Update: Charles Blahous has posted a response to his critics here.
Charles Blahous, a Social Security and Medicare Trustee, has released a new report on the Affordable Care Act that has made some waves. The study claims that ACA will increase--rather than reduce--deficits by anywhere from $346 billion to $527 billion from 2012-2021. By contrast, CBO estimated that the bill would reduce deficits by $210 billion from 2012-2021 in their most recent comprehensive estimate.
The differences come from numerous sources. First, taking out the CLASS Act reduces revenue by about $85 billion. Second, Blahous uses different assumptions that could result in larger costs or fewer savings (these assumptions are why there is a range on his estimates). He surmises that: the exchange subsidies could be more expensive due to higher enrollment from employers dropping coverage or Congress increasing their growth rate; the mandated IPAB savings could be greater than zero and be overridden; the health insurance excise tax thresholds will be indexed to a higher growth rate, thus limiting their reach; and the thresholds for the new HI taxes would be indexed to keep the revenue at a constant percent of GDP, rather than not be indexed at all.
However, the biggest difference stems from how he treats the Medicare savings. Under current projections, the savings would total $850 billion from 2012-2021 and extend the life of the HI Trust Fund from 2016 to 2024. Of course, as we have said before, it's a rhetorical fallacy to say that these savings can both be used as offsets and to extend HI solvency. Blahous takes this a step further by arguing that most of these savings aren't actually savings, since when the HI Trust Fund runs out in 2016, spending would automatically have to be cut. CBO does not account for this fact, instead assuming that Medicare spending continues as scheduled. When you take out the savings that would have had to happen anyway, it reduces the amount of Medicare savings by $470 billion. In other words, he assumes $470 billion of Medicare cuts would already take place.
Is this a correct way of accounting? In a technical sense, yes, since the trust fund legally cannot pay out more in benefits than it takes in or otherwise has in reserve. However, this is not the way that conventional scoring from CBO would view it. The difference from CBO is one of baselines: in Blahous's baseline, deficits are lower than in CBO's baseline and the ACA raises them to CBO levels. Of course, using this method would require one to apply this to other trust funds whose solvency is projected to expire within the ten-year window (disability insurance, for example) and would further lower baseline deficits; in addition, the long-term outlook would change if you account for Social Security benefits being reduced in 2036 and beyond.
As you can see below, current law debt is lowered significantly if you take into account the insolvency of the Social Security Disability Trust Fund, the Highway Trust Fund, the HI Trust Fund, and the Social Security Old Age and Survivors Trust Fund.
But if you break away from trust fund accounting and use a unified budget perspective in which benefit levels are fully funded, this last point really doesn't change the estimate of the Affordable Care Act. The other points--about whether certain aspects of the law will go forward as scheduled--are more relevant when using this perspective. The difference between the current law assumptions and his most pessimistic assumptions is about $180 billion. If you take those pessimistic assumptions, add them to the most recent budget impact projection and take out the CLASS Act, the ACA would increase deficits by as much as $55 billion through 2021. Using his "mixed-outcome" scenario, which splits the difference between current law and the pessimistic scenario, the ACA would reduce deficits by about $30 billion through 2021. Still, these alternative scenarios are not true estimates, but the effect of ACA assuming that future Congresses undo the cost-constraining or cost-controlling aspects of the law that may be politically difficult to sustain.
In short, the Affordable Care Act can only extend the life of the HI Trust Fund to the extent that it does not offset the coverage expansions in the law (or vice versa). At the same time, one cannot claim that repealing the Affordable Care Act would reduce the deficit while saying that it would not shorten the life of the trust fund. We'll get into more details about Blahous's points in a blog soon.
Tax Policy Center president Donald Marron has a brief in Tax Notes that shows that spending on tax expenditures are higher than the commonly reported $1.1 trillion figure. As Treasury does not release the figures of the cost of all tax expenditures, they are often estimated by summing the individual and corporate tax preferences. However, this method excludes other provisions that reduce total tax revenues such as payroll or excise tax expenditures.
In 2012, individual income tax expenditures will reduce tax receipts by $942 billion and corporate tax expenditures by $151 billion. This gets you to the commonly cited figure of around $1.1 trillion. But when you include the outlay effects of refundable tax credits--mostly from the earned income tax credit and the child tax credit--that adds another $91 billion. In addition, the exclusion for employer-provided health insurance also applies to the payroll tax, reducing that revenue by $109 billion. Other credits against excise taxes, mainly for alcohol fuels, add another $4 billion. Including these tax expenditure figures yields a total of $1.3 trillion, a more comprehensive estimate of how much tax expenditures cost the country.
