April 18, 2014

Washington Budget Report: Apr. 26, 2011

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Wrong Way to Build Consensus

If President Obama and Republican leaders in Congress hope to build consensus around a plan for fiscal sustainability, they are off on the wrong track. They seem instead to be sharpening their differences.

A meaningful long-term plan will require compromises in key areas like tax reform and health care. Two bipartisan groups -- the Bowles-Simpson and Domenici-Rivlin commissions – were each able to reach agreement on at least broad approaches in these areas.

On tax reform, the commissions recommended scaling back or eliminating most tax expenditures – deductions, exclusions and credits – in exchange for lower rates and higher revenues. Congressional Republicans have now ruled this out.

On health care, both the Bowles-Simpson and Domenici-Rivlin groups raised the possibility of controlling Medicare spending by shifting to a defined contribution or “premium support” model. The President has now ruled this out.

Time is not on our side. The federal debt limit will be reached sometime in the next three months, long before the current campaign-style rhetoric will play out at the polls.

Negotiators Face Difficult Task

Congressional leaders have completed their appointments to a deficit-reduction panel proposed by President Obama but the group will have little time to develop a long-term plan, and some of those named have not shown great enthusiasm for the broad-based approach that will be needed.

The group’s main purpose appears to be finding a politically acceptable way to avoid a crisis over the raising of the federal debt limit. Some sort of process reform, perhaps with caps on appropriations, seems more likely at this stage than agreement on major substantive changes. For that reason Robert L. Bixby, executive director of The Concord Coalition, has called the group “the official Fig Leaf Commission.”

Eventually, however, the panel could play a useful role in giving its blessing to recommendations that might be presented by the bipartisan “Gang of Six” in the Senate. Members of that informal group have indicated a serious interest in a comprehensive approach to long-term deficit reduction, as recommended by a number of bipartisan commissions and organizations.

The negotiations proposed by Obama are to begin May 5, with the goal of developing a plan by the end of June. Vice President Joe Biden will lead the talks.

Other negotiators who have been appointed are Senate Appropriations Chairman Daniel Inouye (D-Hawaii), Senate Finance Chairman Max Baucus (D-Mont.), Senate Republican Whip Jon Kyl (R-Ariz.), House Majority Leader Eric Cantor (R-Va.), House Assistant Democratic Leader James Clyburn (D-S.C.), and Chris Van Hollen (D-Md.), ranking member of the House Budget Committee.

A Promising Save-As-You-Go Plan

The Bipartisan Policy Center's (BPC's) Debt Reduction Task Force, led by former Senate Budget Committee Chairman Pete Domenici and former White House Budget Director Alice Rivlin, proposed a budget enforcement process last week to attempt to rein in growing federal deficits.

Under this Save-As-You-Go (SAVEGO) proposal, Congress would set annual targets to reduce projected deficits enough to place our nation on a fiscally sustainable path. The BPC has recommended stabilizing the debt below 60 percent of GDP.

Under SAVEGO, targets would be set by statute and enforced using a cap on discretionary spending and a cap on health care entitlement programs. Also included is a target for savings from other mandatory programs, reductions in tax expenditures, and other revenue increases. If the targets are not reached, SAVEGO would require automatic spending cuts, reductions in tax expenditures or other revenue increases to address the shortfall.

The most responsible course of action would be for Congress and the President to agree on the specific spending and revenue policies needed to reach fiscal sustainability. If such an agreement is reached, SAVEGO would be useful to enforce it and to ensure that projected savings materialize. If policymakers are unable to agree on the policy details, a budget process proposal such as SAVEGO would be an important first step that could effectively establish a framework for future agreement.

Pentagon Budget Not Exempt from Scrutiny

Federal budget experts and ordinary citizens alike are asking for greater scrutiny of defense spending as part of a larger effort to reform the federal budget.

“The rationale for including defense in a deficit reduction plan has invoked the concept of shared sacrifice—everyone contributing in the face of shared danger,” Alice Rivlin, a senior fellow at the Brookings Institution, said recently. “I prefer to think of it as shared opportunity, subjecting all spending, defense and domestic, to more rigorous tests for efficiency and effectiveness.”

In events sponsored by The Concord Coalition around the country, many voters say they want greater accountability from government, including with the defense budget. “People want a strong military with smart spending, not just heavy spending,” says Phil Smith, Concord’s national political director.

Some elected officials seem to have gotten the message. Sen. Saxby Chambliss (R-Ga.), for example, said recently of the hundreds of billions of dollars in the defense budget: “If we can’t find some waste, fraud and abuse within that, then we have no business being in Congress."

Debits & Credits

Off to the Woodshed: David A. Stockman, who served as President Reagan’s budget director, points to weaknesses in the budget plans of both President Obama and Rep. Paul Ryan (R-Wi.), saying that we “are about to descend into class war because the Obama plan picks on the rich when it should be pushing tax increases for all, while the Ryan plan attacks the poor when it should be addressing middle-class entitlements and defense."

OK, When Can You Start?: “It’s our constitutional duty, as members of Congress, to take responsibility for Medicare and not turn decisions over to a board,” says Rep. Allyson Y. Schwartz (D-Penn.), one of the lawmakers calling for repeal of the Independent Payment Advisory Board (IPAB). The whole reason the IPAB was part of last year’s health reform, however, was that Congress has done such a poor job of holding down Medicare costs.