December 20, 2014

WASHINGTON BUDGET REPORT: July 21, 2009

WASHINGTON BUDGET REPORT: July 21, 2009
CBO Chief Says Health Reform Bills Fall Short on Cutting Costs House to Take Up PAYGO Bill Conrad to Ramp Up Senate Deficit Reduction Caucus Health Reform Side-by-Side Appropriations Tracker

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Welcome to the Concord Coalition's weekly Washington Budget Report: a nonpartisan plain English summary of key budget, appropriations, and tax developments.

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Budget Process: Step-by-Step

Track 1- Economic Stimulus:

Track 2 - Completion of '09 Appropriations:

Track 3 - FY 2010 Budget [SEE APPROPRIATIONS TRACKER BELOW]:

  • February 26: President Obama transmitted a budget outline.
  • March 20: CBO released its Preliminary Analysis of the President's FY 2010 budget (using CBO economic projections)
  • March 25-26: House Budget Comm. and Senate Budget Comm. marked-up their respective versions of the FY 2010 Congressional Budget Resolution.
  • April 29: House and Senate adopted Budget Resolution Conference Report (S.Con.Res. 13).
  • May 11: Administration released remaining details of President's FY 2010 Budget
  • May-Sept: Action on the 12 regular FY 2010 appropriations bills beginning with the House and Senate Appropriations Committees dividing their respective budget resolution allocations among their 12 subcommittees (known as 302(b) allocations -- see Appropriations Tracker, below)
  • October 15: Budget Resolution deadline for committees to report budget reconciliation legislation (health care reform and student loan reform), although congressional leaders will initially try to move a free-standing health reform bill without budget reconciliation's filibuster-proof protections.

Track 4 - Stabilizing the Financial, Housing, and Auto Sectors (Ongoing)

Track 5 - Health Care Reform

  • March 5: White House Summit on Health Reform
  • May 11: White House meeting with Key Stakeholder Groups
  • Senate HELP Committee: Senate HELP Committee on July 15 completed mark-up of a health care reform bill.
  • House Tri-Committee Bill: Ed & Labor Committee marked up and passed its portion of the bill on July 17. Ways & Means Committee also marked up and passed its portion of the bill on July 17. Mark-up continues at Energy & Commerce Committee. Tri-committee health reform proposal.
  • Senate Finance Committee Bipartisan Bill: Chairman Max Baucus and Ranking Republican Chuck Grassley are continuing efforts to craft a bipartisan bill, possibly including a health insurance co-op to compete with private insurance companies.
  • July 17: CBO releases cost estimate on House Tri-committee bill estimating a deficit increase of $239 billion.
  • July 20: House committees claim deficit neutrality of Tri-committee bill by assuming no cost from provisions that cancel scheduled cuts in Medicare physician payments.
  • Oct. 15: Budget Resolution deadline for committees to report budget reconciliation legislation including health care reform (although congressional committees are first attempting to move free-standing health reform legislation without budget reconciliation's filibuster-proof protections.) The advantage of Reconciliation is its immunity from filibuster; the disadvantage is that bill opponents could use the "Byrd Rule" to strip out all "non-budgetary" policy provisions.

Track 6 - Climate Change - Energy

  • May 21: House Energy & Commerce Committee passed the Waxman-Markey climate change bill, approving the measure on a nearly party-line vote (33-25). The bill would mandate a 17% reduction in greenhouse gas emissions by 2020 and 83% by 2050. To accomplish this, the government would set a cap on the amount of carbon dioxide that could be emitted and would issue allowances to polluting sectors that could buy and sell those rights ("cap-and-trade").
  • June 6: CBO says Waxman-Markey climate bill (HR 2454) would reduce the federal deficit $24 billion over 2010-2019. CBO Report
  • June 17: Senate Energy Committee passed 15-8 a controversial energy bill opposed by many environmental groups Press Release Bill Summary Opposition from Environmental Groups
  • June 26: CBO estimates that the revised Waxman-Markey climate bill (HR 2998) would reduce the federal deficit $9 billion over 2010-2019 (increase revenues from "cap-and-trade" by $873 billion and increase direct (mandatory) spending $864 billion). CBO Report
  • June 26: House narrowly passes Waxman-Markey climate change bill 219-212
  • Senate EPW Chairman Barbara Boxer (D-CA) is aiming for a September mark-up of legislation.
  • The Administration wants a bill passed before U.N. climate change talks in Denmark in December.