Furthermore, using these projections, the total size of tax expenditures will grow to nearly $1.8 trillion by 2017.
|Cost of Tax Expenditures (billions)|
|Total Tax Expenditures||$1,296||$1,343||$1,403||$1,540||$1,668||$1,783|
Still, this estimate is caveated by the fact that the sum is not necessarily equal to the parts; in other words, simply repealing all these tax expenditures would not save $1.3 trillion this year. Many of these preferences interact with each other and other provisions of the tax code. As Marron explains:
There are several reasons to believe that the potential revenue gains from rolling back tax preferences are less than the headline estimates. One reason is that the estimates are static—they measure the taxes people save today but do not account for the various ways that people might react if a preference were reduced or eliminated; those reactions may reduce potential revenues. Second, most reforms would phase out such preferences rather than eliminate them immediately. That too reduces potential revenues, at least over the next decade or so.
In addition, tax reform plans that lower marginal tax rates and eliminate or reduce tax expenditures cannot rely on these estimates, since reducing marginal rates will also reduce the value of tax expenditures. Therefore, those trying to offset lower marginal rates by repealing tax expenditures will have less than $1.3 trillion available to cut. Still, you can see by these estimates that tax expenditures are an enormous part of the budget.
In the latest post in his ongoing "The Government We Deserve" series, CRFB board member Eugene Steuerle stated that regardless of how the Supreme Court rules on the constitutionality of the individual mandate, we would still have a problem with health care costs and a "math-less debate" on the issue.
Below is an excerpt from the post:
The Affordable Care Act attempted to cover new costs without adding significantly to tax burdens. The individual mandate was one way it tried to force us to pay, at least for ourselves. The law also included an employer mandate designed to prevent employers from dropping employee health insurance (since many employees’ tax subsidies are worth far less than the new exchange subsidies that cover insurance costs above 10 percent of family income). Congress also tried to box in states to contribute as much or more than they already do to Medicaid, another part of the constitutional debate.
None of those efforts, however, tackle the original sin driving health costs. Whether dealing with the old or the young, the government’s health programs are open-ended. Both we as customers of health care and our doctors, drug companies, and other providers are empowered to spend more on our care and, as a result, increase taxes on others or impose costs on others within our insurance plans. Both political parties are afraid to take this power away from us or health providers. Only very tentatively has Congress tried to empower boards to constrain costs, or to convert Medicare to more of a premium support or voucher system—and only with an outcry from one political party whenever the other is the first to suggest that anyone anywhere might get less. The political contradictions abound: Democrats want premium support for the young and oppose it for the old; Republicans want premium support for the old and oppose it for the young.
Click here to read the full post.
"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.
What the Bunny Left Behind – We’ve given up on giving things up for Lent, Passover will be passing, and the Easter Bunny has hopped into the pastel sunset. Yet, plenty of tasty goodies have been left behind. Likewise, legislators left plenty in their wake as they rushed home for the holidays, though nothing very sweet. Congress was out last week and remains in recess this week. Lawmakers will then return to some unfinished fiscal business. Easter eggs are wondrous things – colorful and full of surprises. They can be found in unexpected places. You never know what you will find inside the plastic shell until you open it up. But sometimes what you find is disappointing – candy that you don’t like, or in the most disheartening cases, nothing at all. The hunt is often the best part – the exhilaration of finding hidden treasure where no one else dared to look. We are currently in the middle of such a hunt. Perhaps we will discover that the answers to our fiscal problems aren’t hidden at all…that they are right in front of us. Hidden in clear sight, they simply are not colorfully wrapped. Maybe we will find that by putting our eggs together, we can uncover what we are looking for.
Budget Still Isn’t Hatched – The House passed the FY 2013 budget resolution drafted by House Budget Committee Chair Paul Ryan (R-WI) on a party-line vote just before departing. A bipartisan alternative sponsored by Reps. Jim Cooper (D-TN) and Steve LaTourette (R-OH) that was based on the Simpson-Bowles proposal was defeated, but 38 courageous lawmakers supported the bill and the effort achieved a lot of outside support. Several other alternatives were also considered and rejected. Meanwhile, the Senate is not expected to approve of a budget blueprint, even though Senate Budget Committee Chair Kent Conrad (D-ND) says his committee will mark up a budget resolution next week.
