August 21, 2014

Washington Budget Report: Apr. 5, 2010

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President Signs Legislation to Complete Health Plan and Overhaul Student Loan Programs

In signing the final piece of the health reform legislation, President Obama sought to shift some of the spotlight to the fact that it would also revamp the federal government’s student loan programs.

The White House says the Health Care and Education Reconciliation Act would save taxpayers $68 billion dollars in coming years by ending what Obama calls a “sweetheart deal” for banks in federally guaranteed student loans. At a signing ceremony on the Alexandria campus of Northern Virginia Community College last week, Obama said the changes in the loan system had gotten “overlooked amid all the hoopla” over health care reform. However, much of the "savings" from the student loan provisions are spent right away on other education programs, such as increased Pell grants, making the net deficit reduction from the education provisions $19 billion.

Some House Democrats objected to certain parts of the main health care law that Obama signed earlier in March. The reconciliation package changed the earlier legislation to address some of those concerns. Among the changes: An unfortunate delay in taxing high-cost health plans, a tax that many analysts agree could not only raise revenue but discourage wasteful health-care spending. 

The Concord Coalition has argued that the expansion of health insurance coverage to 32 million Americans makes it all the more important to curb excessive costs.

Political Rhetoric Indicates Vulnerability of Critical Pieces of Health Care Plan

After a year of debate over health care, many elected officials aren’t done yet. Over the congressional recess, Democrats are singing the praises of the new legislation while Republicans continue to blast away at the less popular provisions.

From a fiscal perspective, the danger of this rhetorical battle is that it may obscure the critical need for trade-offs between new benefits and new obligations. The Republicans’ “repeal and replace” slogan takes aim at politically vulnerable aspects of the health care bill such as Medicare cuts, tax increases and mandates. Republicans are equally clear, however, that they do not want to get rid of crowd-pleasing provisions in the law such as the prohibition against insurance companies refusing coverage based on pre-existing conditions.

Even before the legislation was signed, some influential House Democrats were hinting that certain unpopular parts of the plan could eventually be tossed overboard. Particularly vulnerable in this regard is the tax on high-cost insurance plans, which was pushed off until 2018 due to opposition by many House Democrats and labor unions.

It is little wonder then that many “deficit hawks” are expressing concerns that the advertised deficit reduction in the bill may not stand the test of time, or political pressure.

As Concord Coalition Executive Director Bob Bixby points out in a recent blog post, the hard parts of the legislation are necessary to making the popular elements work in a fiscally responsible manner. He says, “the surest way to guarantee exploding deficits would be to leave in place all of the popular insurance reforms and repeal the politically difficult choices that have been made to pay for them.”

In short, we can’t expect something for nothing in revamping the health care system.

House Majority Leader Issues Emphatic Warning on Debt at Fiscal Solutions Forum

College Park, Md. -- House Majority Leader Steny Hoyer last week urged Republicans and his fellow Democrats to work together to put the government’s fiscal house in order before growing debt brings “an end to American leadership in the world.”

Hoyer emphasized his deep concerns about the nation’s challenges at the “Fiscal Solutions Forum” co-sponsored by The Concord Coalition and the University of Maryland School of Public Policy. The program, held Thursday on the university’s College Park campus, was one of three programs that Concord and co-sponsors presented last week that focused on the need for fiscal responsibility and reform. (See below for more about the other two programs.)

David M. Walker, CEO of the Peter G. Peterson and former U.S. comptroller general, joined Hoyer and other members of an expert panel in warning students at the University of Maryland that they had ample reason to become advocates for a change in the nation’s course. “Your futures are being mortgaged, at record rates,” Walker said. He outlined possible solutions such as repairs to Social Security, elimination of waste in the Defense budget and elsewhere, and comprehensive tax reform.

Concord Executive Director Robert L. Bixby outlined the fiscal challenges facing the country, summarizing material from Concord’s “Fiscal Wake-Up Tour,” which has visited 30 states in recent years. “The course we are on is, by any definition, unsustainable,” Bixby said.

Hoyer agreed, and he sounded many of the themes that Concord emphasizes. While new health care legislation promises to cut federal deficits, for example, he said this would depend on whether members of Congress have the political courage to stick with tough cost-control measures.

The majority leader worked for the establishment of a bipartisan commission on fiscal responsibility to make recommendations to Congress. He applauded the President’s new commission but cautioned that the requirement that 14 of its 18 members agree on any recommendations was “an extraordinarily high bar.” To find solutions, Hoyer said, both Republicans and Democrats would “have to come to the table without preconditions.”

Also on the panel were William D. Novelli, a business professor at Georgetown University, and Andrew G. Biggs, resident scholar at the American Enterprise Institute for Public Policy Research. Novelli, former CEO of the AARP, said it was possible to stabilize the federal debt while still ensuring retirement security for older Americans. Biggs warned that people who say that we need only attack waste, fraud and abuse were not serious about dealing with the country’s fiscal problems. For more on this event, including video, click here.

