April 23, 2014

Washington Budget Report: October 29, 2013

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Premature Pessimism Could Become Self-Fulfilling

With the budget conference committee starting to meet this week, some political leaders seem to be thinking that the ideal “grand bargain” on the budget would be: Do nothing.

Concord Coalition Executive Director Robert L. Bixby warns that this could become a self-fulfilling prophecy.

In a blog post Monday, he concedes that “the prospects for a real grand bargain – one that actually makes some headway on solving our fiscal imbalance – are not looking good right now.” But he says it is particularly disappointing that two key members of Congress – House Budget Committee Chairman Paul Ryan and Senate Majority Leader Harry Reid – seem to be “simply accepting the gridlocked status quo rather using their leading positions to figure out a better result.”

Ryan’s lament: “If we focus on some big, grand bargain then we’re going to focus on our differences and both sides are going to require that the other side compromises some core principle and then we’ll get nothing done. ”

As Bixby notes, “That’s a bit like saying elected officials can’t do a grand bargain because it would require a grand bargain.”

Reid, meanwhile, wants to turn the conversation away from Medicare and Social Security – even though those programs will be key drivers of future budget deficits.

Bixby says better advice for the budget conference committee has come from former Senate Budget Committee Chairman Kent Conrad (D-N.D.) and Rep. Tom Cole (R-Oakl.), who is a member of the conference committee. Conrad and Cole have emphasized that real progress on the budget will require compromises from both parties.

Shutdown, Debt Limit Brinkmanship Hurt Economic Growth

Although the latest manufactured fiscal crisis is over for now, brinkmanship over funding the government and the debt ceiling has caused substantial harm to the economy.

According to a new report by the President’s Council of Economic Advisers (CEA), the government shutdown and near-breach of the debt limit reduced consumer confidence and hurt consumer spending, investment and hiring.

The CEA’s Weekly Economic Index uses eight economic indicators that measure consumer spending, consumer confidence, the labor market, industrial production and the housing market. The latest index indicates that the shutdown and debt ceiling fights reduced economic growth by .25 percent of GDP through Oct. 12.

The index also points toward the loss of 120,000 jobs that otherwise would have been added. Presumably there has since been further damage from lingering effects.

This analysis underscores the hazards of further brinkmanship on the federal debt limit. Elected officials should also fulfill their responsibilities by quickly reaching agreement on a budget that funds the government for the rest of the fiscal year and begins to address the country's longer-term fiscal challenges.

Smaller Savings Seen For Option to Raise Medicare’s Eligibility Age

The Congressional Budget Office (CBO) now estimates that gradually increasing the eligibility age for Medicare to 67 would reduce deficits by $19 billion through 2023, significantly less than the $113 billion CBO estimated in January 2012.

The new estimate is based on the assumption that starting in 2016 Medicare’s eligibility age would be raised by two months every year for people who were born in 1951 or later. The eligibility age for full Social Security benefits is already rising to 67, and this proposal would eventually match the Medicare eligibility age to the full Social Security age. By 2029 they would both be age 67 for people born in 1962 or later.

The reduced savings for this option reflects CBO’s view that some of the beneficiaries whose eligibility age would be changed would not be as expensive for Medicare to cover under current law as had been previously assumed.

This estimated reduction in costs is mainly because people who enroll in Medicare at the regular eligibility age are healthier than those who enroll early due to illness or injury. In addition, some beneficiaries who are still working use Medicare only as secondary coverage.

The new CBO report also included -- for the first time -- the effects that raising the eligibility age would have on federal revenue. The budget office projected that this change would decrease revenues by $4 billion over the next 10 years, mainly due to an increase in refundable tax credits to purchase health insurance on exchanges under the Affordable Care Act.

By 2038, the increased eligibility age would reduce Medicare spending by 3 percent relative to current law, declining from 4.9 percent of GDP to 4.7 percent. The number of uninsured people would increase by about 10 percent, CBO estimated.

CBO’s report serves as a reminder that there is no silver bullet for holding down Medicare costs. It will take multiple reforms, including changes in payment systems and care delivery, to sufficiently curb future spending on health care.

Simpson Makes the Case for Fiscal Reform

Former Senator Alan Simpson (R-WY) addresses the audience in Jackson Hole about the need for a grand bargain

At a luncheon this month in Jackson, Wyoming, former U.S. senator Alan Simpson left no one in doubt about how important he believes it is to fix the federal debt.

Nor did Simpson – who co-chaired the National Commission on Fiscal Responsibility and Reform -- hold back on his criticism of those he sees standing in the way of reform. Emphasizing the need to reform the tax code and social benefit programs, he criticized both anti-tax activist Grover Norquist and the AARP, which has resisted entitlement program changes.

About 260 people attended the Oct. 18 luncheon, which was hosted by Paul Hansen, western states regional director for The Concord Coalition.

As he welcomed Simpson, Hansen noted that ancient Greeks understood the tendency for democracies to elect people who promise something for nothing, resulting in governments that eventually go broke. In his inimitable way, Simpson responded that the ancient Greeks also gave us the word politics, with poli meaning “many” and tics meaning “blood-sucking insects.”

Hansen and Simpson both pressed the point that the broad outlines of a fiscal solution are widely known: trims to Social Security and Medicare, combined with revenue-enhancing tax reform sufficient to set the federal deficit on a declining path in the medium- to long-term.

They also said that throughout their extensive travels and speaking, they find almost all Americans ready to make the shared sacrifices needed to put America on a better fiscal path.