July 28, 2014

Washington Budget Report: January 14, 2014

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Better Late Than Never: Congress Closes In On 2014 Spending Bill

Lawmakers hope to finally finish work this week on a $1.012 trillion spending package for Fiscal 2014, which is already three and a half months old. After a number of policy disputes were worked out last weekend, House and Senate appropriators last night said they had reached agreement on the package, which is roughly split between defense and non-defense programs.

A stop-gap spending measure is set to expire Wednesday. With little appetite on Capitol Hill for another government shutdown, however, Congress plans to quickly give itself a few more days to get the final spending legislation passed.

Late last year Congress reached a budget deal for Fiscal 2014 that set the total amount of “discretionary spending,” which lawmakers approve on an annual basis. Since then they have been filling in the details for all 12 of the regular appropriations bills, rolling them together into a single “omnibus.”

This massive bill will cover nearly a third of all federal spending projected for Fiscal 2014; the rest of the budget covers “non-discretionary spending” programs like Social Security and Medicare. In addition, the government essentially spends hundreds of billions of dollars through the tax code every year.

While the package announced last night preserves some policy riders favored by Republicans, it also maintains funding for the Affordable Care Act, a Democratic priority.

Lawmakers’ failure to approve the 12 regular spending bills before the fiscal year began Oct. 1 has wasted tax dollars by crippling the ability of federal agencies and departments to make effective plans. In addition, doing all of the necessary appropriations work in a matter of weeks means elected officials will have little time to consider the omnibus package before voting on it.

That’s why lawmakers should commit themselves to a more orderly budget process in the coming year. In addition, Congress must still approve an unavoidable increase in the federal debt limit, which has been suspended until Feb. 7.

The High Cost of Complexity in the Tax Code

IRS National Taxpayer Advocate Nina E. Olson released her annual report last week, saying that additional funding could improve revenue collection and customer service. As The Concord Coalition has previously argued, however, a more comprehensive solution would be for Congress to reform and simplify the tax code.

Over the last 3 years, the Internal Revenue Service has lost nearly $1 billion, or 8 percent, of its funding -- the result of Congress focusing deficit-reduction efforts primarily on just one part of the federal budget (“discretionary” spending that lawmakers approve annually).

Olson’s report says the agency’s continued difficulty with providing high-quality service to taxpayers is due to both a shrinking budget and the complicated tax code.

A simplified and more efficient tax code that eliminates the long list of unnecessary tax expenditures would make it easier for the IRS to enforce tax provisions and collect revenue while better promoting economic growth.

Cost Growth Slows in Health Care But Further Steps Needed

Health care spending over the past four years grew at the slowest rate in more than half a century, according to a new report by by the Office of the Actuary at the Centers for Medicare and Medicaid Services.

It says the spending grew by 3.7 percent in 2012; since 2009 the annual rate has been between 3.6 percent and 3.8 percent. But uncertainty remains about why, and where things could go from here.

“So while we should be encouraged by the recent slowdown in health care costs, we must not lose sight of the need to further curb cost growth over the long term,” says Sara Imhof, Midwest regional director for The Concord Coalition.

In a blog post today, she notes several factors that have helped slow the cost growth, including the slow economic recovery, Obamacare, and structural changes in health care delivery. Imhof also points to a variety of ways in which health care costs could be held down in the future, including greater transparency in pricing and quality, and a shift away from fee-for-service medicine.

Fiscal, Monetary Policy 'Working in Opposite Directions’

Although Federal Reserve officials generally have their hands full with monetary policy, congressional mistakes and miscalculations on the federal budget have led outgoing Federal Reserve Chairman Ben Bernanke to repeatedly offer suggestions on fiscal policy that lawmakers would do well to heed.

Unfortunately, lawmakers have often focused deficit-reduction efforts on measures that have hindered the economic recovery in the short term -- while doing little to deal with the structural problems in the federal budget that will drive future deficits. The resulting drag on the economy has forced the Fed to take a more active role in supporting the recovery.

In one of his final speeches as Fed chair, Bernanke recently reminded elected officials once again of the need to take a more thoughtful approach to fiscal restraint.

“Although long-term fiscal sustainability is a critical objective, excessively tight near-term fiscal policies have likely been counterproductive,” Bernanke told the American Economic Association. “Most importantly, with fiscal and monetary policy working in opposite directions, the recovery is weaker than it otherwise would be.”

The Senate last week confirmed Janet Yellen as his successor. She has also frequently warned against overly restrictive short-term fiscal policies.