October 24, 2014

Washington Budget Report: Jan. 24, 2012

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Key Questions for Political Candidates

Because fiscal reform requires extremely difficult choices, it is a subject where many candidates quickly turn to vague platitudes and partisan finger-pointing. In an issue brief released Monday, The Concord Coalition suggests that candidates for federal office should be expected to instead provide voters with credible long-term plans to hold down federal debt, repair the tax system and entitlement programs, and put the country on a more responsible path.

The issue brief provides questions and background information to help voters and the news media evaluate the fiscal promises and proposals of this year’s candidates. The topics include the defense budget, Social Security, health care, tax policies, government waste and possible areas for future bipartisan cooperation.

For example, candidates often denounce wasteful government spending in the abstract, speaking as though waste reduction were a panacea that could balance the budget tomorrow. Voters can ask these candidates to be more precise: “What are some examples of programs that you consider clearly wasteful or subject to widespread fraud and abuse, and how much savings would you expect to recover by reforming or eliminating these programs?”

Candidates should also be asked to identify some areas where they see “particular opportunities for bipartisan cooperation on fiscal reform.” Concord warns that candidates who can offer voters nothing more than complaints about the other party “are unlikely, if elected, to get anything done.”

The issue brief will be periodically updated on Concord’s website to reflect new fiscal estimates and projections as they become available.

Read more with Key Questions Voters Should Ask Candidates About Our Nation’s Fiscal Future

Charleston Forums Highlight Fiscal Challenges

With Republican presidential candidates campaigning hard in the South, experts on the federal budget told two public forums in Charleston, South Carolina, Thursday that the United States could not afford further delays in dealing with its fiscal and demographic challenges.

“This stuff could bring down our nation,” said Mark Sanford, a former South Carolina governor and a former member of Congress. He said “there has been no nation that achieved national security supremacy without economic supremacy.”

David M. Walker, CEO of the Comeback America Initiative and a former comptroller general of the United States, noted that only during the World War II era did the United States have a larger federal debt compared to the size of the economy than it does now. “No wonder newborn babies cry," he added.

Robert L. Bixby, executive director of The Concord Coalition, lamented the country’s failure to enact fiscal reforms when it had the chance to do so in better economic times. He said balanced recommendations such as those from the President’s fiscal commission and the Bipartisan Policy Center’s Debt Reduction Task Force offered the best path forward.  

“Past generations have taken care of the future,” Bixby said, “and we're not doing that now. “

Former congressman Alex McMillan (R-N.C.), a Concord board member, introduced the panel of speakers at both events.

The forums were hosted by Concord, the Comeback America Initiative, the School of Business Administration at The Citadel and the Department of Political Science at the College of Charleston.

CBO Offers Estimates on Changes in Eligibility Ages

In a report this month, the Congressional Budget Office (CBO) concludes that raising the ages of eligibility for Medicare and Social Security benefits would effectively decrease outlays, raise revenues, reduce long-term fiscal imbalances and have a positive economic effect.

The evaluated proposals would raise the Medicare eligibility age from 65 to 67, the full retirement age for Social Security from 67 to 70, and the early eligibility age for Social Security from 62 to 64.  

Raising the Medicare eligibility age would decrease Medicare spending by 5 percent, and raising the full retirement age of Social Security would reduce its spending by 13 percent.  Raising the early eligibility age for Social Security would have little effect on net Social Security spending.

If legislation were enacted increasing all three eligibility ages, CBO estimates that by 2035, Social Security and Medicare spending would fall by 0.4 percent of GDP, and federal revenues would rise by about half a percent of GDP. Deficits would be decreased by almost 1 percent of GDP in 2035.   

By providing an incentive for people to work longer, the proposals would also have a positive effect on the economy.  If all three proposals were enacted, the labor force and GDP would be 2 percent larger by 2035.

As the $15 trillion national debt continues to grow, efforts to enact fiscally sustainable policies must address the structural imbalance between entitlement spending and revenues.  CBO’s report is a reminder that raising the eligibility ages is one option that should seriously be considered.

IRS Reports on Billions in Unpaid Taxes

New government figures on unpaid taxes underscore the importance of broad tax reform as well as adequate enforcement efforts.

The Internal Revenue Service this month updated its calculations on the “tax gap” – the difference between what Americans owe in taxes and what has been paid on time. For 2006, the IRS found that the gross tax gap was $450 billion. Enforcement efforts and late payments, however, brought the figure down to $385 billion.

The IRS said the voluntary compliance rate – the percent of total tax liabilities paid on time -- was about 83 percent, close to what it had been five years earlier. In 2006, as in 2001, the biggest factor contributing to the tax gap was the under-reporting of income. “Overall, compliance is highest where there is third-party information reporting and/or withholding,”  the IRS said.

Comprehensive tax reform could help rein in federal deficits by eliminating many “tax expenditures,” which are essentially spending programs embedded in the tax code. An additional benefit of such reforms would be simplicity; they would make it easier for taxpayers to correctly determine what they owe the government, and enforcement would be easier as well.

All this would make the tax system more fair, which in turn could encourage even greater voluntary compliance in the future, providing additional revenue that could make further deficit reduction possible.