Concord Coalition Urges Bipartisan Negotiations on Shared Fiscal Policy Goals

Monday, February 5, 2007

Press Releases

WASHINGTON — The Concord Coalition said
today that the President’s FY 2008 budget focuses on two appropriate goals:
restoring balance by 2012 and narrowing the long-term deficit. Concord
reiterated its concerns that certain key policy assumptions used by the
administration to project a swift decline in the deficit are not realistic.
However, it welcomed the new proposals for reducing Medicare premium subsidies
and limiting the tax exclusion of employer provided health insurance.

"If the President is
willing to show flexibility in how these important goals are achieved, and if
the new Democratic majority in Congress is willing to show similar flexibility
by not declaring the budget ‘dead on arrival,’ then constructive bipartisan
negotiations can begin on making both goals a reality," said Robert L. Bixby,
Executive Director of The Concord Coalition.

"It is understandable that
Democrats and Republicans will have different priorities, but they now share a
common goal of balancing the budget by 2012 and a recognition that long-term
fiscal policy is unsustainable. These shared goals, and the new balance of power
in Washington, provide an opportunity for meaningful cooperation. Both sides
must recognize that they cannot achieve their goals if they try to do so with
proposals that only appeal to narrow partisan interests. How they handle this
challenge is a test of whether they got the message from the last elections that
it is time to abandon the bunkers and head for the negotiation table," said
Bixby.

"It would be all too easy
for both sides to dig in their heels and leave all the hard decisions to the
next Congress and the next president. Doing so, however, would be irresponsible.
It would also be a squandered opportunity for both sides. The American people
want to see action, and they are hungry for leadership," said Harry Zeeve,
National Field Director of The Concord Coalition.

The Concord Coalition made
the following initial observations about specifics in the budget:

The
President’s goal of restoring balance by 2012 is one that Concord supports. It
should be noted, however, that this goal includes the "off-budget" Social
Security surplus. The "on-budget" total in 2012, under the President’s budget,
is a deficit of $187 billion. The Concord Coalition thus supports further
efforts to restore a balanced budget excluding the Social Security surplus.
Four key
policy assumptions used in the President’s budget to show balance by 2012
produce savings on paper that will be very difficult to achieve in reality.
These savings are even more questionable given the lack of detail in the budget
as to how they would be achieved. Specifically, the budget assumes:

Revenue neutral reform of
the Alternative Minimum Tax (AMT)

A sudden drop-off in new
funding for the wars in Iraq and Afghanistan (from $175 billion in
2007 to zero in 2010)

Substantial
programmed cuts in Medicare physician payments, and

Annual
increases in non-security appropriations that are below inflation.

The cumulative budget
savings from these assumptions is roughly $600 billion over 5 years and $200
billion in 2012 alone.
The "record
revenue" of FY 2006 must be viewed in perspective. The claim is true in dollar
terms but, as the administration is quick to point out when discussing the
deficit, a better measure is how they compare to the size of the economy. The
current level of revenues, 18.4 percent of GDP, is about average over the past
40 years, and down from when the President took office (20.9 percent of GDP in
2000).
Tax cuts
remain the main priority in the budget. The revenue loss from the President’s
tax proposals, including extension of expiring tax cuts over 5 years ($599
billion) is more than 10 times the proposed savings from mandatory spending ($46
billion).
In light of
all this, revenue neutral reform of the AMT is fiscally responsible and complies
with the concept of applying pay-as-you-go budgeting to taxes as well as
spending. As yet, however, neither party has proposed a way to do it. Because
this issue will be a challenge for Democrats as well when they craft their
budget resolution in the coming weeks, the question of how to provide revenue
neutral AMT relief offers a target of opportunity for bipartisan negotiations on
broader tax reform.
Another opportunity for
bipartisan negotiation is the President’s proposal to end the exclusion of
employer provided health insurance from income. This "tax expenditure" costs
about $200 billion in forgone revenue and encourages very expensive policies
that leave employees with few, if any, out-of-pocket costs and little cost
consciousness. The President’s proposal would end the exclusion and use the
initial savings for new health insurance deductions and exclusions. Whether or
not Democrats agree with the specifics, this proposal is worthy of
consideration because it puts a major tax break on the table and implicitly
accepts the pay-as-you-go concept for tax initiatives.
A final
promising area for bipartisan negotiations is the proposal to introduce
income-related premiums to Medicare’s prescription drug program. This concept is
an equitable way to reduce the rising burden of entitlement spending — not just
for Medicare, but for all major federal benefit programs. It recognizes that
Medicare is a highly subsidized program. Premiums cover only 25 percent of
program costs. General revenues cover the rest. Given the large general revenue
subsidy and the need for long-term savings from what most concede is an
unsustainable path, beneficiaries who can afford to pay more of their fair share
should do so.
The
income-relating proposal should be viewed in the long-term context and not as a
proposal whose need is driven by the quest for a short-term balanced budget. The
prescription drug benefit was unaffordable when enacted. This proposal, if fully
implemented, would only shave about $2 trillion from a long-term unfunded
obligation of $32 trillion for Medicare as a whole.