July 31, 2014

Washington Budget Report: May 17, 2011

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Debt Limit Hit While Political Debate Continues

The federal government hit its debt ceiling Monday, forcing the administration to turn to what Treasury Secretary Tim Geithner calls “extraordinary measures” to pay the government’s bills and avoid default.

Although Geithner has estimated the government can get by without a debt limit increase until early August, many financial experts, business leaders and elected officials have warned that continued delays by Congress could at some point disrupt the credit markets and cause higher interest costs.

The Concord Coalition has urged Congress to reach agreement on some fiscal reforms while approving the "must pass" legislation to raise the debt limit. But Democrats and Republicans continue to disagree on how this might be done, and people on both sides have tried to take more and more options off the negotiating table.

Vice President Joe Biden and six top lawmakers held two meetings last week and plan more later this month. Biden said he thought these talks could eventually produce an agreement on how to make “a significant down payment” toward $4 trillion in deficit reduction over the next decade.

In addition, Obama met last week with senators in both parties. Both Republican and Democratic leaders described these meetings and the Biden-led talks as constructive.

Senate Republican Leader Mitch McConnell assumed a higher profile in the debt limit debate last week, ruling out tax increases and saying he would not vote to raise the limit without significant changes in Medicare and Medicaid. He did not specify the changes he wanted, however.

Trustees' Reports Underscore Need for Entitlement Reform

The trustees of Medicare and Social Security issued their annual reports last week, providing further evidence of the need for substantial reforms of the big entitlement programs that make up over a third of the federal budget.

As in past years, many news accounts and analyses have focused on trust fund balances, which simply record how much one part of government owes another part. Cash flows and the growing costs of the entitlement programs, however, are what really matter to the budget and the economy.

On that score, the bad news is that both Social Security and Medicare Part A are now in permanent cash deficits. Contrary to some recent political rhetoric, both programs are adding to the federal deficit and, on their current paths, will add much more in the next decade and beyond. And other parts of Medicare are already heavily subsidized by general tax revenue.

So any serious plan to put the nation on a sustainable fiscal path must deal with the enormous pressure that Social Security and Medicare will put on the federal budget as a whole.

To make matters even worse, Medicare’s problems are almost certainly understated in the new report. The trustees have also indicated that the Disability Insurance portion of Social Security requires particular attention from Congress in the near future – perhaps involving a shift in some payroll tax revenue.

The aging population and spiraling health care costs are the two main factors in the rising cost projections for the entitlement programs. Partisan finger-pointing won’t change that, which is why Democrats and Republicans must eventually work together on serious entitlement reform.

Former Lawmakers Encourage 'Gang of Six'

Efforts by the bipartisan “Gang of Six” in the Senate to forge a comprehensive budget deal have received vigorous support from members of The Concord Coalition's Board of Directors who have previously served in Congress.

“The cooperative approach taken by the senators’ group is the most promising route to enactment of legislation curbing the economically destructive and generationally inequitable explosion of debt that awaits if we don’t change course,” the Concord board members said in a statement last week.

The work of the Gang of Six efforts is important, the statement said, because it focuses on the need to develop sustainable fiscal policies, recognizes that there must be a comprehensive solution, and is a unique exercise in bipartisanship.

Noting "resistance from partisan advocates and only tepid support from party leaders” for the Gang of Six, the former members of Congress cautioned that a bipartisan Senate plan would “just be the start of tough negotiations” that would involve the House, the Obama administration and the American public.

But the statement pointed out: "If the Senate group is able to agree on a plan, it will serve as a beacon for those who wish to support meaningful bipartisan solutions."

The statement was signed by former senators Warren B. Rudman, Bob Kerrey, Evan Bayh III, Judd Gregg, Sam Nunn and Chuck Robb, and former representatives J. Alex McMillan , Timothy J. Penny, Charlie Stenholm and John Tanner.

House Begins 2012 Appropriations Process

With the 2011 appropriations bills finally complete, the House turned its attention to the 2012 bills last week. Appropriations Committee Chairman Hal Rogers (R-Ky.) set the goal of completing the committee's work by the August recess to permit the full House to consider the bills by the end of the fiscal year Sept. 30.

Rogers said the bills will include "double-digit reductions for virtually every non-security area of government." He proposed allocations to divide the House-passed budget resolution's $1.019 trillion discretionary spending allocation among the 12 subcommittees.

The preliminary allocations, subject to change when Congress adopts the final budget resolution, include cuts for every subcommittee except defense. Rep. Norm Dicks (D-Wa.), ranking member of the committee, raised concerns that the cuts could lead to "a severe setback for economic growth" by decreasing government jobs.

Also last week, subcommittees completed action on the first two bills: Homeland Security and Military Construction/Veterans Affairs. The full committee is scheduled to consider the bills May 23.

Congress should approve responsible bills that can help address the fiscal challenges facing our nation. Both parties should work to avoid the delays of the 2011 process, which was not completed until the second half of the fiscal year.

Debits & Credits

A Reminder on Entitlement Reform: Senate Majority Whip Dick Durbin of Illinois has reminded fellow Democrats that they must be ready to consider significant changes in the big entitlement programs because “we have serious economic problems ahead of us if we don't have some reform in both Medicare and Social Security."

Let’s Not Wait Quite That Long: Rep. Tom Rooney (R-Fla.) seems to take a cavalier approach to the possibility of a government default: “When you say the drop-dead day is going to be August, I question that. I'll believe it when I see it."