Track 7 - Highway Bill (FY 2010-15)


  • Leaders of key congressional committees have been negotiating the parameters of the next multiyear highway bill (FY 2010-2015).
  • However, the Obama Administration has signaled an interest in putting off consideration of a multiyear highway bill due to cost issues -- opting instead for an 18-month extension of current law--but even that will require finding $20 billion in revenues, since the federal gas tax is bringing in insufficient revenues to fund highway programs. The highway trust fund could run out of money as early as this August, and a general fund bailout could be politically difficult.
  • For the period covered by the budget resolution (2010-2014), Congress allocated $259 billion to the relevant House and Senate Committees for highway and transit spending. This amount reflects a $67 billion increase above the "baseline" level--which is tied to current highway bill spending.

Track 8 - Enacting Statutory PAYGO

Track 9 - Higher Education Reform

  • July 15: House Education and Labor Chairman George Miller (D-CA) introduced legislation (HR 3221) to convert Federal Family Education Loans (otherwise known as guaranteed student loans) to direct government loans. The budget savings from the student loan reforms would be used to convert Pell Grants into an entitlement program with automatic inflation adjustments.
  • July 21: Mark-up of HR 3221
  • Oct. 15: Budget Resolution deadline for committees to report budget reconciliation legislation including student loan and Pell Grant reforms (although congressional committees are first attempting to move free-standing reform legislation without budget reconciliation's filibuster-proof protections.)

CBO Chief Says Health Reform Bills Fall Short on Cutting Costs

Last week, CBO Director Douglas Elmendorf shook up the health reform debate, telling the Senate Budget Committee that House and Senate health reform legislation thus far lacks the "fundamental changes" needed to slow the spiraling growth in health costs, and instead would expand "the federal responsibility" for health costs. Highlights of Elmendorf testimony:

  • Senator Budget Committee Chairman Conrad: "Dr. Elmendorf, I'm going to really put you on the spot, because we're right in the middle of this health care debate, but it's critically important that we get this right. Everyone has said, virtually everyone, that bending the cost curve over time is critically important and one of the key goals of this entire effort. From what you have seen from the product of the committees that have reported, do you see a successful effort being mounted to bend the long-term cost curve?" Director Elmendorf responded, "No, Mr. Chairman. In the legislation that has been reported, we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount. And on the contrary, the legislation significantly expands the federal responsibility for health care costs."
  •  

  • Director Elmendorf: "As we wrote in our letter to you and Senator Gregg, the creation of new subsidies for health insurance, which is a critical part of expanding health insurance coverage in our judgment, would by itself increase the federal responsibility for health care. That raises federal spending on health care. It raises the amount of activity that is growing at this unsustainable rate. And to offset that, there would have to be very substantial reductions in other parts of the federal commitment to health care, either on the tax revenue side, a few changes in the tax exclusion, or on the spending side, the reforms in Medicare and Medicaid."
  •  

  • Director Elmendorf: "We have a subsidy for larger health insurance policies in our tax code. And that, like other subsidies, encourages more of that activity. Reducing the subsidy would reduce that. And then on the other side, changing the way that Medicare pays providers, an effort to encourage a focus on cost-effectiveness in health care and not encourage, as the fee-for-service system tends to, the delivery of additional services..."
  •  

  • Chairman Conrad: "...in effect, Dr. Elmendorf has said there are two cost-containment tools. One of them is changes in Medicare. The other is changes in the tax rules....If you, in effect, only go with one of the policy levers, is it fair to say that there will be significantly less cost containment as a result of, in effect, putting aside one of the major tools?" Director Elmendorf: "Yes, Senator. I think there would be....(O)ne could do much more dramatic things, I suppose, on the Medicare side to offset that. But it is certainly a difficult challenge, and tying one of the two hands behind one's back makes the job much, much harder."

