bipartisan Policy Center marked the occasion last week with two panel discussions featuring former budget committee chairmen and CBO directors. There was a consensus that while partisan politics had “broken” the budget process in recent years, the law should be revised rather than repealed altogether.

Panelists agreed that the law’s budget deadlines -- even if not strictly adhered to -- force lawmakers and presidents to consider aggregate tax and spending levels. The panelists also suggested reforms like biennial budgeting and mechanisms for addressing entitlement spending.

Partisanship and Federal Deficits

A Federal Reserve economist says her research supports theories that suggest intense political partisanship can lead to higher federal deficits as well as weaker economic growth.

Marina Azzimonti, an economist at the Federal Reserve Bank of Philadelphia, searched newspapers between 1891 and 2013 for words such as “gridlock” and “partisanship.” She then compared that data with statistics on deficits, GDP growth and income inequality.

In a recent working paper, she says a rise in political conflict equal to that seen in Congress between 2006 and the middle of last year could be expected to add nearly $134 billion to government deficits, reduce private investment by close to 10 percent, and cut GDP growth by at least 1 percent.