November 27, 2014

The (Tab)ulation

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Monday, March 17, 2014 - 11:46 AM

House Ways and Means Chair Dave Camp (R-Mich.) remarked recently that there are some similar ideas in the tax reform proposals that he and President Obama have suggested. Normally overlap between Republican and Democrat ideas is a welcome occurrence.

But at least one feature in the Camp and Obama tax reform plans is an exception: Their plans to shore up the Highway Trust Fund by using one-time revenue from changes to the corporate tax system.

Unless lawmakers do something, later this year the largest part of the Highway Trust Fund -- the Highway Account -- will be unable to meet all of its obligations. The Congressional Budget Office recently projected that the entire trust fund will become insolvent in 2015.

While lawmakers need to come up with a solution, using short-term revenues from tax changes on unrelated corporate profits earned abroad is not a good approach and would only delay...

Friday, February 28, 2014 - 3:41 PM

Ways and Means Committee Chairman Dave Camp (R-Mich.) released a detailed discussion draft on comprehensive tax reform Wednesday that eliminates inefficiencies in the tax code and makes it simpler. The Concord Coalition commends Chairman Camp for his efforts. The shame is that it looks like the rest of Congress and the President are desperate to avoid discussing how to improve upon it and then enact a reform plan.

Camp’s proposal effectively leaves the tax code with three tax brackets: One at 10 percent, one at 25 percent, and an additional 10 percent surtax for high earners. To achieve this consolidation and lowering of rates without adding to the deficit, Camp’s plan limits, discards or merges many of the code’s tax expenditures -- special provisions that favor certain behaviors, individuals and businesses. The proposal significantly alters “sacred cow” provisions like the home...

Monday, February 24, 2014 - 2:52 PM

As we await the full release of the President’s Fiscal Year 2015 Budget, some important specifics have been slowly made public. It looks like this budget, as is usually the case, will contain a mixture of sensible reforms and politically expedient omissions.

The first bit of news is that this year’s budget will not contain a proposal -- included last year -- to switch the government-wide formula for measuring inflation to a more accurate index called the “Chained CPI.” 

Switching would save money in numerous spending programs, including Social Security, that provide cost-of-living increases. That’s because the government’s current formula, according to most economists, overstates inflation. The Chained CPI addresses this problem while ensuring that the value of federal benefits still keep up with citizens’ purchasing power.

Because tax brackets are indexed to inflation, switching to the Chained CPI would also increase revenue.

The President’s budget does not have the force of law and does not normally form the basis for the congressional budget resolution. It is a stylized world in which the administration proffers a multi-faceted policy course and projects where that would lead the nation fiscally.

In that world last year, the administration rightly identified that the country has a...

Friday, February 14, 2014 - 10:46 AM

The House Budget Committee last week approved a bill on a bipartisan 22-10 vote that would switch the annual congressional budget process to a biennial (two-year) cycle.

The legislation, introduced by Rep. Reid Ribble (R-Wisc.), a committee member, has attracted 100 co-sponsors, roughly a third of whom are Democrats. The Concord Coalition has commended Rep. Ribble for pursuing this option.

The difficult struggle each year to pass appropriation bills has made it harder for lawmakers and federal agencies to focus on structural problems in the budget and develop more responsible long-term fiscal policies.

Ideally, biennial budgeting would help Congress improve its allocation and oversight of discretionary spending, which makes up one-third of the budget.

During the first year of a 2-year cycle, lawmakers would set funding levels for federal agencies. Congress would then use the second year to concentrate on oversight, examining how federal agencies administer various programs, how effective the programs are and whether...

Thursday, February 6, 2014 - 3:07 PM

State lawmakers across the country are debating how to spend large surpluses after the economic recovery helped produce higher-than-expected tax collections for the second year in a row.

State legislatures and governors have welcomed this change after years of enacting painful spending cuts to balance their budgets. But they are waging battles both within and between their political parties about how to spend the extra money.

In a year when up to three dozen governors could run for re-election, as well as countless more state legislators who could be on the ballot, many of the proposals have unfortunately focused on short-term measures.

State officials should consider how to use at least part of their surpluses to improve the long-term health of their budgets instead of just haggling over whether to use the surpluses to finance short-term tax cuts or spending increases. A recent Concord blog post highlighted a report by the State Budget Crisis Task Force that said states have done little to address the long-term structural problems in their...