  • Elmendorf Written Testimony

    House to Take Up PAYGO Bill

    The House is scheduled this Wednesday to take up HR 2920, statutory PAYGO legislation. This follows on a June proposal by the Administration.

    Background.--Last month, in response to urging from the fiscally conservative House "Blue Dog" coalition, the White House unveiled a proposal to re-enact the pay-as-you-go ("PAYGO") budget law from the 1990s.

    The PAYGO concept is simple: if sponsors of new legislation want to enact new entitlement programs, expand existing entitlement programs, or enact new tax cuts, they have to find offsets to "pay for" the cost of the new benefits or tax cuts. Offsets can be reductions in entitlement (mandatory) spending or tax increases.

    (Important note on discretionary spending: PAYGO has never applied to discretionary spending. In the 1990s, discretionary spending was controlled by statutory caps. If the caps were breached, automatic across-the-board cuts in discretionary spending were triggered. The Administration is NOT proposing to re-establish statutory caps on discretionary spending.)

    The teeth in the 1990s PAYGO requirement was a "sequester mechanism." OMB was required to execute automatic cuts in nonexempt mandatory spending programs if the cumulative effect of tax and entitlement legislation was to increase the deficit. Under the PAYGO law, a negative balance on OMB's cumulative "PAYGO scorecard" was something to be carefully avoided since Medicare would take a significant hit from an automatic sequester. Other nonexempt programs that would be hit by a PAYGO sequester included farm price supports, child support enforcement, and social services block grants.

    In other words, 1990s PAYGO was a "Sword of Damocles" approach to budget discipline: the automatic across-the-board cuts in Medicare and other programs that would result from violating the PAYGO requirement would be so politically unpalatable that Congress avoided enacting new entitlement spending or new tax cuts without the required offsets.

    In 2001, PAYGO was effectively terminated in order to enact massive tax cuts, and the PAYGO law officially expired in 2002.

    In 2007, when Democrats became the majority party in Congress, they re-established a PAYGO policy similar to the 1990s -- but as internal rules of the House and the Senate. Enactment of statutory PAYGO, with its automatic sequester mechanism, was strongly opposed by the Bush Administration and congressional Republicans on the grounds that new tax cuts should not have to be paid for with offsets.

    The Obama Administration's proposal to re-enact statutory PAYGO is a mixed bag:

    • On the positive side, if enacted, it will add more weight to the requirement that the costs of health care reform be fully paid for by spending cuts and tax increases. In addition, entitlement expansions -- such as filling the "doughnut hole" in the Medicare Rx program -- would have to be paid for.
    • However, on the negative side, the Administration's PAYGO proposal specifically exempts $3.5 trillion of specific policies from the PAYGO requirement. These include extension of the 2001 and 2003 tax cuts; reducing the estate tax; effectively eliminating the AMT (Alternative Minimum Tax); and eliminating an automatic requirement that Medicare physician payments be cut--thereby accepting $3.5 trillion of additional public debt.

    In sum, the Obama PAYGO proposal would enhance fiscal responsibility moving forward, but paves the way for easy extension of some very expensive policies that ought to be paid for.

    The legislation language to be considered this Wednesday has not yet been released by Majority Leader Hoyer's office.

    President's PAYGO Announcement at the White House (C-SPAN)

    White House Summary of PAYGO Legislation

    White House PAYGO Legislative Text

    Concord Coalition Issue Brief

    CBO Analysis of HR 2920

    Latest Summary of House PAYGO bill

    Conrad to Ramp Up Senate Deficit Reduction Caucus

    Last week, as reported by Congressional Quarterly, Senate Budget Committee Chairman Kent Conrad (D-ND) announced that he hopes to "reinvigorate" the Senate Deficit Reduction Caucus that was active in the 1990s.

