December 2011

Congress Approves Two-Month Payroll Tax Holiday and Other Extensions

Congress fittingly capped a tumultuous 2011 by snuffing out yet another fiscal showdown while managing to kick the can of tougher decisions down the road. Both the Senate and House this morning approved, by unanimous consent, of a two-month extension of the payroll tax holiday and other various extenders. The most promising aspect of the whole ordeal is that the cost of the package was fully paid for (unlike last December’s tax deal).

This deal extends the payroll tax holiday, extended unemployment benefits, the ‘doc fix’ and a few other health provisions for two months and is fully offset by an increase in guarantee fees to Fannie Mae and Freddie Mac.


Policy Cost
Payroll Tax Holiday $20 Billion
Unemployment Compensation Extension $9 Billion
SGR and Other Health Extensions $4 Billion
Increasing Fannie Mae and Freddie Mac Fees -$36 Billion
Total -$3 Billion

Note: Numbers are rounded

The payroll tax holiday is a continuation of the 2011 two percent reduction in employee payroll taxes, which is used to finance Social Security. As with the previous holiday, funds from the general fund are being transferred to the Social Security system to compensate for the lost revenue. The bill also continues expanded unemployment benefits, prevents a 27% cut in Medicare physician payments, and enacts some other smaller extensions.

Finally, the offset is accomplished by increasing the fees Fannie Mae and Freddie Mac charge lenders for guaranteeing home loans, as well as the annual premium that the Federal Housing Administration charges homeowners for insuring mortgages. This provision expires after ten years -- meaning that while it does offset its own costs over ten years, it will not reduce the deficit in hte out years.

This bill by no means solves the extender problem since this is only a two month extension, and it does not address all of the extenders, notably the Alternative Minimum Tax (AMT) patch and various other tax extensions. A conference committee will attempt to hash out a longer term extension package. Conferees will include Reps. Kevin Brady (R-TX), Dave Camp (R-MI), Renee Ellmers (R-NC), Nan Hayworth (R-NY), Tom Price (R-GA), Tom Reed (R-NY), Fred Upton (R-MI), Greg Walden (R-OR), Sander Levin (D-MI), Xavier Becerra (D-CA), Chris Van Hollen (D-MD), Allyson Schwartz (D-PA) and Henry Waxman (D-CA), as well as Sens. Max Baucus (D-MT), Ben Cardin (D-MD), Jack Reed (D-RI), and Bob Casey (D-PA). Senate Republicans have not yet named their delegates.

The group will face the tough task of identifying offsets for longer-term extensions, though it is encouraging that both sides have committed to offsetting the costs. Senate Majority Leader Harry Reid (D-NV) said today in a news conference just after the Senate approved of the two-month extension that everything should be on the table in finding offsets. Conference committee members, and all lawmakers, would be well-served to heed CRFB’s recent paper, which called for a fiscally responsible approach to dealing with the expiring provisions.

The fact that this measure is offset sets a positive precedent – one which we hope continues into 2012.

The Bottom Line Takes a Look Back at 2011

What a year it's been! 2011 certainly had plenty of budget and fiscal policy developments that kept all of us at CRFB pretty busy. We wish that meant we could say that this was the year of a fiscal plan. Funny enough, we said the exact same thing last year, when we took a look back at 2010 and hoped for a fiscal plan in 2011. But now we really mean it this time when we say we're confident that 2012 will be the year of the fiscal plan!

Another tradition we continued from last year is creating a Wordle word cloud to show what we talked about the most on The Bottom Line in 2011. Not surprisingly, the words we mentioned the most are budget, debt, deficit, fiscal, spending, tax, plan, etc.

Although we haven't enacted a fiscal plan yet, the march toward fiscal responsibility has been progressing. We've seen 150 lawmakers from both the House and Senate and from both sides of the aisle join together to call for a big package of reforms to control rising debt, unprecedented support from experts and business groups, the enactment of discretionary caps to help control one portion of the budget, and a $1.2 trillion sequester set to go off in 2013 to help bring lawmakers back to the negotiating table. It's clear that there has been much progress, and momentum continues to build.

