November 26, 2014

Washington Budget Report: September 25, 2013

« Back to WBR Issue List

Sign Up to receive the Washington Budget Report »


After Much Procrastination, Budget and Debt Deadlines Loom

With a possible government shutdown less than a week away, Republicans and Democrats still seem to be on a collision course over the budget for Fiscal 2014. In addition, today Treasury Secretary Jack Lew warned congressional leaders that unless the federal debt limit is raised, the “extraordinary measures” that the government has been using to avoid default “will be exhausted no later than October 17.”

The Concord Coalition urges elected officials to work together to avoid a shutdown that will waste millions of tax dollars and create needless public anxiety over the government’s ability to function. Concord also continues to urge elected officials to avoid panicking global financial markets again with another round of brinksmanship over the unavoidable task of raising the debt limit.

The issues are so intertwined that elected officials should take a comprehensive approach to negotiations, with all parts of the budget on the table. Altering sequestration to ease pressure on discretionary spending, for example, would mean finding cuts in entitlement programs, which Republicans have sought. But this would lead Democrats to insist on new revenues as well. So far, Congress has had little success this year in trying to deal with these issues separately.

Late last week House Republicans passed a stop-gap measure that would extend government funding through Dec. 15 but it included a provision to cut funding for the Affordable Care Act (ACA). After delaying efforts by some Republicans, Senate Democrats are expected to remove the ACA provision before sending the legislation back to the House within the next few days.

Democrats have also been considering shortening the length of the stop-gap funding in hopes of prompting quicker action on sequestration cuts they oppose. Meanwhile, federal agencies are working on plans to keep essential government services running if a shut-down begins on Tuesday, the first day of the new fiscal year.

 

Former Lawmakers Work With Kansans on Concord Coalition Exercise

Former Congressman Jim Slattery (D-KS) discusses policy options with Kansans at a budget exercise

With advice and encouragement from two former U.S. House members, participants in a federal budget exercise Monday in Lawrence, Kansas developed broad fiscal reform plans that would put the government on a more responsible course over the next 10 years.

The afternoon exercise was held at the Robert J. Dole Institute of Politics at the University of Kansas, and was co-sponsored by The Concord Coalition and Fix the Debt. The former House members who spoke and worked with groups of participants were Jim Slattery, a Democrat who had represented Lawrence, and Tom Tauke, a Republican from Iowa.

Concord Executive Director Robert L. Bixby provided an overview of the fiscal challenges facing the government and ran the exercise, in which groups of five or six people considered an array of policy options. Many of the options came from the recommendations of the bipartisan National Commission on Fiscal Responsibility and Reform (Simpson-Bowles).

The discussions ranged from whether to keep automatic budget cuts in place to which tax reform options were most practical. Colleges students and retirees exchanged views on possible changes in the entitlement programs, including the use of a different index (“chained CPI”) to determine cost-of-living increases in Social Security.

Like lawmakers and health care policy experts, participants in the exercise also wrestled with the possible implications of the Affordable Care Act (“Obamacare”).

In the end, most groups met the goal of at least $2 trillion in deficit reduction over the next 10 years, with one particularly ambitious plan promising $3.3 trillion. Several participants said compromise was essential, and noted that real-world special-interest pressures would have made the job more difficult.

Rising Federal Debt Puts Future Generations at Risk

Two recent reports draw attention to the issue of generational equity and the burdens that the growing federal debt could place on younger Americans and future generations.

The Congressional Budget Office’s 2013 Long-Term Budget Outlook, released earlier this month, shows that the federal debt -- already high by historical standards -- will continue to grow even under some optimistic assumptions about future spending restraint.

Interest payments on the debt could rise sharply even as rising entitlement costs put more and more pressure on the federal budget. These trends could place unfair burdens on younger Americans and future generations, making it difficult for them to set their own priorities and deal with future challenges.

A report released last week by The Can Kicks Back (TCKB) -- a nonpartisan organization of younger Americans -- echoes some of these concerns, warning that delaying deficit reduction will put a greater burden on future generations.

The group’s analysis also said that while average retirees today receive far more in government benefits than they paid in tax contributions, future retirees will be expected to pay in more than they get out.

To combat the growing debt, TCKB proposes a “generationally balanced” grand bargain that increases domestic investment in the short term while reforming entitlement programs and the tax code for the long run.

“While short-term deficits may rise, the long-term fiscal gap would dramatically shrink and our economy would be given a desperately needed boost,” the report concludes. “A ‘Grand Generational Bargain’ may not solve the whole problem in one step, but it could break Washington’s gridlock and make significant progress toward deficit reduction and economic growth.”

 

Entitlements, Health Care Put Pressure on Rest of Budget

Federal spending on everything other than major health care programs (Medicare, Medicaid, and the Children’s Health Insurance Program), Social Security and net interest--will decline to historically low levels as a share of GDP in the next few decades, according to recent projections by the Congressional Budget Office (CBO).

In Fiscal 2012, spending in this “other” category -- which includes outlays for discretionary and some mandatory programs -- constituted half of the federal budget and 11 percent of GDP, in line with the 40-year historical average.

If current laws remain in place, however, this category will decline to only 7.6 percent of GDP in 2023. This is mainly due to budget caps and automatic spending reductions on discretionary appropriations through 2021.

It is doubtful, however, whether such a low level of spending on these programs is realistic and could be sustained. That’s why policymakers must also control spending on the other half of the federal budget, including Medicare, Medicaid and Social Security.

Mandatory spending in the “other” category includes unemployment compensation, retirement benefits for federal civilian employees and military personnel, veterans’ benefits and the Supplemental Nutrition Assistance Program (SNAP).

This category of mandatory spending peaked at 5.1 percent of GDP in 2009 due to the recession. It had dropped to 3.3 percent of GDP last year, and CBO expects it to decline to 2.3 percent of GDP in 2023 and continue falling after that.