October 30, 2014

Washington Budget Report: March 18, 2014

« Back to WBR Issue List

Sign Up to receive the Washington Budget Report »


Senate Plan on Jobless Benefits Needs Better Funding

A bipartisan plan in the Senate to extend emergency unemployment benefits could provide badly needed assistance for individuals and avoid a dampening effect on the economy. Unfortunately, the proposed financing of the 5-month extension is flawed.

Sponsors say the legislation would help more than 2 million job-seekers who have lost their unemployment coverage since December, when Congress allowed emergency benefits to expire.

The Senate is expected to pass the new measure after the congressional recess, but it faces considerable opposition among House Republicans. The plan would increase direct government spending by $9.9 billion this year.

Unemployment benefits provide effective support for a slow economy because recipients spend the money quickly, helping a wide range of businesses. So it makes sense to pay for these benefits in a way that will not put an immediate drag on the economy.

The Senate plan, however, relies heavily on a “pension smoothing” gimmick that would allow companies to pay less into their pension plans and actually cost the government money in the long run. Much of the other funding -- from extending customs fees -- would not come until 2024.

The Senate should find more responsible ways to pay for the extended unemployment benefits before sending the bill to the House.

A Poor Way to Finance the Highway Trust Fund

A bad idea in both President Obama’s Fiscal 2015 budget and Ways and Means Chair Dave Camp’s (R-Mich.) tax reform plan is to use one-time revenue from changes to the corporate tax system to shore up the Highway Trust Fund.

Unless lawmakers do something, later this year the largest part of the Highway Trust Fund -- the Highway Account -- will be unable to meet all of its obligations. The Congressional Budget Office recently projected that the entire trust fund would become insolvent in 2015.

However, using short-term revenues from tax changes on unrelated corporate profits earned abroad is not a good approach and would simply delay needed action to give the trust fund long-term solvency.

A better approach would be to raise the motor fuels tax on gasoline, the main source of revenue for the trust fund. The tax has not been increased since 1993 and has not kept up with inflation. In addition, better fuel-efficiency standards have hurt revenue.

Congress Should Seize Opportunity for Medicare Reform

The House has passed a bill to reform Medicare payments to providers but doomed the legislation by attaching a 5-year delay in the Affordable Health Care’s individual mandate. A dozen Democrats joined the Republican majority in approving the bill Friday on a 238-181 vote.

Republicans and Democrats agree that Medicare’s payment system should be replaced with a system that would reward quality rather than quantity of care. Such a change could help curb rising medical costs.

But lawmakers remain at odds over how to cover the estimated 10-year cost of $140 billion.

Democrats vigorously reject a lengthy individual-mandate delay, which would undermine the individual insurance market. Democratic suggestions that unspent war funding could be used instead, however, are misguided because that money was never really going to be spent anyway.

Congress faces an April 1 deadline to avoid a 24 percent cut in payments to physicians under Medicare’s current formula. Lawmakers have a good opportunity for Medicare reform; they should not squander it with partisan bickering over how to pay for it.

Despite Debt Projections, Washington Is Overly Complacent

How large is $7.9 trillion? Large enough to fund the federal departments of Defense, Agriculture, Transportation, Education, Commerce, Justice, Homeland Security, Labor and Interior for 10 years.

It is also how much the government is projected to borrow in that time. And as noted recently by Chase Hagaman, New England regional director for The Concord Coalition, the borrowing to finance so much of the government will be on top of the current federal debt of well over $17 trillion.

That’s the highest level relative to the economy since the World War II era. But with deficits dropping in the short term, Hagaman says in a Nashua Telegraph op-ed, Washington seems overly complacent.

President Obama’s new proposed budget, for example, omits his previously suggested switch to “Chained CPI,” a more accurate measure of inflation for Social Security and some other programs. Lawmakers, meanwhile, recently reversed a modest reform in military retirement benefits.

“Systematic reform may be difficult and politically painful in the short term,” Hagaman says, “but it can mean a stronger and more prosperous country for ourselves and future generations.”