CRFB wishes all of our readers a very safe and happy holiday season! It is concerned citizens, lawmakers, experts, and leaders like you who are contibuting to this critical national debate on our fiscal challenges, and we really enjoy being part of the conversation. CRFB will return to blogging in the new year, and we look forward to a very exciting 2012.

Happy Holidays!


Fitch Comments on U.S. Fiscal Situation

Once again, ratings agencies are warning the United States that our current fiscal outlook is not sustainable and we risk further downgrades unless we change course. Following their November 28th decision to put the U.S. on a negative outlook, Fitch warned the U.S. again yesterday by saying that our current rising debt trajectory was “not consistent” with our AAA credit rating.

“High and rising federal and general government debt burden is not consistent with the US retaining its ‘AAA’ status despite its other fundamental sovereign credit strengths.”

Furthermore, Fitch noted that the failure of the Super Committee brought to light the current difficulties in reaching an agreement, and stated that continuing to put off necessary difficult decisions will just make them worse:

“The Congressional Joint Select Committee on Deficit Reduction (the so-called Super Committee) failed to agree at least USD1.2trn of deficit reduction measures as tasked under the Budget Control Act passed in August 2011. The lack of agreement underlines the challenge of securing broad-based consensus on how to reduce the outsize budget deficit and contain the rise in federal debt.”

“By postponing the difficult decisions on tax and spending until after the forthcoming Congressional and Presidential elections, the scale and pace of required deficit reduction will consequently be greater.”

While Fitch has kept our AAA rating and kept us on a negative outlook, they note how important 2013 is and how poor our fiscal situation looks. While they acknowledge that our economy can handle larger debt than others, we are not immune to a fiscal crisis. The credit markets are certainly paying attention to us and are well aware of the fact that time is running short. Our policymakers need to agree on a comprehensive fiscal plan.

Click here to read our paper on the S&P downgrade this summer.

Interesting Charts Of the Year

With the year wrapping up, our friends Ezra Klein over at the Washington Post and Derek Thompson at The Atlantic asked a variety of noted economists and other important individuals ranging from Larry Summers and Jared Bernstein to Rep. Paul Ryan (R-WI) and Sen. Kent Conrad (D-ND) to list their favorite chart of the year. As any reader of The Bottom Line knows, we love charts. Just take a look at our Featured Charts page and our Averting A Fiscal Crisis and The Case for Going Big presentations to see for yourself.

We won't attempt to pick a favorite chart, though the dragon is the most creative. But we are pleased that so many of the top graphs deal directly with the fiscal situation. Part of our holiday wishes are answered -- people are paying attention to our fiscal challenge, what the causes are, and recognizing that we need to fix it.

Now, let's chart a course to fiscal stability.

Where is the Fiscal Policy Discussion in the Election Debate?

According to a recent AP-GfK Poll, 76 percent of Americans think that the federal budget deficit is an extremely or very important issue, yet you wouldn’t know it from the campaign rhetoric.

The word cloud below created by putting the transcript of Thursday night’s debate among GOP presidential contenders into Wordle illustrates how little the issue is being discussed. The terms “tax” and “spending” barely register in the word cloud even though critical decisions on taxes and spending must be made that will have significant impact on economic growth and our standard of living. Try finding “budget” and “deficit” at all.

The 2012 election season is a prime opportunity for an informed discussion on the fiscal challenges facing the country and a constructive debate over how to address them. To help take advantage of the opportunity, CRFB re-launched its U.S. Budget Watch project and offered The 12 Principles for Fiscal Responsibility for the 2012 Campaign. Budget Watch will also offer nonpartisan analysis of the fiscal impacts of presidential campaign platforms.

Out of the cloudy muddle of the current campaign debate must come substantive dialogue. Stayed tuned to U.S. Budget Watch for clarity and substance.

