December 22, 2014

Washington Budget Report: Feb. 22, 2011

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President Hits the Pause Button

President Obama’s proposed budget for Fiscal 2012 is oddly complacent for a situation that requires anything but complacency. It would, at best, temporarily stabilize federal deficits and debt (as a percentage of GDP) later in the decade at roughly twice the average over the past 50 years.

This would still leave an underlying structural deficit that would push debt to unsustainable heights in the years beyond the budget’s 10-year outlook. As the budget itself acknowledges, “beyond 2021, the fiscal position deteriorates again mainly because of the aging of the population and the high continuing costs of the Government’s health programs. The publicly-held debt rises unsustainably relative to GDP.”

Yet now that a bipartisan majority of his fiscal commission has issued sweeping proposals to deal with these long-foreseen challenges, Obama has hit the pause button: Not rejecting the recommendations, but not giving them the powerful public boost they need to eventually be enacted.

For the most part, the budget is a spruced-up rerun of previous proposals. In total, the things the President is actually proposing to do would have only a marginal effect on the bottom line. They would cut projected spending by $677 billion, raise projected revenues by $273 billion and lower interest costs by $161 billion for a combined deficit reduction of $1.1 trillion over 10 years. This is dwarfed by a cumulative post-policy 10-year deficit of $7.2 trillion.

Unfortunately, there are no significant cost-saving proposals for Social Security, Medicare and Medicaid. Nor is there a proposal for comprehensive tax reform.

As the President has suggested, this may represent a political calculation that behind-the-scenes discussions will be more productive right now than a high-profile campaign for specific solutions. But the go-slow approach fails to set an action agenda or engage the public.

House Passes Cuts as Shutdown Worries Grow

A government shutdown became more likely last week as the House passed a new continuing resolution (CR) opposed by President Obama and Senate Democrats.  In a process that lasted most of the week, nearly 600 amendments were offered during over 60 hours of debate. According to the Appropriations Committee, floor amendments increased the bill's initial $61 billion in cuts by more than $620 million.

Democrats support an alternative that would freeze spending at 2010 levels.  President Obama has threatened to veto the House bill, and the possibility of a government shutdown increased when House Speaker John Boehner said he would oppose another short-term CR that would continue 2010 spending levels.  To avoid a shutdown, an agreement must be reached before the current CR expires March 4.

The $14 trillion federal debt requires Congress to make difficult choices, but a government shutdown should not be one of them.  Both parties should quickly resolve their differences over appropriations that are less than 40 percent of the budget. Then Congress should focus at least as much attention on entitlement programs that account for the majority of federal spending.

GAO Calls for Greater Efficiency and Effectiveness in "High Risk" Areas

The Government Accountability Office (GAO) reported at least some improvements over the last two years in areas of the federal government that it has designated as “high risk” for waste, fraud, mismanagement and abuse.

But in a new report, the GAO says it has removed only two of the 30 high-risk designations it detailed two years ago: the 2010 Census and the Pentagon’s Personnel Security Clearance Program.

More work is still needed in many other areas. Improper Medicare and Medicaid payments, for example, apparently cost taxpayers billions of dollars a year. In addition, the GAO named a new high-risk area: the Interior Department’s Management of Federal Oil and Gas Resources, where problems include uncertainty that the government is collecting an appropriate amount of revenue.

In a recent New York Times op-ed, Gene L. Dodaro, the comptroller general of the United States and head of the GAO, urged Congress and the White House to monitor and reform these programs.

“Closing our nation’s fiscal gap will require broader budgetary changes and shared contributions,” he wrote. “Greater efficiency and effectiveness in government can help ease that burden on the American people while preserving vital programs of importance to us all.”

Debits & Credits

 

To Be Specific: The administration injected a welcome dose of specificity into its budget by including over 200 proposals for savings from federal programs that are inefficient, duplicative or unaffordable. Congress should seriously consider these proposals in the weeks ahead.

Entitlement Mentality: Senator Charles Schumer (D-NY) downplays the need for Social Security reform by arguing that the system doesn't contribute to deficits and should be off the table in today’s budget discussion. But CBO projects that Social Security cash deficits will total $547 billion for 2012-2021 -- clearly a factor in the large federal deficits to come.