September 24, 2014

Washington Budget Report: November 26, 2013

« Back to WBR Issue List

Sign Up to receive the Washington Budget Report »


A Congressional Turkey: Still No Budget

Another week has passed with no substantial progress reported towards a federal budget for the fiscal year that began nearly two months ago. Lawmakers began their Thanksgiving breaks last week, although private discussions on the budget were said to be continuing.

Unfortunately, numerous reports indicate that negotiators have narrowed their focus to modest, short-term goals – and seem to be struggling even with those. A more comprehensive approach would be better, although it would require more bipartisan cooperation than has been in evidence this year.

The budget conference committee, facing a Dec. 13 deadline, has held only two public meetings. Even if that deadline is met, lawmakers will then attempt to cram a year’s worth of budget work into a few short weeks before a stop-gap funding measure expires. House Republicans are now reportedly considering another stop-gap measure.

Lawmakers must also agree to raise the debt limit, currently suspended through early February. Without a timely increase, the government would be forced to rely once again on “extraordinary measures” to avoid defaulting on some financial obligations.

The Congressional Budget Office projects that these measures would probably be exhausted in March although they could last until May or June. The Bipartisan Policy Center says the measures are “much more likely” to be exhausted between late February and mid-March.

Slowdown in Health Care Costs Presents Opportunities

Although health care costs continue to rise, their slowing growth rate offers some hope for the future. A new report by the President’s Council of Economic Advisors naturally tries to put the administration’s efforts on health care reform in the best light, but it does show that changes in government policy can help hold down cost increases.

Another important takeaway, says Concord Coalition Policy Director Joshua Gordon, is that health care experts are now fairly confident they have identified some strategies to build upon, and there is an emerging political consensus for moving forward on them.

Per-capita spending on health care from 2010 to 2012 had the lowest growth rate for a three-year period on record, and the Congressional Budget Office has substantially lowered its projections for Medicare and Medicaid spending.

Congress could enact further reforms soon. Physicians would like a permanent change in Medicare’s formula for determining reimbursements, and Congress must take at least some action on the formula before the end of the year. The cost of a permanent “doc fix” has been reduced because of lower health care inflation.

“The slowdown presents a unique opportunity to expand reform efforts,” Gordon says, “and is not a moment for complacency or resting on laurels.”

Senator King Seeks a Middle Path

Sen. Angus King (I-Maine), a member of the budget conference committee, has offered a proposal that would replace roughly half of the sequestration scheduled through 2021 with savings from mandatory spending and revenue from corporate tax reform.

In place of $455 billion in scheduled cuts, the plan calls for $255 billion in savings from entitlement reforms, and $200 billion in revenue from closing corporate tax loopholes.

King named his proposal the “Grande” plan, after Starbuck’s mid-sized cup, to represent the “middle-of-the-road” approach to fiscal policy that has been sorely lacking in Washington over the last few years.

To attract support from both parties, King also calls for lower corporate tax rates and increased infrastructure spending. Both would be paid for by additional revenue from closing corporate tax expenditures, which are subsidies built into the tax code.

The senator’s proposal exemplifies the understanding that lawmakers must address both revenue and spending -- and be open-minded to a wide array of possible options.

 

Pentagon’s 5-Year Plan Illustrates Need for Reforms

A recent report by the Congressional Budget Office (CBO) found that the Pentagon’s latest five-year plan would cost substantially more than the funding allowed under the sequester caps.

Each year the Department of Defense provides Congress with its “Future Years Defense Program.” The CBO, studying the plan submitted last spring, found that the gap between the plan and the sequester’s budget cap would average $81 billion a year between 2014 and 2021.

Elected officials should pay particularly close attention to health care spending and compensation for both military and civilian employees, which are among the fastest growing items in the Pentagon budget.

Retiree costs are rising rapidly as more and more of them drop their private insurance plans in favor of heavily subsidized coverage through TRICARE, the military health care system. Congress keeps their TRICARE premiums and co-payments so artificially low that only 23 percent of military retirees and their dependents now use private health insurance -- down from roughly 50 percent in 2001.

Unfortunately, Congress has not approved reforms to hold down such costs. Unless that changes, the military may need to make difficult cuts to its forces, the development and purchase of weapons, and the scope of its operations and training.