October 23, 2014

Concord Coalition Warns That Partisan Differences Must Not Poison The Well For Necessary Hard Choices

WASHINGTON -- The Concord Coalition said today that sharply rising short-term deficits and long-term projections that are even worse demonstrate an urgent need for bipartisan action to confront the nation's precarious fiscal situation. As members of Congress and presidential candidates react to today's release of the President's FY 2009 budget, Concord urged them to refrain from starkly partisan responses that reject each others' priorities, rule out compromise and make solutions all the more difficult to achieve.

"Any realistic interpretation of the budget numbers shows that our fiscal outlook is deteriorating, with or without a stimulus bill, and that large deficits are not going away any time soon. Indeed, the challenge will be to keep them from exploding beyond the $400 billion range forecast for the next two years," said Robert L. Bixby, Executive Director of The Concord Coalition.

"It is understandable that Democrats and Republicans will have different priorities, but most of them share a common goal of restoring budget balance within a reasonable period and a recognition that long-term fiscal policy is unsustainable. They also share a responsibility to do something about it. Both sides must recognize that they cannot achieve these goals with proposals that only appeal to narrow partisan interests. Given that the current administration will end before fiscal year 2009 is over, there is very little chance that Congress will act on the major proposals in this budget. Yet even if the budget as a whole is ‘dead on arrival,' Congress should be careful not to categorically reject all of the individual elements. The next administration and the next Congress will need the flexibility to find solutions through bipartisan negotiations. Taking options off the table, by either party, is a recipe for continued gridlock,” Bixby said.

Concord reiterated its concerns that certain key policy assumptions used by the administration to project a swift decline in the deficit are not realistic.

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 $203 billion. The Concord Coalition thus supports further efforts to restore a balanced budget excluding the Social Security surplus.
  • Four key 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. Specifically, the budget assumes:
    • A revenue windfall from the Alternative Minimum Tax (AMT)
    • A sudden drop in new funding for the wars in Iraq and Afghanistan (from nearly $200 billion in 2008 to zero in 2010)
    • Substantial programmed cuts in Medicare physician payments, and
    • Annual reductions in non-security appropriations beyond 2009.
  • The cumulative budget savings from these assumptions is roughly $1.2 trillion over 5 years and $277 billion in 2012 alone.

"The president's budget does not provide a realistic path to fiscal balance, in either the short term or the long-term, but it does demonstrate how difficult the choices are becoming. 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 ($863 billion) is nearly 5 times the proposed savings from mandatory spending ($178 billion). What this means in practical terms is that those who support full extension of expiring tax cuts -- an easy political choice -- must also be willing to support at a minimum the level of cost saving entitlement reforms and appropriation restraint contained in the President's budget --a far more difficult proposition. And it is not just Republicans who confront these choices. To the extent that Democrats want to extend ‘middle class' tax cuts or expand government services, they too must find offsets,” Bixby said.

In light of the challenges ahead, Concord emphasized the importance of strictly adhering to pay-as-you-go budget rules, particularly for reform of the AMT. In past years, the administration has been open to revenue neutral reform of the AMT. Whether the administration remains open to this fiscally responsible option is questionable in light of the president's State of the Union promise to veto any tax increase.

One 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.

Aother potential 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.

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The Concord Coalition is a nonpartisan, grassroots organization dedicated to balanced federal budgets and generationally responsible fiscal policy. Former U.S. Senators Warren Rudman (R-NH) and Bob Kerrey (D-NE) serve as Concord's co-chairs and former Secretary of Commerce Peter Peterson serves as president.

CONTACT:
Jonathan DeWald
(703) 894-6222
jdewald@concordcoalition.org