September 1, 2014

Washington Budget Report: April, 17, 2012

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Untangling the Confusion Over Trust Funds

A recently released paper by Charles Blahous, one of the two public trustees for Social Security and Medicare, has received considerable attention because of its discussion of trust fund accounting and the 2010 Affordable Care Act. The annual report from the trustees of these programs is usually issued about this time of the year, and Concord Coalition Executive Director Robert L. Bixby warns that differing perspectives and bookkeeping sleights of hand often lead to public confusion over the trust funds.

The “assets” in the trust funds, Bixby points out in a new blog posting, “are nothing more than promises from the government to pay itself a lot of money in the future regardless of whether any resources have been saved for that purpose.” As a result, he says, trust fund balances are “easily manipulated to increase their claims on general revenues.”

He points to two recent examples. In one, Congress and the President cut the Social Security payroll tax to help stimulate the economy.  But to avoid accusations that they were ‘‘raiding’ the Social Security trust funds, they said those funds would still be credited with the same amount of revenues and interest income as if the full payroll tax had been collected.

The other example involves cutting spending from Medicare and raising Medicare payroll taxes to pay for some other health care spending under the ACA, while simultaneously extending the life of the Medicare Hospital Insurance (HI) trust fund.

“In both cases,” Bixby explains, “the trust funds receive new ‘assets’ (claims on general revenues) from which to pay future benefits. Yet in neither case has anything been done to improve the government’s overall ability to pay the future benefits to be covered by these assets. The transactions are a bookkeeping sleight of hand designed to accomplish policy goals without acknowledging the budgetary trade-offs.”

Read more with Bookkeeping Sleights of Hand Conceal Budgetary Reality

Putting the National Interest First

As a recent Chicago Tribune editorial noted, most House members chose last month to “put partisanship above progress on the nation’s debt” by supporting budget plans favored only by one party or the other. But 38 lawmakers voted for bipartisan legislation to follow through on the work of the President’s fiscal commission.

Sara Imhof, Midwest regional director for The Concord Coalition, recently joined the Tribune in praising those 38 lawmakers – including five from Illinois – for their political courage.

The Cooper-LaTourette plan these House members backed is a comprehensive approach to fiscal reform that combines defense and domestic spending cuts, changes in the entitlement programs, and tax reform with additional revenue for deficit reduction. Imhof writes that this plan offers “a credible, fair-minded path to a sustainable federal budget.”

Future efforts along these lines will be needed. “True fiscal reform must come eventually,” Imhof says, “and it will require bipartisan compromise.”

In an op-ed Monday Judd Gregg, a former U.S. senator from New Hampshire who serves on Concord’s board of directors, called on the President’s commission to reconvene to update its “fiscal menu,” giving members of Congress later this year “an opportunity to act outside the partisan boxes that will frustrate serious action.” 

Read more with Bipartisan Courage

Committees Move Forward on Budget Legislation

On Capitol Hill this week, several House committees are scheduled to begin making some of the policy decisions necessary to comply with the House budget resolution.

To replace savings from the automatic cuts required by last year’s Budget Control Act, the House resolution included reconciliation instructions directing six committees (Agriculture, Energy and Commerce, Financial Services, Judiciary, Oversight and Government Reform, and Ways and Means) to report legislation by April 27 to reduce the deficit by a total of at least $18.4 billion in the first year, $116.3 billion over the first five years, and $261.5 billion over the first ten years.   

Reconciliation is a procedure intended to allow Congress to consider deficit reduction legislation using an expedited process that prevents filibusters and restricts amendments in the Senate.

Several of the House committees are expected to begin reporting the legislation this week.  However, for the House reconciliation bill to be enacted using the expedited procedures, the Senate must also pass both a budget resolution including reconciliation instructions and the reconciliation bill -- a prospect that appears unlikely this year.  

Senate Budget Committee Chairman Kent Conrad has announced that the committee will begin considering the Fiscal 2013 budget resolution this Wednesday. However, Senate Majority Leader Harry Reid has said that he will not bring a budget resolution to the floor this year and will instead rely on the allocations authorized by the Budget Control Act.

Also this week, House and Senate subcommittees are scheduled to consider the first of the Fiscal Year 2013 appropriations bills. The Senate is expected to produce appropriations bills that comply with the $1.047 trillion discretionary spending cap in last year’s debt limit law. House committees will be working from the lower $1.028 trillion allocation in the House budget resolution.

The fact that the House and Senate are using different totals for Fiscal 2013 will make it more difficult to pass timely appropriations bills and may increase  the chances of a government shutdown at the end of the year.

Deficit for First Half of Fiscal Year: $779 Billion

The Treasury Department last week reported that the federal deficit for the first half of Fiscal 2012 totaled nearly $779 billion, roughly $50 billion less than a year ago.

Between Oct. 1 and the end of March, the government took in a little more than $1.06 trillion in revenue as the economy strengthened, up from the $1.02 trillion collected in the first half of Fiscal 2011. Washington spent $1.84 trillion during the first half of this fiscal year, slightly less than in the first six months of the previous year.

Based on Treasury’s figures, the Congressional Budget Office recently estimated that the federal deficit for this fiscal year, on its current path, would total $1.2 trillion. While that would be lower than each of the last three deficits, it would still be the fourth annual deficit in a row to exceed $1 trillion.

Debating Changes in Federal Tax System

As today’s federal tax filing deadline approached, policymakers and analysts continued their debates over how to improve the U.S. tax system. A program last week at the Tax Policy Center (TPC), for example, focused on whether the rich should pay higher taxes.

Defining “rich” can be tricky; Concord Coalition Chief Economist Diane Lim Rogers says it is a relative concept that “depends on one’s personal ‘baseline.’ ” She suggests in a blog post today, however, that “the rich” should be defined more broadly than multi-millionaires.

Federal revenues as a share of the economy are currently far lower than the 18 percent average for recent decades. Rogers says she and the other panel members at the TPC event generally agreed that the government needs at least some additional revenue and that wealthier Americans could best manage higher tax burdens.

There were disagreements, however, over how much additional revenue the government needs and how it could best be raised. Panel members also debated whether raising marginal tax rates on people with high incomes would cause them not to work as hard as in the past, resulting in harm to the economy.

Joining Rogers on the panel were Donald Marron, TPC director; Doug Holtz-Eakin, president of the American Action Forum, and David Levine, an economist and a member of the “Responsible Wealth” coalition.

Read more with Tax Day Question: Who Are the Rich and Why Should They Pay Higher Taxes?