Line Items: Brinking Game Edition

Brink Again – Washington’s favorite game played out again last week as lawmakers once more waited until the last minute to avert a government shutdown. A bill funding government operations not already financed for fiscal year 2012 was approved as the deadline to avoid a partial government shutdown passed. In fact, another stopgap measure funding the government at current levels through December 23 was signed by the president as technical details are worked out on the full measure. Brinksmanship apparently is as addictive to policymakers as playing Modern Warfare is to young men, since they can’t seem to get enough of it. The FY 2012 appropriations measure including all nine outstanding spending bills totaling nearly $1 trillion was essentially completed earlier in the week – over two months after the fiscal year began – but, evidently, that was way too soon for legislators, who allowed disputes over offsetting the payroll tax cut and Cuba travel restrictions to delay the spending package. Lawmakers have now created yet another opportunity to get their brink on as the House is threatening to reject a two-month extension of the payroll tax cut and other policies. The payroll tax holiday, expanded unemployment benefits, the Medicare 'doc fix', the AMT patch and various tax breaks like the research and experimentation tax credit all expire at the end of the year. CRFB has outlined a responsible approach to dealing with the expiring provisions, but what fun would that be?

Lieberman Wants Votes – In the wake of the Super Committee failure, Senator Joseph Lieberman (ID-CT) wants to allow bipartisan groups to essentially be their own Super Committee. Lieberman introduced legislation last week which would allow a bipartisan proposal to reduce the deficit by at least $1.5 trillion over ten years to get a vote without amendments. Any such proposal that has at least six sponsors from each party in the Senate or at least 15 from each side in the House will be afforded fast-track consideration. If such a proposal were enacted, it would turn off the sequester due to begin in 2013 that was triggered by the failure of the Super Committee. In a statement, CRFB applauded the bill as a “constructive proposal.”

No Labels Wants No More Dysfunction – The nonpartisan No Labels movement launched the Make Congress Work campaign last week. Two of the 12 proposals in the reform package are directly tied to budget and fiscal policy. The “No Budget, No Pay” proposal would withhold the pay for members of Congress if the appropriations process is not complete when the new fiscal year begins on October 1. It is the only proposal in the package that requires legislation, the others can be accomplished through congressional rule changes, and it has already attracted bicameral, bipartisan support. Sen. Dean Heller (R-NV) introduced the Senate version of the bill and Rep. Jim Cooper (D-TN) sponsored the House version. Another plank in the platform would require an annual fiscal report presented to a joint session of Congress and signed by the president, all members of Congress, and the cabinet.

As the Campaign Heats Up, Principles for Cool-Headed Fiscal Debate Emerge – On Thursday, CRFB re-launched its acclaimed US Budget Watch project to advance an informed, substantive debate on budget and fiscal issues during the campaign season. The nonpartisan initiative offered fiscal responsibility principles for candidates to follow and will also provide objective analysis of the fiscal impacts of presidential campaign platforms.  

Budget Process Reform Proceeds – The House Budget Committee on Thursday approved legislation sponsored by Committee Chairman Paul Ryan (R-WI) and Ranking Member Chris Van Hollen (D-MD) to give the president enhanced ability to strike individual items in spending bills. Providing the White House with improved rescission authority was one of the recommendations of the Peterson-Pew Commission on Budget Reform in Getting Back in the Black. Reps. Ryan and Van Hollen spoke at a Capitol Hill forum convened by the Peterson-Pew Commission on Tuesday that highlighted the release of new papers examining multi-year budgeting, fiscal rules, budgeting for emergencies, and performance budgeting. In addition, a bipartisan group of House members introduced their own budget process reform package. The developments came as the Senate rejected two versions of a balanced budget amendment to the Constitution.

Not So Trigger Happy – House Armed Forces Committee Chair Howard McKeon (R-CA) introduced legislation to modify the sequester triggered by the lack of a deficit reduction plan from the Super Committee so that it doesn’t affect the defense budget as much as it currently is set to do. Meanwhile, Rep. Peter Welch (D-VT) led a letter from over 80 House members telling President Obama that the trigger “should not be repealed or amended absent an agreement to reduce deficits that meets or exceeds the amount to be sequestered.” CRFB commended the commitment to the trigger as a means to encourage further negotiation towards a comprehensive deficit reduction deal.

Ryan 'Wyden's Support for Medicare Reform – Rep. Paul Ryan (R-WI) significantly modified his proposal to reform Medicare and attracted support for the new package from Sen. Ron Wyden (D-OR). CRFB called the new plan a welcome addition to the discussion on reforming one of the largest drivers of our long-term debt.

