December 20, 2014

CONCORD COALITION WARNS THAT FISCAL DISCIPLINE IS NOT ON THE MENU FOR THANKSGIVING

WASHINGTON -- As Congress wraps up its work for the year, The Concord Coalition warned that the rush of legislative activity in this final week of the session is likely to further damage the long-term fiscal outlook. Particularly troubling are the Medicare and energy bills, which establish new entitlements, subsidies, and tax breaks - all financed by running up the national debt. Moreover, both bills continue the irresponsible pattern of deliberately understating long-term costs by the use of accounting gimmicks.

“With all the giveaways, you might think that Santa Claus had arrived early. But that wouldn't be fair to Santa - when he delivers presents he doesn't slip a bill for several hundred billion dollars into our kids' stockings,” said Robert L. Bixby, executive director of The Concord Coalition.

The energy bill offers a broad array of new and extended tax breaks - about 50 in all - with an official 10-year revenue loss of $25.7 billion and a total budgetary cost of $31 billion. Despite the return of huge deficits and the passage of an earlier tax cut bill, Congress made no attempt to apply the “paygo” principle by keeping the energy bill revenue neutral. In fact, Congress tripled the size of the energy tax package proposed by President Bush.

Worse yet, the energy bill is likely to cost far more than the official projection because it includes more than 20 “sunsets” that assume various provisions will expire within the next five years. The indiscriminate use of sunset gimmicks explains why the bill's five-year revenue loss is estimated at $17.4 billion while the 10-year loss is only $25.7 billion. If Congress extends all the tax-cut provisions, the ten-year revenue loss could easily double.

However, the energy bill creates far less of a long-term fiscal problem than the $400 billion Medicare prescription drug bill, which represents the biggest benefit expansion in Medicare's history. Here too the actual cost may far exceed the official price tag. Instead of sunsets, the gimmick is a “doughnut hole”-- an arbitrary gap in coverage that is bound to be filled in by future Congresses. The doughnut hole has no policy rationale. Its sole purpose is to allow Congress to claim that--at least on paper--it has stayed within the $400 billion limit established by the budget resolution.

Medicare already promises more than it can afford to deliver over the long-term. The program is on track to double as a share of the economy by 2035 and triple by 2065. Congress should not add new benefits until it ensures that we can afford the ones we already have. And if it does add new benefits, it should at the very least design them to meet the greatest need at the smallest possible expense.

The Medicare bill fails both tests. The main cost containment provision will not compel action and is unlikely to be taken seriously by future lawmakers. It appears to be a simple warning flag when 45 percent of Medicare spending comes from general revenues. As for the drug benefit itself, it is universal--meaning that everyone qualifies regardless of need. The one positive development is the addition of higher Part B premiums for upper income beneficiaries. However, the cost savings from this reform are overwhelmed by the addition of new benefits.

With substantial deficits already projected for as far as the eye can see, the entire federal share of a new Medicare drug benefit will have to be paid for with borrowed funds. Borrowing to finance a war or other national emergency may be reasonable. But it is entirely unreasonable for the government to deficit-finance a new entitlement. Future generations will ultimately pay the bill for both the benefit promises and the rising costs of servicing a burgeoning national debt.

“Whether the issue is tax cuts or benefit hikes, Congress and the President don't seem to realize that the budget party is over. By approving these two bills, the first session of 108th Congress will have passed non-offset tax cuts and entitlement expansions of least $800 billion over the next 10 years. If the tax cut sunsets are ignored the more realistic total is about $1.5 trillion. Nothing better demonstrates why policymakers need to reestablish an overall fiscal policy goal and back it up with a meaningful pay-as-you-go rule. PAYGO required anyone proposing major initiatives on either tax cuts or entitlements to answer the question: ‘How do you pay for it?' With the baby boomer retirements looming at the end of the current budget window, and fiscal policy in freefall, it is a question that must not be ignored as Congress wraps up its work this week,” Bixby said.

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