September 22, 2014

Washington Budget Report: July 3, 2012

« Back to WBR Issue List

Sign Up to receive the Washington Budget Report »


The Supreme Court’s Health Care Decision

The Supreme Court’s decision last week to largely uphold the 2010 Affordable Care Act cleared the way for a dramatic expansion in the number of Americans with health insurance coverage. But while the law includes some measures designed to curb rising health care costs, much more remains to be done.

“Despite the partisan rhetorical exchanges over today’s ruling, the fundamental fact remains that policymakers still have a lot to do to put rising health care costs onto a sustainable track,” Concord Coalition Executive Director Robert L. Bixby said Thursday.  “Those rising costs, together with the aging population, are putting tremendous pressure on private companies and government at all levels in the United States, and especially the federal government.”

The case focused largely on the law’s “individual mandate” that will require people to buy health insurance, a provision designed to prevent some people from gaming the system by waiting until they are sick or injured to pay for coverage. Chief Justice John G. Roberts Jr. surprised observers across the political spectrum by joining the court’s more liberal justices in a 5-4 ruling that the individual mandate was a constitutional use of federal taxing authority.

At the same time, however, the high court restricted the federal government’s ability under the new law to push states to expand Medicaid programs. While Washington can tie new federal assistance to Medicaid expansion, the court said, the federal government cannot threaten states that do not want to participate in such an expansion with the loss of existing aid.

The fiscal effects of this part of the decision remain to be seen. It could result in lower spending if states opt out of covering new individuals through Medicaid. On the other hand, it might lead to higher spending because some of those not covered through Medicaid could be eligible for subsidized insurance in the exchanges, which would be more costly. The Congressional Budget Office is expected to weigh in with an analysis soon.

Candidates Should Detail Fiscal Solutions

So far this year, the campaigns of both Mitt Romney and President Barack Obama have fallen short in explaining how they believe the nation should deal with the structural imbalances in the federal budget.

“Success, both politically and economically, will require both spending cuts and new revenue,” wrote Paul W. Hansen, western regional director for The Concord Coalition, in op-ed articles published last weekend. “The problem is too big to be solved with ideological purity. That was the guiding premise behind the well-respected report by Alan Simpson and Erskine Bowles, who co-chaired The National Commission on Fiscal Responsibility and Reform.”

The President’s budget suggests spending cuts and tax increases, but stops short of the necessary structural changes, Hansen says. Romney has embraced a plan by Rep. Paul Ryan (R-Wisc.) that claims to reduce the debt faster than Obama’s budget but which relies on “implausible assumptions” – and still wouldn’t balance the budget until 2040.

Hansen says voters should expect candidates for federal office to answer some key questions about the nation’s fiscal challenges that have been suggested by Concord. These include whether the candidates support the comprehensive Simpson-Bowles approach, whether they oppose many provisions in the tax code that favor some taxpayers over others, what the candidates think should be done to improve U.S. health care, and what changes they would make, if any, in Social Security.

Noting that neither party will be able to force its own agenda through Congress, Hansen suggests that voters also press candidates to suggest credible ways to move the country forward in a bipartisan manner.

Congress Passes Highway Bill

Last week the House and Senate passed a new highway bill to fund surface transportation programs at current levels through the end of Fiscal Year 2014. The final agreement also included a one-year extension of the current interest rate for federal student loans and a five-year extension of the federal flood insurance program. The House passed the bill on a 373-52 vote and the Senate approved it on a 74-19 vote.
 
Congress also passed a short-term extension to fund transportation programs until the new bill is enacted. The President signed the extension on Friday and is expected sign the two-year authorization bill this week.

The Congressional Budget Office estimates that the law will reduce projected deficits by $16.3 billion over ten years. Since fuel tax revenues deposited into the highway trust fund are not enough to cover the bill’s spending, the legislation transfers $18.8 billion from the general fund of the Treasury to the highway trust fund.

The bill also includes a number of offsets such as provisions that would affect business contributions to pension plans, and premiums paid to the Pension Benefit Guaranty Corporation. Also included was a new tax on roll-your-own cigarettes.

Policymakers deserve credit for including some offsets in the final agreement. However the offsets, general revenue transfers, and funding provided through Fiscal Year 2014 are at best a temporary solution. The fact remains that gas tax revenues coming into the trust fund are no longer sufficient to effectively fund transportation priorities.

An honest discussion of the trade-offs needed to fund those priorities is long overdue and should occur well before Congress considers another authorization bill.

Low Interest Rates Won’t Last Forever

As the economy continues to struggle, American consumers continue to enjoy historically low interest rates. So, too, does the United States government. But federal officials must keep in mind that these low rates won’t last forever – and even small rate increases could substantially worsen federal budget problems.

The Federal Reserve has used low interest rates to encourage borrowing and boost economic activity. In addition, turmoil in the financial markets and uncertainty about Europe have kept demand high for U.S. Treasuries, which are considered the world’s safest investment.

But interest rates will eventually return to normal levels, as noted in a blog post Monday by Jeff Thiebert, The Concord Coalition’s national grassroots director, and Louise Mackey, an intern from the Washington Ireland Program. Rising rates will increase the government’s borrowing costs even as Washington borrows more and more money.

“Since Washington has failed to lock in today’s low rates for a longer period,” they add, “interest rates increases could have a dramatic impact on the federal budget in the future.”

Interest rates can be volatile and would certainly increase if investors became more skeptical about whether the nation’s leaders were able to deal with the fiscal challenges ahead. That is one more reason why Washington must pursue comprehensive fiscal reforms.

House Committee Seeks Information on Automatic Cuts

The House Budget Committee last week unanimously approved legislation to require the President to submit a report to Congress detailing how a sequestration would affect programs throughout the federal budget. The bill requires the report to be submitted within 30 days of its enactment. The Senate passed a farm bill last month with an amendment requiring a similar report.

Because the Joint Select Committee on Deficit Reduction failed to reach agreement on legislation last year, the Budget Control Act requires a sequestration process that will make “automatic” cuts totaling $1.2 trillion by 2021. The cuts will begin next year, and many policymakers have begun to question how the Office of Management and Budget would administer them.

The Concord Coalition has urged elected officials not to weaken or abandon the automatic cuts without approving an alternative that would deliver at least the same amount of long-term deficit reduction.