Debt Reduction in the House – In the absence of comprehensive action in Congress, Americans are chipping in. James H. Davidson, Jr. willed his home to the U.S. government when he died last December to go towards reducing the national debt. The government auctioned it off last week for $1.175 million. Davidson also gave an additional $1 million to the federal government to go towards public debt reduction.

Key Upcoming Dates (all times ET)

December 22, 2011

  • US Dept. of Commerce releases third quarter GDP at 8:30 am.

December 31, 2011

  • The payroll tax holiday, expanded unemployment benefits, the Medicare 'doc fix', the AMT patch and various tax breaks like the research and experimentation tax credit all expire at the end of the year.

 January 3, 2012

  • Iowa Caucus.

January 7, 2012

  • New Hampshire GOP debate sponsored by ABC News and WMUR at 9 pm.

January 8, 2012

  • New Hampshire GOP debate sponsored by NBC News, Facebook, and the Union Leader at 9 am.

January 10, 2012

  • New Hampshire Primary.

January 16, 2012

  • South Carolina GOP debate sponsored by Fox News at 9 pm.

January 17, 2012

  • The House of Representatives commences the Second Session of the 112th Congress.

January 19, 2012

  • South Carolina GOP debate sponsored by CNN

January 21, 2012

  • South Carolina Primary.

January 23, 2012

  • The Senate convenes for the Second Session of the 112th Congress.
  • Florida GOP debate sponsored by The St. Petersburg Times, NBC News, and The National Journal.

January 24, 2012

  • President Obama will give the State of the Union Address.

January 26, 2012

  • Florida GOP debate sponsored by CNN.

January 31, 2012

  • Florida Primary.

February 4, 2012

  • Nevada Caucus.

February 6, 2012

  • The President must submit his FY 2013 budget request to Congress by this date.

February 7, 2012

  • GOP presidential contests in Colorado, Minnesota and Missouri.

February 22, 2012

  • Arizona GOP debate sponsored by CNN at 8 pm.

February 28, 2012

  • GOP presidential contests in Arizona and Michigan.

New York Times Lays Out Medicare Options

In response to the release of the Ryan-Wyden premium support plan last week, The New York Times spelled out options for reducing Medicare spending within the program's existing framework in an editorial yesterday. These options are some of the most commonly discussed out there in the budget debate, so it's useful to take a quick look at them.

  • Drug prices: One option for reducing Medicare spending is to make drug manufacturers pay rebates on prescription drugs provided under Part D to low-income beneficiaries. Medicaid currently requires these rebates, and extending them to the low-income subsidy (LIS) program of Part D--which provides cost-sharing assistance for low-income beneficiaries--would save $112 billion over ten years, according to CBO. The NYT also mentions the possibility of allowing Medicare to negotiate drug prices for all prescription drugs provided in Medicare, an option with potentially more savings.
  • Providers and dual-eligibles: Although the Affordable Care Act contained a number of reductions to provider payments, there are still some other areas available for adjustment. The NYT suggests looking to the Medicare Payment Advisory Commission (MedPAC) for options to reduce payments. They also bring up the prospect of using managed care more aggressively for so-called "dual-eligibles," or people that qualify for both Medicare and Medicaid. Depending on how these options are implemented, they could save somewhere in the high tens of billions of dollars.
  • Retirement age: Raising the Medicare retirement age from 65 to 67 would bring it in line with Social Security's scheduled retirement age increase and save about $125 billion over ten years. The NYT qualifies this policy--as some others have--by saying that it should only be put in place if the Affordable Care Act's health insurance expansion stays in place.
  • Cost sharing: Reforms to Medicare cost-sharing have the potential to save money both directly and indirectly if done correctly. The NYT mentions two recommendations that are very similar to the Fiscal Commission's cost-sharing reforms: restricting Medigap and simplifying Part A and B cost-sharing. These policies would not allow Medigap to cover, for example, the first $550 of cost-sharing and only a certain amount after that. For Medicare cost-sharing, the Part A and B deductible would be combined and a near-uniform 20 percent coinsurance would be applied on top of that, up to a new catastrophic limit on out-of-pocket spending. Although cost-sharing would increase for many beneficiaries, the Times notes that this policy would protect vulnerable people who incur huge health expenses in a given year. These policies would save about $90 billion, according to CBO.
  • Means testing: Currently, premiums for Parts B and D are higher for high-income people. A proposal that has been discussed recently is to increase premiums for these people and make more beneficiaries subject to these higher premiums. The NYT says that this option could raise $50 billion, which is consistent with reasonable estimates of aggressive means-testing. Raising premiums for everyone could save almost $250 billion, but the NYT is skeptical of this option.
  • Bend the overall curve: The NYT cites a number of pilot programs and demonstrations that the Affordable Care Act created that have the ability to reduce economy-wide health care spending growth. Obviously, reductions in overall health care spending will accrue savings to Medicare, although it is not as easy as it sounds. They suggest using Medicare as a main vehicle to expand on pilot programs, payment structures, and care delivery systems that show promise. 
Medicare Savings Options
Option Ten-Year Savings
Drug Rebates $112 billion^
Providers and Managed Care $42 billion*
Retirement Age $125 billion^
Cost Sharing Reform $93 billion^
Means Testing $50 billion
Reducing Overall Health Spending N/A