Panel in North Carolina Stresses Responsibility, Cooperation

Chapel Hill, N.C. –- North Carolina residents who worry about the country’s fiscal future learned what they and their elected representatives could do about it at a forum last week entitled “Fixing Our Fiscal Future.”

The program featured former Federal Reserve Board Vice Chair Alice Rivlin, Concord Coalition Executive Director Bob Bixby, former U.S. Rep. J. Alexander McMillan, and Stefan Byrd-Krueger, youth outreach coordinator for Concord. Presented on the University of North Carolina campus on Wednesday, the March 31 forum was co-hosted by The Concord Coalition and the Frank Hawkins Kenan Institute of Private Enterprise. 

Alice Rivlin, who served as the first director of the Congressional Budget Office and the director of the Office of Management and Budget in the Clinton administration, stressed the importance of fiscal discipline in meeting the serious long-term challenges facing the country. She warned that unchecked growth of debt would eventually make it more difficult, and more expensive, for the federal government to borrow money. 

Rivlin sounded hopeful for President Obama’s new Bipartisan Commission on Fiscal Responsibility and Reform. Obama appointed Rivlin to the commission, which is charged with making recommendations to Congress on Dec. 1. 

McMillan, who represented North Carolina’s 9th Congressional District and is a member of The Concord Coalition’s board, stressed the need for bipartisan cooperation, citing the example of the 1990 budget deal. He also noted the value of pay-as-you-go (PAYGO) rules and said the President would have to put his weight behind any of the bipartisan commission’s recommendations for them to succeed.

Byrd-Krueger stressed that today’s youth have the most to gain or lose from long-term fiscal policy decisions. He said members of the Millennial Generation have pioneered communications technologies that allow them to create and spread messages faster than ever before -- giving them the ability to build effective coalitions to influence public policies.

A link to a video recording of the event should be available on concordcoalition.org later this week.

Structural Budget Problems Seen as Primary Threat

Members of the National Association of Housing and Redevelopment Officials (NAHRO) opened their annual legislative conference in Washington March 28 by hearing a sobering assessment of the nation’s fiscal outlook. A panel consisting of Concord Coalition Executive Director Bob Bixby, former CBO Director Donald Marron and John Irons of the Economic Policy Institute agreed that structural -- not temporary -- factors pose the main threat to the economic future.  

Bixby told the group that even assuming a robust economic recovery and fading war costs, the budget would remain on an unsustainable path. He emphasized that the large deficits projected in the coming decade would increase interest costs on the debt from $200 billion in 2009 to $900 billion by 2020. 

Marron said that the recession is likely to have some long-term adverse economic effects and that the shift to an older population may also contribute to slower economic growth in the future than has been the historic pattern. 

Irons said that most of the recent spike in debt has been caused by adverse economic conditions and not “out of control spending.” He said that the long-term problem is mostly a problem of rising health care costs. To watch this event, click here.

Pentagon Reforms on Use of Consultants Could Reduce Wasteful Spending

Defense Secretary Robert Gates has announced new policies on the Pentagon’s use of retired generals and admirals as high-paid consultants, some of whom were being paid up to $440 an hour. The consultants, known as “mentors” in the military, will also become subject to federal conflict-of-interest laws and regulations that will restrict the practice of advisors being paid by both the Pentagon and private contractors.

USA Today had reported that the retired officers were being generously paid to advise the Pentagon even though they were consulting for companies that were trying to sell products to the military. Their pay from the Pentagon was in addition to their six-figure military pensions.

With the United States fighting two wars and taxpayers facing mounting government debt, the Pentagon has a responsibility to ensure that defense dollars are not squandered. Sen. Claire McCaskill (D-Mo.), who initiated an investigation of the military consulting program, said the new reforms “represent real progress.”

FAQ: Federal Debt Numbers

The National Debt, 1970-2020

Q: Why are different numbers sometimes used to describe the federal debt?

A: The figure that appears most often in the news is the government's total debt (or gross debt), which is nearly $12.8 trillion. But this figure has two components: intragovernmental debt ($4.5 trillion) and "debt held by the public" ($8.3 trillion). 

Intragovernmental debt is money that has been borrowed from government trust funds such as the one for Social Security. When a trust fund collects more money than it pays out in a particular year, the surplus money is used to purchase Treasury securities, which are essentially IOUs to the trust fund.

Debt held by the public consists of money the federal government owes individuals, corporations, state and local governments, foreign governments, and other entities outside the U.S. government. Economists and federal budget analysts often focus on this figure because of the immediate impact this type of debt has on the budget, interest rates and the economy.

The federal debt should not be confused with the deficit, which represents how much money the government borrows in a single year. The debt held by the public is the total of all prior years' deficits. The debt figures should also be distinguished from the government's unfunded promises, notably for future Social Security and Medicare benefits.