Monday, February 3, 2014 - 9:46 AM

Like Frankenstein’s monster, the statutory debt limit will soon come back to life. It has been in a state of suspended animation since the October 2013 budget deal that ended the government shutdown.

The terms of that deal allowed the government to borrow without limit through this Friday, when the suspension period ends and the current debt level of about $17.3 trillion instantly becomes the new limit.

The Treasury will still be able to use  “extraordinary measures” for a while to keep its borrowing under the limit. However, as Treasury Secretary Jacob Lew explained in a recent letter to Congress, those measures will probably last for only a few weeks.

So despite hopes that the budget deal would break the chaotic cycle of fiscal crises, we’ll soon be facing another showdown unless swift action is taken.

That might not be as easy as many on Capitol Hill are assuming. Republicans generally favor adding yet-to-be determined conditions to any debt limit increase while Democrats insist that there can be no strings attached.

It might get resolved without a crisis this time, but the risk is still there and will return whenever the debt limit needs to be raised...

Friday, January 31, 2014 - 10:34 AM

For those interested in a vision of fiscal sustainability, the State of the Union Address was a major disappointment.

President Obama noted that the deficit has been cut in half, which is a positive development, but he offered no strategy for making further progress. At $680 billion and 4.1 percent of the economy, last year’s deficit was still quite high. More troubling is that fiscal policy remains on an unsustainable path -- a projection that deserved at least some passing mention.Obama briefly acknowledged that more could be done to bring down the deficit “in a balanced way,” but the general sense was that it was time to move on.

Few would dispute that creating new jobs is a top priority, but that task is compatible with a continued focus on fiscal sustainability. Indeed, a properly phased-in fiscal sustainability plan would improve the economic outlook. Moreover, the budget agreement hailed by the President did little to address either.  

When the President did mention fiscal issues in his speech it was mostly to promote new spending or tax cuts with no cautionary reminder that even a “pay-as-you-go” standard will...

Friday, January 24, 2014 - 3:47 PM

As more people obtain health insurance through the Affordable Care Act’s exchanges and its expansion of Medicaid -- the federal-state program for low-income individuals -- policymakers should focus on ensuring that the health care system can meet the increased demand for services.

As people gain insurance, they tend to increase their utilization of health care. (See, for example, this report from the Medicare and Medicaid actuaries.)

Thus federal and state policymakers need to work together to make the health care system more efficient so that expenditures on health care don’t crowd out other important government programs. Possible solutions to this challenge can be found in Oregon, which has experimented with payment and delivery reforms in Medicaid in ways that could serve as a model for the rest of the country.

Reforming the delivery of care for Medicaid patients is not an easy task. An analysis of a landmark...

Friday, January 17, 2014 - 12:52 PM

Many state and local governments have done little to address growing structural problems in their budgets that have been aggravated by federal deficit-reduction efforts, according to the State Budget Crisis Task Force.

The bipartisan organization released its final report last week, reiterating a stark warning from its previous reports: “The existing trajectory of state spending, and administrative practices cannot be sustained.”

Former Federal Reserve Chair and Concord Coalition board member Paul Volcker co-authored the report along with Richard Ravitch, a former lieutenant governor of New York. They urged state and local governments to deal with their budget problems and suggested that federal policymakers should focus more attention on how their own deficit-reduction efforts will impact other levels of government.

The task force’s work has concluded with this report, but Volcker plans to start a new organization, the Volcker Alliance, that will follow up on the recommendations and issues raised by the task force.

The task force recommends that Congress create an office to monitor and analyze how federal actions will affect state and local budgets, possibly as part of the Congressional Budget Office.

...

Tuesday, January 14, 2014 - 10:14 AM

A new report by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) found that health care spending over the past four years grew at the slowest rate recorded in more than half a century. The spending grew by 3.7 percent in 2012; since 2009 the annual rate has been between 3.6 percent and 3.8 percent.

That's down from the 5.5 percent average increase over the past decade, and well below the average annual increase of 11 percent observed in the 1980s and 13.1 percent average annual increase observed in the 1970s.

The recent slower growth contributed to the first reduction in health care costs as a share of the economy in 15 years, down to 17.2 percent of GDP in 2012 from 17.3 percent in 2011.  

It is good news that we are bucking the historical trend on health care cost growth. But the causes for this are not completely understood and thus we have uncertainty as to the sustainability of the trend.

Several factors are at work, including: the last recession and subsequent slow recovery, programs and policies initiated by Obamacare, structural changes in the health care...