August 20, 2014

Washington Budget Report: September 18, 2013

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Long-Term Projections Underscore Challenges Ahead

The Congressional Budget Office has released new long-term projections that show why Washington must work towards comprehensive fiscal reforms even though the federal deficit has fallen sharply this year.

“We’ve had some good short-term news on the deficit this year, but CBO’s new Long-Term Budget Outlook helps put this news in proper perspective,” says Robert L. Bixby, executive director of The Concord Coalition. “It’s an antidote for complacency and denial. On our current path, the oversized federal debt will continue to grow and annual deficits will soon begin to rise again -- even with some optimistic assumptions about future spending restraint.”

Despite that, he notes, “a bipartisan chorus of elected officials in Washington is still shying away from dealing with the core problems: retirement and health care programs growing on autopilot faster than the economy and a deeply flawed tax system that cannot efficiently produce adequate revenues.”

Instead, lawmakers continue to largely focus on only one part of the budget: discretionary spending that they approve each year for defense and domestic programs. Under current law, this part of the budget is projected to fall from 8 percent of GDP in 2012 to 5.3 percent of GDP in 2023. But that target is well below historical levels and Congress is unlikely to reach it, much less remain there over the long term.

Health care spending is another area where spending might be higher than projected under current law. While the growth in health care spending has slowed in recent years, there is great uncertainty as to why and how long this pattern will continue. Other sources of uncertainty: Affordable Care Act implementation and a rapidly rising Medicare population.

Elected officials must quickly reach agreement on a budget for Fiscal 2014 and increase the debt limit. Beyond this short-term work, however, they must start dealing with the longer-term challenges that the CBO report details.

 

Debates Continue on Critical Fiscal Decisions

With the end of the fiscal year less than two weeks away, Congress has turned its attention towards a stop-gap funding measure. This year’s breakdown in the regular appropriations process, together with some lawmakers’ brinksmanship over the need to raise the debt ceiling, reflects a colossal failure by elected officials to meet their fiscal responsibilities.

Reports today indicated that House Republicans plan to propose a one-year increase in the debt limit coupled with provisions in a variety of other areas. The Obama administration, however, has long argued that raising the debt limit is a congressional responsibility that should not be held hostage to other political demands.

With only a few days left on this month’s legislative calendar, there is speculation that next week’s congressional recess will be canceled. If partisan gridlock prevails and no deal can be reached, the government could largely shut down on Oct. 1.

Last week Republican leaders put forth a proposal calling for two House votes: One to fund the government at 2013 sequestration levels for a short time, and another that would defund the Affordable Care Act of 2010. Some conservatives, however, complained that the Senate could pass the first bill while killing the second. Speaker Boehner canceled the vote.

On Monday Treasury Secretary Jack Lew reiterated his earlier warning that the “extraordinary measures” to avoid breaching the debt limit would be exhausted by mid-October. The Bipartisan Policy Center recently estimated that the government would exhaust its borrowing authority between Oct. 18 and Nov. 5.

Failure to raise the limit would result in the United States defaulting on its obligations, jeopardizing its credit rating and throwing global financial markets into turmoil.

Syrian Crisis and Spending Priorities

While a bill authorizing military action against Syria has been put on hold while diplomatic options are pursued, that country’s use of chemical weapons has raised additional questions about the impact of the budget sequester on the U.S. military.

Some members of Congress, including House Armed Services Committee Chairman Buck McKeon (R-Calif.), have suggested lifting the sequester on defense spending to be able to pay for military action in Syria while avoiding deeper cuts elsewhere in the defense budget.

But other lawmakers have been skeptical of tying the issues of Syria and defense sequestration together. That includes Senate Armed Services Chairman Carl Levin (D-Mich.), who called sequestration “a much broader issue.”

Democratic elected officials also object to the Republican proposal to cut domestic discretionary spending below the budget caps in order to raise spending on defense while still maintaining the overall cap.

The sequester cuts in both defense and domestic spending were poorly designed and took effect only because a congressional “super committee” failed to come up with a more reasonable plan. The Concord Coalition has long argued that if Congress replaces the sequester, it should do so with measures that retain the same overall level of deficit reduction.