November 28, 2014

Washington Budget Report: April 16, 2013

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Time for Congress to Move Forward on Budget Plan

In recognition of Tax Day, this infographic breaks down the true costs of all those credits and deductions.

Congress plans to hold dozens of hearings this week on President Obama’s proposed budget for Fiscal 2014. Ideally, his proposals will be considered through a House-Senate conference committee as it works on a joint budget resolution.

“While elected officials have made some progress on deficit reduction in the last two years, much remains to be done to rein in the federal debt and ensure that the country is on a sustainable long-term path,” Robert L. Bixby, Concord’s executive director, said. “The President deserves credit for political courage in proposing meaningful savings from entitlement programs, including Medicare, and new revenues from curbing government subsidies in the tax code.”

Although many elected officials have expressed interest in such reforms, the President’s budget was met with immediate criticism from both the right and the left and set off internal debates in both parties. This reflects his proposed budget’s strength, however; it is forcing people across the political spectrum to confront the difficult choices and trade-offs that must be faced.

One of the most glaring problems with the tax code, for example, is that it contains so many special provisions that drain revenue and function largely like spending programs. As shown in a new Concord infographic, last year these “tax expenditures” totaled $1.175 trillion – slightly more than all the money the government collected in individual income taxes.

Obama’s budget suggests limiting itemized deductions for those in higher tax brackets while eliminating certain specific tax breaks.

“Hopefully, the President’s proposals will shift the discussion towards greater specificity, with elected officials spelling out exactly which tax breaks they intend to abolish -- something they failed to do in both the House and Senate budgets,” said Joshua Gordon, Concord’s policy director.

The President’s budget also reiterates his last offer to Republican leaders in the “fiscal cliff” negotiations late last year, something that Bixby says “keeps alive the possibility of a bargain, grand or otherwise, that eluded the so-called 'Super Committee' and led to the arbitrary across-the-board sequestration that has now gone into effect.”

Bixby, however, cautioned against some new initiatives in the President’s budget, even if they are theoretically paid for: “We should not add new budgetary commitments until we’ve figured out how to make our commitments sustainable.”

Deficits or Surpluses? Long-Term Assumptions Are Critical

Is the federal budget heading for unsustainable deficits or unsustainable surpluses?

It all depends on the long-term assumptions, as Concord Coalition Executive Director Robert L. Bixby explains in a new blog post that examines contrasting projections from the Government Accountability Office (GAO) and the President’s Office of Management and Budget (OMB).

Last week the GAO issued an update of its long-term fiscal outlook. As in the past, GAO found that an extension of current law (the “Baseline Extended” simulation) leads to rising and eventually unsustainable debt “driven by a fundamental imbalance between revenue and spending, which, on the spending side, is driven by the aging of the population and rising health care costs.”

OMB, however, released a new estimate last week showing that an extension of President Obama's budget policies would lead to growing surpluses that would eventually pay off the national debt.

OMB cautions that its projections “are not intended to be a prediction of future legislative action, nor are they intended to reflect explicit policy proposals for the years beyond 2023.” Still, the budget office says that the “base forecast shows that under 2014 Budget policies, in the long run the budget does not run deficits or increase the debt.”

All this raises an important question: How will policymakers know if they have achieved a sustainable fiscal plan?

“Any such assessment will depend on several important but highly uncertain assumptions about policy trends beyond the 10-year window used to score specific budget policies,” Bixby says. “The degree to which these assumptions can lead to remarkably divergent results over time is demonstrated by the GAO and OMB projections.”

Bixby says the GAO projection, on balance, is more useful in giving policymakers a “reasonable estimate” of where fiscal trends are headed.

“It all comes down to the underlying assumptions about health care costs, discretionary spending and revenue growth,” he writes. “On all three, OMB has a more optimistic view of the fiscal future.” In the past, he notes, OMB’s projections were closer to GAO’s.

GAO Suggests Ways to Cut Duplication, Improve Tax Collection

The Government Accountability Office (GAO) has issued its third annual report detailing how Washington could save tens of billions of dollars a year by reducing fragmentation, overlap and duplication in the federal government. The report also suggests improvements to enhance revenue collections.

In a noteworthy step to increase governmental accountability, the GAO last week also unveiled an “Action Tracker” to provide the public with updated information about the status of its recommendations in these areas.

Politicians looking for easy answers often talk as if the nation’s fiscal problems could be solved by simply eliminating waste, fraud and abuse. It will take far more than that. But it is important for elected officials to reduce waste and improve efficiency whenever possible, both to save tax dollars and to build the public credibility needed to move forward on more controversial reforms.

The GAO report goes into considerable detail in many areas, ranging from the Pentagon’s fragmented approach in buying seven different types of camouflage uniforms to a project awarding billions of dollars in “quality bonus” payments to health care plans with only average performance records.

The GAO also says the government could do more to reduce the “tax gap” – uncollected taxes that totaled $385 billion in 2006, the most recent year for which data is available.

This year’s GAO report, together with the 2011 and 2012 reports, identified a total of 162 areas where Congress and the executive branch could make hundreds of specific improvements. The GAO noted several general themes, including better planning, more interagency cooperation, improved management oversight, and the measurement of performance and results.