    Conrad met with caucus members on July 15th and plans to hold monthly meetings.

    Conrad said, "I think it is time that we restore a focus to debt and deficit reduction and that will be the focus of that caucus."

    Current deficit and cumulative debt projections pose greater challenges to the U.S. economy than ever before:

    • This year's federal deficit (FY 2009) is projected to top $1.8 trillion;

    • The total public debt (debt held by the public) is projected to equal the size of the nation's entire economy (GDP) by 2023 and double the size of the economy by 2037.

    • According to CBO, "since the founding of the United States...federal debt held by the public has surpassed 100 percent of GDP only for a brief period during and just after World War II. That budgetary situation was temporary, however. After peaking at 113 percent in 1945, federal debt held by the public declined as a percentage of GDP to its lowest level in the post-World War II era, 24 percent in 1974. Similarly, when federal debt increased in the 1980s, its rise was followed by declining deficits from 1993 to 1997 and surpluses from 1998 through 2001. The systematic widening of budget shortfalls projected under CBO's long-term scenarios has never been observed in U.S. history." (Testimony by CBO Director Elmendorf on July 16, 2009, emphasis added)

    • In FY 2019, interest on the debt is projected to be $799 billion--equivalent to more than 1/3 of income tax payments, with a substantial amount of those payments leaving the U.S. economy to pay foreign holders of U.S. debt.

    Health Reform Side-by-Side

    Currently pending are three major health reform measures at various stages of development:

    1. A tri-committee House plan (Ways & Means/Rangel, Energy & Commerce/Waxman, and Education and Labor/Miller). CBO Cost Estimate JCT Revenue Estimate

    2. A Senate HELP Committee Democratic plan (Health, Education, Labor, and Pensions/Kennedy-Dodd). HELP Committee Release
    3. A Senate Finance Committee bipartisan plan (Baucus/Grassley) is under development.

     

    Senate Finance

    Senate HELP

    House Tri-Committee

    Individual mandate to purchase health insurance, w/ tax penalties for non-compliance

     

    Yes

     

    Yes

     

    Yes

    Prohibition on denying coverage due to pre-existing condition

     

    Yes

     

    Yes

     

    Yes

    Creates a "health insurance exchange" where individuals can compare a basic package of benefits and purchase coverage

     

    Yes

     

    Yes

     

    Yes

    Subsidies for individuals to purchase insurance through the "exchange"

    Expand Medicaid eligibility?

    Number of uninsured reduced by:

    Up to 300% of FPL*

     

    Up to 400% of FPL*

    Up to 400% of FPL*

     

    Yes

    Uninsured reduced by 37 million (leaving 17 million, 1/2 of which are illegal aliens)


    Public insurance plan to be one of the health exchange options?


    Developing a co-op model in lieu of public plan


    Yes


    Yes

    Employer Mandate: Employers required to provide coverage?



    Special provisions for small businesses?

    To be determined

    Employers w/ more than 25 workers: provide insurance or pay $750 per worker

    Provide coverage or pay 8% of payroll into trust fund



    Tax credits for small businesses


    10-year cost

     

    Net deficit impact over 10 years

     


    Aiming for less than $1 trillion

     


    $611 b (not including Medicaid expansion)


    $1.042 trillion



    $239 billion net deficit increase

    Offsets to pay for the bill

     

    Under discussion: (1) Medicare savings; (2) unspecified tax increases amounting to $320 billion

    To be determined, but Dodd says no to health benefits tax

    Surtax on upper income earners generating $583 b;

    Trigger--surtax amounts would increase in 2013 if spending savings not realized.

    Medicare and Medicaid reforms saving $219 b

     

    *FPL: Federal Poverty Level

    Appropriations Tracker