November 27, 2014

Washington Budget Report: April 15, 2014

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With Updated Projections, CBO Warns of Deficits Ahead

The Congressional Budget Office (CBO) released new projections Monday that show the federal deficit dropping to 2.8 percent of GDP in this fiscal year, nearly a third less than last year’s shortfall. Citizens and elected officials should remember, however, that deficits are still on track to rise sharply after next year and continue on an unsustainable path.

In a related release, the CBO and the Joint Committee on Taxation (JCT) staff also updated their estimates on Affordable Care Act (ACA) provisions on health insurance coverage. Current projections for these provisions show a net cost of nearly $1.383 trillion for the coming decade, $104 billion less than estimated in February.

Federal deficits, CBO says, would rise under current law to 4 percent of the economy over the next decade. These deficits, totaling $7.6 trillion, would push the federal debt up to 78 percent of the economy by 2024 -- twice the average for the past four decades.

As the budget office notes, such high and rising debt could mean higher federal interest payments, lower wages and economic productivity, greater risk of a fiscal crisis, and less flexibility for the nation to meet unexpected challenges.

Despite the cost of insurance coverage provisions, other parts of the health care law will reduce deficits. As a result, CBO and the tax committee staff have previously estimated that the ACA’s overall effect would be to lower deficits. But CBO says it can no longer produce a cost estimate to that effect because isolating the effects of many different provisions four years after the law was enacted is not possible.

House Approves Flawed Budget Plan for 2015

House Republicans passed a budget plan last week that outlines their priorities but does not reflect much interest in bipartisan compromises on broad fiscal reforms this year. The budget passed on a 219-205 vote, without any Democratic support.

Senate Democrats -- citing a previous agreement that set overall spending levels for Fiscal 2015 -- say they do not plan to produce their own budget plan. This means there will be no concurrent congressional budget resolution for 2015 and thus no prospect of an agreed-upon plan that looks out beyond next year.

House Republicans deserve credit for passing a budget in an election year when it might have been politically easier to skip it. The plan, written by House Budget Committee Chairman Paul Ryan, promises to balance the budget within 10 years -- a worthy objective.

But the House budget takes a lopsided approach to deficit reduction, rejecting any revenue increases and focusing on even sharper cuts in domestic programs while allowing defense to exceed current spending caps. The budget envisions unrealistically low levels for domestic spending.

And while Republicans have properly criticized President Obama for backing away this year from a proposed switch to a more accurate measure of inflation known as “Chained CPI,” the House budget also fails to include such a proposal.

Medicare Payment Disparities Should Be Fixed

The Centers for Medicare and Medicaid Services (CMS) last week announced increases of about 0.4 percent in 2015 government payment levels for private insurance plans that some seniors use instead of traditional Fee-for-Service Medicare.

Joshua Gordon, policy director for The Concord Coalition, says this figure came as a bit of a surprise because CMS had earlier suggested that payments to the Medicare Advantage plans would be cut by 1.9 percent. The change comes after months of lobbying by the private insurance industry and lawmakers in both parties.

The government pays insurers more per beneficiary under the Medicare Advantage program than it spends on beneficiaries in traditional Medicare. The Affordable Care Act sought to fix this disparity, and cuts in Medicare Advantage payments are scheduled to continue again after next year. Gordon says it is important that they do so.

The complaints about the payment reductions “are not much different than what we see whenever an attempt is made to control health care costs, or for that matter to reduce deficits in general,” he writes. “The aggrieved have an easy time lobbying for specific benefits, while those trying to reduce costs have a difficult time pointing out the need for general sacrifice.”

Proposal Would Emphasize Long-Term Effects of Legislation

A promising bipartisan proposal in the House would help lawmakers better assess the long-term benefits and costs of legislation they are considering.

The Congressional Budget Office (CBO) typically projects the fiscal impact of legislation over 10 years. The Long-Term SCORE Act, introduced last week by Rep. Reid Ribble (R-Wisc.) and Rep. Mark Pocan (D-Wisc.), would enable lawmakers to request 50-year scores instead.

This could help elected officials focus on policies that improve the government’s long-term fiscal outlook. The legislation would provide CBO with $5 million a year to help meet its additional responsibilities.

Projections over several decades involve many assumptions and variables. But they can still be useful in determining whether certain policies are sustainable and can promote long-term economic growth. They can also counteract budget gimmicks that can make legislation look more fiscally responsible than it really is.

Some lawmakers, for example, push the anticipated costs of legislation out just beyond the traditional 10-year budget window. By providing a more accurate picture, long-term scoring could put pressure on legislators to find real offsets for proposed spending or tax cuts.

Federal Agencies Should Take GAO’s Advice More Often

The Government Accountability Office (GAO) has released its fourth annual report detailing specific ways in which Congress and federal agencies can improve efficiency by reducing fragmentation, overlap and duplication.

Politicians too often vaguely suggest that eliminating waste, fraud and abuse can fix the deficit problem. This report series, though, gives policymakers specific actions they can take to both save money and improve public services.

In addition, such effective oversight of federal spending could help elected officials build the public credibility needed to move on to larger reforms.

The report recommends 64 actions that Congress or the executive branch could take. For example:

  • The departments of Justice, Homeland Security and Treasury could pursue a joint project to modernize their wireless communications systems instead of having each department conduct an independent project.
  • The government could consolidate the funding streams and programs that help minority communities affected by the HIV/AIDS virus.
  • The Pentagon could better coordinate its work in contracting with health care professionals.

Recommended steps taken by Congress and the administration saved $10 billion from fiscal 2011 to 2013. But much more remains to be done; of the 380 recommendations in GAO’s reports from that period, 246 remain partially or completely unaddressed.