September 19, 2014

Washington Budget Report: April 3, 2012

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Because of the congressional recess, the next regularly scheduled Washington Budget Report will be published April 17.

Bipartisan Plan Provides Framework for the Future

A fiscal reform plan based on comprehensive recommendations by a bipartisan majority of the Simpson-Bowles commission made it to the House floor last week, where 22 Democrats and 16 Republicans joined to give it their support.
 
Although a House majority eventually approved a more partisan budget resolution, the development of the bipartisan alternative – presented by Rep. Jim Cooper (D-Tenn.) and Steven LaTourette (R-Ohio) – “signaled an important breakthrough,” according to Robert L. Bixby, executive director of The Concord Coalition.
 
“It demonstrated growing frustration with the starkly partisan plans that members are routinely pressured to choose from and established a framework upon which future bipartisan efforts can be built,” Bixby writes in a new blog post.
 
He offers high praise to the 38 House members who bravely voted for the Cooper-LaTourette plan despite heavy opposition to it from many other lawmakers as well as special interests. Concord urges voters to express their appreciation for these lawmakers and to encourage others to follow their example.
 
“I would look at this as the beginning and not the end,” Bixby says in a new Concord video.

The Cooper-LaTourette plan is based on the recommendations in 2010 of a bipartisan majority of the President’s National Commission on Fiscal Responsibility and Reform (Simpson-Bowles). They called for a comprehensive approach to fiscal reform that combined defense and domestic spending cuts, changes in the entitlement programs, and tax reform with additional revenue for deficit reduction.

Future efforts along the lines of the Cooper-LaTourette plan will be needed because the budget is on an unsustainable long-term track. And in the shorter term, large tax cuts are scheduled to expire at the end of this year, sharp new “automatic” spending cuts are supposed to begin next January, and the federal debt limit will likely need to be raised again at about the same time.

Because of all this, Bixby says, “by the end of this year Congress is going to have to do something.” The result, he adds, could eventually end up being something very much like the Cooper-LaTourette plan.

Read more with Bipartisan Budget Plan Based on Simpson-Bowles Provides Framework for Future Efforts (Blog Post and Video)

High Court Focuses on ‘Individual Mandate’

The Supreme Court last week heard arguments on the constitutionality of the 2010 law that revamps the health care system, with conservative justices indicating considerable skepticism over a provision that would require most individuals to buy health insurance or face financial penalties.

The court heard oral arguments on this “individual mandate” last Tuesday, and the following day considered whether the entire law – the Affordable Care Act (ACA) -- could stand if that requirement were struck down. Conservative and liberal justices appeared to differ sharply on this issue, with the liberals arguing for a more limited ruling.

On Wednesday the court also considered the complaint from 26 state governments that the law coerced them with enormous financial incentives to expand Medicaid coverage.  Again sharp differences seemed to emerge on the court. A decision in the case is expected in June.

The Concord Coalition, which is not a party to the case, has cautioned that the more controversial parts of the law, including the individual mandate, help make possible the more popular features, such as ensuring that people with pre-existing medical conditions can buy insurance. The individual mandate prevents people from waiting until they are sick to buy insurance, and thus the requirement keeps the insurance pool more stable and less costly as a whole.

From a fiscal standpoint, the biggest concern would be that if the mandate is determined to be unconstitutional and the court strikes down the entire law, the Medicare cuts and cost control efforts in the ACA would be eliminated as well. In that case Congress would need to quickly pass new cost-control measures that are at least as effective as those that are in the law. In an election year that might be quite difficult, but fiscally we cannot afford to lose any time. 

GAO Underscores Long-Term Fiscal Challenges

Although spending cuts in last year’s Budget Control Act (BCA) lead to an improved fiscal outlook, the Government Accountability Office (GAO) reminded policymakers this week that the larger long-term budget challenges remain.

The law targets discretionary spending and, under two different simulations used by GAO, such spending as a share of the economy would be lower in 2022 than at any time over the last five decades. But much more remains to be done elsewhere in the federal budget.

In the spring update to its report on the government’s long-term fiscal outlook, GAO emphasizes that last year’s law “did not focus on the fundamental drivers of the government’s future fiscal imbalances – a structural gap between revenues and spending driven by health care costs and demographics.”

The GAO update notes that last year about 7,600 Americans a day turned 65, the eligibility age for Medicare. That number will rise to about 11,400 people a day by 2029.

In years past, Social Security ran cash surpluses that reduced government borrowing from the public.  But GAO points out that Social Security “is now projected to pay more in benefits than it receives in tax income each year into the future.”

Even if government revenues eventually return to the 40-year historical average as a share of the economy and remain there, GAO says, the imbalance between those revenues and government spending would continue to increase.

Under one of the GAO’s scenarios (“the alternative simulation”), by 2023 the government’s net interest costs would exceed the cost of Medicare. By 2025 federal debt held by the public would exceed the country’s GDP, and by 2038 that debt would be more than double the GDP.

The GAO’s latest statistics and analysis underscore the need for elected officials to put the nation on a more sustainable course as quickly as possible.

Read more with The GAO on the Federal Government’s Long-Term Fiscal Outlook (Concord blog)

President Signs Highway Bill Extension

On Friday President Obama signed legislation to extend surface transportation programs for an additional 90 days. Earlier last week, the House passed the extension on a 266-158 vote and the Senate passed the bill by voice vote.

The previous authorization bill was enacted in 2005 and expired in 2009.  Since then, Congress has been unable to agree on a new bill and has funded the programs using several extensions, with the last one scheduled to expire last Saturday.  

The new extension will provide funding through June 30 while Congress decides how to proceed on a new authorization bill.

The Senate has passed a bill that authorizes about $109 billion over two years, and the House Transportation and Infrastructure Committee approved a five-year, $260 billion bill. A vote on the House bill has not been scheduled due to opposition from some Republicans concerned about the cost and Democrats concerned about funding cuts and provisions such as a proposal to use oil drilling revenues as an offset.

The Concord Coalition has said that spending from the trust fund should be limited to the revenues collected, and policymakers should end the practice of funding new spending with deficit-financed transfers from the general fund of the Treasury.

Policymakers should agree on realistic spending levels that reflect a bipartisan consensus of actual needs. When revenues in the trust fund fall short of these levels, any additional spending should be paid for with credible offsets that are sustainable over the long term.