October 24, 2014

Washington Budget Report: July 29, 2014

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Trustees’ Warnings Show Need for Entitlement Reform

2014 Trustees' Reports Infographic

The Medicare and Social Security trustees warned again Monday that Congress must act soon to make the programs more sustainable.

In their 2014 report, the trustees said they were most immediately concerned about Social Security’s Disability Insurance program, which under current law will be unable to pay full benefits in 2016.

“As in past years, the trustees’ annual reports remind us that without broad reforms, Social Security and Medicare will increasingly squeeze other parts of the federal budget while putting steady upward pressure on annual deficits and the nation’s level of debt,” said Robert L. Bixby, executive director of The Concord coalition.

Policymakers and the public should focus more on these programs’ cash flows than on their trust fund balances. Social Security and Medicare Part A (Hospital Insurance) continue to pay out more than they take in through payroll taxes and rely on general federal revenues to make up the difference. The Treasury also heavily subsidizes other parts of Medicare.

Congress may be tempted to deal with the Disability Insurance problem by simply re-allocating some payroll tax revenue but Bixby dismissed this as “essentially a gimmick.” He said elected officials should instead pursue a more comprehensive approach to entitlement reform.

Treasury Secretary Jack Lew said Monday that a re-allocation of payroll taxes to help Disability Insurance would “likely be required” but he said broad reforms should also be put in place.

The trustees’ reports show that demographic pressures on the federal budget are mounting. For example, there are 2.8 workers for each Social Security beneficiary today; that number will fall to only 2.1 workers by 2032, according to intermediate projections.

Health care cost growth has slowed in recent years, leading the trustees to reduce projected Medicare spending. But continuing this trend will require a difficult transformation of the health care system -- and Josh Gordon, Concord’s policy director, cautions that even that would still leave the country with problematic fiscal projections.

Continuing Trouble With 2015 Spending Plans

With hope gone for completing the regular budget process this year, Speaker John Boehner said last week that the House would wait until September to take up a continuing resolution that would keep the government open after the end of that month.

A continuing resolution (CR) would essentially continue this year’s spending levels into Fiscal 2015 -- regardless of changing priorities, new developments or specific requests from federal agencies. It represents an abdication of lawmakers’ fundamental responsibility to carefully consider and reach agreement on 12 individual spending bills.

The August congressional recess actually runs through the first week of September, and the new fiscal year starts Oct. 1. So Boehner’s schedule doesn’t leave Congress much time to reach agreement on spending differences they have been debating all year.

The speaker also said the CR would likely extend only through early December, despite some Republicans’ hopes to leave final 2015 spending decisions to the next Congress.

As long as lawmakers rely on a continuing resolution, however, federal agencies cannot plan effectively, must spend money unnecessarily in some areas and leave legitimate needs unaddressed in others.

Down to the Wire on Highway Funding Measure

The Senate was scheduled to vote on an $11 billion highway bill later today -- only days before the Department of Transportation (DOT) says it will be forced to begin delaying and cutting payments to state governments for transportation projects.

The legislation, which the House passed earlier this month, is a misguided fix that would only postpone the trust fund’s problems until May while possibly increasing future federal deficits.

Several weeks ago DOT announced that the highway account in the Highway Trust Fund would be insolvent after the beginning of August, causing states to suffer an average 28 percent loss in federal highway funding. Some states have already begun delaying projects.

The shortfall in the trust fund can be traced to the federal gas tax, which has not been increased since 1993 despite rising highway costs. But the current legislation relies on a gimmick known as pension smoothing, which increases federal revenue in the short run but can reduce it later.

Several senators are pushing for an amendment that would use offsets other than pension smoothing -- such as increasing tax compliance measures -- to keep the trust fund solvent until December.

It is disappointing that lawmakers have failed for so long to agree on a more responsible and permanent way to match transportation spending and revenue.

Competing Proposals for Additional Border Spending

The House and Senate are considering different proposals for immediate funding to boost border security and help federal agencies deal with a surge of migrants from Central America.

Republicans indicated today that the House would vote later this week on a $659 million package focused largely on border security measures. About a third of the money, however, would reportedly go towards humanitarian relief through the Department of Health and Human Services (HHS). House Appropriations Chairman Hal Rogers said the costs would be fully offset with cuts elsewhere. 

Senate Democrats had previously proposed $2.7 billion in spending for the current year under an "emergency" designation. The departments of State, Justice and Homeland Security would receive $1.5 billion to provide food and temporary housing for migrants, hire more judges and discourage further migration. HHS would use the rest of the money for additional assistance for young migrants.

Earlier this month the President requested $3.7 billion in emergency spending on the border problems.

Emergency designations are traditionally understood to be for projects that are sudden, urgent, necessary, unexpected or temporary. Lawmakers must quickly address humanitarian concerns but should use traditional appropriations for non-emergency items such as construction projects and public awareness campaigns.