^Estimate from CBO

*Estimate from President's Obama plan (excluding managed care)

A Reversal for TARP

As the federal government has been slowly winding down much of its commitment in the Troubled Asset Relief Program (TARP), the prevailing trend for cost estimates of TARP was one of decline (see, for example, here and here). However, that has changed with the release today of CBO's newest estimate.

The most recent estimate of TARP has the program costing the government $34 billion, a significant jump from the $19 billion estimate that CBO made in March. As you can see in the table below, the auto companies (specifically GM and GMAC) and AIG are the reasons for the increase. CBO cites lower market value for the investments the government has made in these companies (especially the hundreds of millions of shares of common stock) as the reason for the projected subsidy cost increase.

Still, the table shows that the subsidy cost of TARP is relatively low compared to the total amount spent.

Subsidy Cost Estimate (billions)
Area March 2011 December 2011 Amount Disbursed
Capital Purchase Program -16 -17 205
Citigroup and Bank of America -7 -8 40
Community Development Capital Initiative 0 0 1
Assistance to AIG 14 25 68
Subtotal, Financial Institutions -9 1 313
Auto Company Assistance 14 20 80
Investment Partnerships 1 0 18
Mortgage Programs 13 13 3
Total 19 34 414


While the cost estimate may not look as good, CBO has found a way to make TARP look good in another infographic. This infographic breaks down TARP by category (like in the table above), detailing what each part entails and how much has been disbursed, repaid, or is still outstanding. Certainly, it is a good graphic for familiarizing yourself with the basics of the program.

The changing cost estimate is now incorporated into our tracking of TARP on

Representatives Joining Together to Resist Efforts to Turn Off the Sequester Absent Debt Reduction Agreement

Update 12/16: Representatives Welch, Miller, Van Hollen, Cleaver, and Himes formally released the letter yesterday to President Obama with over 90 signatures from House Democrats in support of not dismantling the sequester until savings are enacted.

Several members of the House are working on a letter to President Obama -- organized by Reps. Peter Welch (D-VT), Jim Himes (D-CT), George Miller (D-CA), and Emanuel Cleaver (D-MO) -- supporting his call to not dismantle the current trigger absent a bipartisan agreement on a debt reduction package that meets or exceeds the savings in the trigger. The trigger is designed to generate about $1.2 trillion in savings from automatic spending cuts. They write:

Dear Mr. President,

With the failure of the Super Committee to reach a deficit reduction agreement, we write in full support of your view that the sequester scheduled to take effect on January 2, 2013 should not be repealed or amended absent an agreement to reduce deficits that meets or exceeds the amount to be sequestered. The failure of Congress to act must have consequences. We stand ready to work with you over the next year to put America back on a firm financial footing and will vote to sustain your veto of any effort to repeal all or part of the scheduled sequester.

