November 26, 2014

Washington Budget Report: March 11, 2014

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Bad Precedent in Obama’s Budget: Ignoring Spending Caps

President Obama’s budget for Fiscal 2015 includes new proposals that would exceed the discretionary spending caps that he and Congress approved only months ago. This would set a bad precedent for ignoring budget caps.

The Ryan-Murray agreement in December set discretionary spending caps for the current fiscal year and the next while providing some relief from sequestration. The agreement set the overall cap for Fiscal 2015 at $1.014 trillion, which was $18 billion above the sequestration cap.

The administration says its budget -- the analytical perspectives and historical tables of which were released this week -- complies with the top-line discretionary cap by recommending individual agency budgets to fit within those caps.

But Obama’s budget goes further by proposing $56 billion in supplemental funding for items that would normally be funded as appropriations through the regular discretionary spending process. These items include infrastructure, education, research, military readiness, efficiency improvements and job training proposals.

The administration’s proposal splits the extra funding evenly between defense and non-defense programs. The administration also proposes to pay for the extra spending -- so that it doesn’t increase the deficit -- by slicing agricultural subsidies, increasing airport security fees, and reducing the tax preferences for wealthy retirement accounts.

While the supplemental funding might well include important areas for government investment, this should not be done at the expense of the spending caps that lawmakers just agreed to a few months ago. If administration officials want to increase discretionary spending, they should be honest about the fact that they wish to increase those caps in the same way they are honest about finding offsets for that increased spending.

Opening up a new debate over the caps has the potential to throw the appropriations process back into the “budgeting from crisis to crisis” that the December agreement was supposed to avoid -- since Republicans, too, would wish to alter the caps in its mix of defense versus non-defense spending and the total spending levels.

The chairs of the House and Senate Appropriations committees have already said they will ignore Obama’s supplemental request and that Congress should abide by the Ryan-Murray caps.

Latest Move Threatens Reform of Medicare Doctor Payments

As the April 1 deadline to avert a 24 percent cut in Medicare’s payments to physicians approaches, hopes for enacting a permanent reform to the flawed payment formula appear to be dwindling. The sustainable growth rate formula (SGR) that determines physician payments has for years called for large cuts that Congress has continually overridden (often referred to as the “doc fix”).  

House Republicans intend to bring up a vote on a doc fix bill but are threatening to attach a delay to the Affordable Care Act’s mandate for individuals to purchase health insurance. The delay in the mandate is sure to be rejected by Senate Democrats and the President. 

The Republican move would severely hamstring the bipartisan effort to reform the SGR and move doctor reimbursements away from the fee-for-service system (which encourages health care inflation) to a system that pays for value and outcomes.

Such a pathway has bipartisan support in both the House and Senate but would cost around $140 billion over 10 years. Members of Congress and staff have been working on ways to pay for the legislation, and there are many options that would strengthen and encourage needed reforms to the health care system. 

To raise enough money to fully pay for the SGR repeal, the individual mandate delay would have to last for years and would likely lead to an unraveling of the individual insurance market. Adding it to the SGR legislation now simply delays congressional action on what is our best opportunity for Medicare reform and building on the recent slowdown in health care costs.

U.S. Financial Report Shows Need for Long-Term Reform

The latest Financial Report of the U.S. Government shows that despite recent lower deficits, long-term fiscal policy remains on an unsustainable course.

The annual report, released by the Department of the Treasury, says that despite cuts to discretionary spending and increased revenue collection, the spending growth in Social Security and Medicare will cause a precipitous rise in the debt-to-GDP ratio in the next decade and beyond.

The report includes 75-year spending and revenue projections for Social Security and Medicare. These show both programs with mounting unfunded commitments in the coming decades. Estimates of the present-value of these 75-year shortfalls -- how much money it would take now to cover them -- are $12.3 trillion for Social Security and $27.3 trillion for Medicare.

The 75-year calculations provide a general sense of the fiscal challenges facing these important government programs, although such estimates involve many variables and assumptions that may prove inaccurate.

The projections for Medicare, for example, assume that the recent slowdown in the growth of health costs will continue over the long term. Many experts, however, are uncertain how long the slowdown will last.

Government publications, including the U.S. Financial Report and the Medicare Trustees report, publish “alternative scenarios” assuming faster health care cost growth and projecting substantially larger fiscal burdens on the federal government than the standard projections.

But even the standard projections indicate that unless the government substantially raises revenue or makes sweeping changes to the nation’s major health and retirement programs, over time they will contribute to unsustainable levels of federal debt.

This week the administration also released this year’s Economic Report of the President, which provides a detailed look at the U.S. economy.