November 24, 2014

Washington Budget Report: August 19, 2014

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The Washington Budget Report is publishing periodically during the congressional recess.

Senate Group Attacks Postal Service Reforms

Although Congress has failed for years to pass postal reform legislation, dozens of senators are now trying to block the U.S. Postal Service’s own cost-saving efforts.

Last week the Postal Service reported third-quarter losses of $2 billion, up from $740 million for the same period last year. The service also said would be unable to make a required prefunding payment for retiree health benefits due to the Treasury on Sept. 30.

Yet only days later a bipartisan group of 50 senators released a letter asking Senate appropriators to approve language to prevent the Postal Service from continuing to consolidate its facilities. The language would be included in a continuing resolution to fund the government when the new fiscal year starts Oct. 1.

The senators even criticize previous consolidation efforts by the Postal Service and want to require it to “maintain and comply” with service standards that were in effect in mid-2012.

The senators say their proposed “one-year moratorium” would give Congress “the time it needs to enact the comprehensive postal reforms.”

But as even the letter acknowledges, Congress has already had years to enact such reforms. It has simply failed to do so. It is irresponsible for lawmakers to now cite that failure as they try to stop the Postal Service from doing what it can to hold down its losses.

Tax Breaks Cut Federal Revenue by $1.2 Trillion This Year

Tax expenditures will reduce government revenue by $7.2 trillion over the next 5 years, according to recent estimates by the Joint Committee on Taxation (JCT) staff.

These provisions in the tax code reduce what individuals and corporations pay; they range from tax credits on solar panels to tax deferrals on corporate profits earned overseas. They function in many ways like direct government spending but generally receive less public attention.

The JCT calculations involved 213 different tax expenditures worth anywhere from a few million dollars to hundreds of billions over several years. The new JCT staff report estimates that tax expenditures in 2014 alone reduced federal revenue by $1.2 trillion.

Tax exclusions on employer contributions to health care programs were the largest item, totaling $143 billion. Some other large tax expenditures in 2014 include the treatment of long-term capital gains ($96.5 billion) and mortgage interest deductions ($67.8 billion).

Many of these tax breaks are quite popular. But reducing them could allow the government to simplify the tax code and raise revenues, perhaps even while lowering overall tax rates. In addition, the government could reduce some tax expenditures rather than eliminating them completely.

Medicare Seeks Better Care Coordination

In a change that some experts say could save money and improve patient care, Medicare in January will begin making special payments to doctors and others to coordinate care for beneficiaries with two or more chronic illnesses.

Federal officials suggest that such separate payments could pay for themselves by keeping patients healthier and out of hospitals, according to The New York Times, which reported this week on the policy change. Health care providers will receive about $42 a month for coordinating a Medicare beneficiary’s care.

Two-thirds of Medicare beneficiaries have two or more chronic conditions.  According to federal statistics, they account for 93 percent of Medicare spending.

The Centers for Medicare and Medicaid Services (CMS) has also accepted recommendations from the Government Accountability Office  (GAO) to improve claim reviews. The GAO recently faulted the review process for Medicare claims, saying CMS lacked reliable data and had failed to provide sufficient oversight and guidance for its contractors.

Because Medicare is a key driver of projected federal deficits, officials must make every effort to ensure that improper payments and costly mistakes are held to a minimum.

Certain States Illustrate Demographic Challenges Ahead

North Carolina is one of the states to which older people are flocking, drawn in part by its charm, natural beauty and low living costs.

But North Carolina’s rapidly aging population also poses significant challenges “that point towards what’s ahead for the entire country as more and more of the baby boom generation leaves the workforce,” says The Concord Coalition’s Sara Imhof.

In a Salisbury Post (N.C.) op-ed, she explains that this demographic shift and health care costs have put increasing pressure on the federal budget. She notes two key reports this summer:

  • In its long-term outlook, the Congressional Budget Office projects that if current laws remain generally unchanged, federal debt held by the public — already high at roughly 74 percent of GDP — would exceed 100 percent within 25 years, and would continue rising after that.
  • The Medicare and Social Security trustees confirmed in their annual reports that those programs are spending more than they take in from payroll taxes and premiums.

To help Salisbury area residents better understand the country’s fiscal challenges, Imhof facilitated a public budget exercise recently in Salisbury.