Co-signing the letter were dozens of other lawmakers, including Reps. Andrews, K. Bass, Boswell, Carnahan, Carney, Clay, Conyers, Cummings, D. Davis, Defazio, Deutch, Farr, Filner, Frank, Hastings, Jackson Jr, H. Johnson, Kind, John Lewis, Meeks, Moore, Napolitano, Norton, Olver, Perlmutter, Polis, Quigley, L. Richardson, Schrader, Schwartz, Shuler, Speier, M. Thompson, Tsongas, Van Hollen, Velasquez, and Yarmuth.

This is very encouraging news, and these lawmakers deserve credit for sticking to Congress's commitment in the Budget Control Act this summer to find at least another $1.2 trillion in savings this decade. As we have been talking about frequently, keeping the trigger in place is very important to help force lawmakers to continue negotiating on comprehensive fiscal reform.

CRFB Brings Back U.S. Budget Watch

The Committee for a Responsible Federal Budget has announced the return of U.S. Budget Watch, just in time for the Republican primary season and the full 2012 presidential election. U.S. Budget Watch will monitor the election, the talking points, candidate websites, and the debates to get a picture of what each candidate is proposing, and will put it all into a unified plan to estimate the costs and/or savings (with an emphasis on the federal debt impacts) of what each candidate hopes to accomplish. First, however, U.S. Budget Watch is kicking off its return with its statement of principles in “The 12 Principles of Fiscal Responsibility for the 2012 Campaign,” where we lay out 12 specific principles all candidates should adhere to.

The 12 principles are:

  1. Make Deficit Reduction a Top Priority.
  2. Propose Specific Fiscal Targets.
  3. Recommend Specific Policies to Achieve the Targets.
  4. Do No Harm.
  5. Use Honest Numbers and Avoid Budget Gimmicks.
  6. Do Not Perpetuate Budget Myths.
  7. Do Not Attack Someone Else's Plan Without Putting Forward an Alternative.
  8. Refrain From Pledges That Take Policies Off the Table.
  9. Propose Specific Solutions for Social Security, Health Care Programs, and the Tax Code.
  10. Offer Solutions for Temporary and Expiring Policies.
  11. Encourage Congress to Come Up With a Budget Reform Plan as Quickly as Possible.
  12. Remain Open to Bipartisan Compromise.

As always, CRFB and now U.S. Budget Watch will offer objective and nonpartisan analysis. We hope this election will keep fiscal policy in the spotlight and that the candidates put forward Go Big plans which stabilize our debt and put it on a downward path. This election is a chance for the nation to advance toward solving our fiscal problems, and U.S. Budget Watch plans to follow it closely. Stay tuned for in-depth analysis!

Click here to read “The 12 Principles of Fiscal Responsibility for the 2012 Campaign” and here to visit U.S. Budget Watch’s homepage.

Ryan and Wyden Offer Ambitious Health Care Proposal

This morning, Senator Ron Wyden (D-OR) and Representative Paul Ryan (R-WI) unveiled their proposal to significantly change Medicare, one of the largest areas of the budget and one of the biggest drivers of our long-term debt. Rep. Ryan, who unveiled his own Medicare plan earlier this year, has joined with Sen. Wyden to craft a plan that would significantly improve the long-term fiscal imbalance. These lawmakers deserve credit for having the courage to propose specific reforms to help control rising debt levels.

The premium support portion of the Ryan-Wyden plan is more similar to the premium support plan contained in the Domenici-Rivlin plan than Ryan's premium support system contained in the House budget resolution that passed in the House earlier this year. Under the proposal, traditional Medicare and private insurance plans would compete starting in 2022 for the ability to provide coverage on a "Medicare Exchange." The value of the vouchers provided to seniors would be determined by either the cost of the second least-expensive private plan as determined through a competitive bidding process or by traditional Medicare, whichever is cheaper. Under this scenario, seniors could either get rebates if they pick a cheaper plan than the benchmark or have to pay more themselves if they pick a more expensive plan. These benchmarks would be adjusted for local differences in costs, and vouchers would be reduced for higher-income seniors. 

A major difference between Ryan-Wyden and the original Ryan proposal is the growth rate. Ryan's proposal had the vouchers growing at the rate of inflation, which many people criticized as being far too slow considering the rapid growth of health care costs. Ryan-Wyden sets a goal of keeping program costs per beneficiary to a growth rate of GDP+1 percent, in line with the target of the Independent Payment Advisory Board (IPAB). There does not seem to be an enforcement mechanism for keeping the program's growth rate to GDP+1 percent, as there is for IPAB. They merely say that Congress would be required to intervene in ways to get cost growth down to that level.

The premium support plan is only one part of the Ryan-Wyden plan. They would also reform traditional Medicare by simplifying the cost-sharing structure along the lines of Domenici-Rivlin or the Fiscal Commission. [Click here to read The Moment of Truth Project's closer look at the Fiscal Commission's cost-sharing proposals.] Specifically, the Ryan-Wyden plan mentions combining the Part A and B deductibles and introducing a catastrophic cap for out-of-pocket costs. In addition, the plan seems to include a permanent doc fix, so that physicians under Part B are not subject to massive reimbursement cuts.

In addition, the plan includes a provision that would allow workers currently receiving health insurance through their employer to receive a "free choice option" to purchase health insurance on their own. The benefit would be the same (both the deduction for employers and the tax-free benefit for employees), and employees who choose less costly health plans than their current insurance would receive a rebate. This provision does not seem to have direct budgetary effects but rather incentivizes employees to pick less costly insurance options.

Overall, these two members of Congress have taken a big swing at our dramatically rising health care costs with a proposal that touches many facets of our health care system. Obviously, the premium support aspect will save a huge chunk of change over the long-term, assuming that either Congress or IPAB is able to keep cost growth down to its intended growth level. They have also taken other steps -- the cost-sharing and the employer health insurance piece -- that could have significant sums through indirect budget effects by putting downward pressure on economy-wide health care costs. Ryan-Wyden is a welcome addition to the much-needed debate over how best to get control of runaway health care costs, a key to fixing our long-term budget issues.  

Bipartisan Group Introduces Budget Process Reform Improvement Act of 2011

A bipartisan group of Representatives has introduced the Budget Process Improvement Act of 2011 in an effort to provide "improved accuracy and transparency" to the federal budget process. The bill has two main components -- new rules on budget scoring and accounting and moving the budget process to a biennial system.

The legislation shares some recommendations with the Peterson-Pew Commission on Budget Reform, from the report, Getting Back in the Black

The first part of the bill has five sections:

  • Require CBO and JCT to study two decades worth of budget impact instead of the current ten-year budget scoring. 
  • Require OMB to issue a report each year that looks at areas of the budget that are currently considered "unbudgeted." An example of this would be Fannie Mae and Freddie Mac.
  • Require the Department of Treasury, with OMB consulting and any policy-related agency, to analyze and issue "performance reviews" of each tax expenditure at least once every four years. Tax expenditures, which are basically spending programs in the tax code, are not currently reviewed.
  • Implement accrual accounting for areas of the budget such as federal retirement. 
  • Require CBO, consulting with JCT, to issue revenue projections each year for the next decade. 

Reviewing tax expenditures is one of major reforms proposed in Getting Back in the BlackThis would be a major, positive change and we are pleased to see this idea continue to gain traction. Getting Back in the Black also offered recommendations on accural budgeting for programs such as federal retirement.

Additionally, this bill would move the budget process to a biennial system, something that CRFB President Maya MacGuineas has testified on previously. The idea behind a biennial process is that it would free up more time for Congress to review the budget and better focus on oversight of the effectiveness of federal programs.

The bill comes on the heels of another budget process reform package spearheaded by House Budget Committee Chairman Paul Ryan (R-WI). Improving the budget process is gaining prominence in the wake of the failure of the Super Committee and as Congress struggles to keep the budget process on track. While budget process reform is important and can play a role in putting the country on a sustainable fiscal path, process reform cannot replace the need for specific policy actions and tough decisions on the part of policymakers. This theme was echoed repeatedly at Tuesday's Peterson-Pew forum

Bipartisan efforts like this should be commended and we hope to see more such efforts.

There are plenty more ideas to reform the budget process as well. Tuesday's event featured the release of four new papers exploring multi-year budgeting, performance budgeting, fiscal rules, and budgeting for emergencies.