Rolling off a Fiscal Cliff? – A confluence of events at the end of this year and beginning of 2013 – including the expiration of the 2001/2003/2010 tax cuts, reaching the statutory debt limit, and triggering the sequester – threaten the perfect fiscal storm. Yet, simply proscribing or delaying these actions would cause the national debt to mount to catastrophic heights. CRFB examined what Federal Reserve Chair Ben Bernanke calls the “fiscal cliff” and how to forge a sensible path in a recent paper. We also previously looked at how large-scale deficit reduction could be done in a smart way in a blog post.
Presidential Candidates Hunt for Traction – With former Massachusetts Governor Mitt Romney on track to be the Republican presidential nominee, the general election campaign is beginning to take shape. President Obama sought to make a contrast with his likely foe in a speech that was highly critical of the House Republican budget, which Romney embraced, calling it a "Trojan Horse" and a "prescription for decline." Meanwhile, a Gallup Poll found that the federal budget and the national debt is a top concern for voters. These developments illustrate why CRFB’s U.S. Budget Watch project is so important, as it assesses the budgetary impact of the candidates’ policy proposals and provides principles for conducting a fiscal debate that advances an informed and constructive discussion of the issue and possible solutions. Candidates need to seriously debate the debt during this campaign.
Don’t Put All Your Eggs in the Buffett Rule Basket – The Senate will vote next week on legislation sponsored by Sen. Sheldon Whitehouse (S. 2230) to implement the "Buffett Rule," which would ensure that taxpayers making over $1 million per year would pay at least a 30 percent effective tax rate. The bill also expresses the sense of the Senate that Congress should enact tax reform that makes the tax code more simple and fair by addressing tax loopholes. The bill is estimated by the Joint Committee on Taxation to increase revenue by $47 billion over ten years relative to current law. The vote, just in time for Tax Day, should bring needed attention to tax reform, but more fundamental reform of the tax code will be required. There are plenty of ideas for how addressing tax expenditures can be a part of fundamental tax reform, see here, here and here for a few.
First Half Deficit at $777 Billion – The Congressional Budget Office last week pegged the federal budget deficit for the first six months of fiscal year 2012 at $777 billion, somewhat lower than the $829 billion deficit at this point last year and on course to hit the $1.17 trillion deficit for FY 2012 projected earlier this year by CBO.
Egging on a Debt Reduction Plan – CRFB’s National Debt Tour recently hit New York City, where former Fiscal Commission co-chairs Alan Simpson and Erskine Bowles joined New York City Mayor Michael Bloomberg at a Wall Street Journal breakfast for business leaders. Simpson and Bowles then appeared on the Charlie Rose Show. The debt tour previously visited Boston, Massachusetts and hits Roanoke, Virginia next week; future stops will also include Seattle, Washington and Dallas, Texas among many other places. When it comes to addressing deficits and debt in a way that strengthens the economy, people are looking for leadership and solutions from Washington, but all they see is partisanship and soundbites. This cross-country tour will bring people together to confront this major challenge to our future. The National Debt Tour will inform Americans about what’s at stake, engage them in discussing solutions, and empower them to demand action from their leaders towards a "Go Big" plan to beat the debt.
Wyoming Calls for a Fiscal Plan from DC – One might not expect Wyoming to be the place that sparks action in Washington, DC for a comprehensive debt reduction plan, but that may well be the case. The Wyoming state legislature overwhelmingly approved of a resolution urging "the United States Congress to pass a comprehensive and aggressive budget resolution, based on the National Commission for Fiscal Responsibility’s The Moment of Truth plan, to address our nation’s deficit spending and national debt." Let’s hope other states follow suit.
Key Upcoming Dates (all times ET)
- Dept. of Labor's Bureau of Labor Statistics releases March 2012 Consumer Price Index (CPI) data.
- Tax Day! Federal income tax returns are due.
- House Subcommittee on Economic Development, Public Buildings, and Emergency Management hearing: "GSA's Squandering of Taxpayer Dollars: A Pattern of Mismanagement, Excess, and Waste"
- Presidential contests in Connecticut, Delaware, New York, Pennsylvania, and Rhode Island
- US Dept. of Commerce's Bureau of Economic Analysis releases its advance estimate of 2012 first quarter GDP growth.
- Dept. of Labor's Bureau of Labor Statistics releases April 2012 employment data.
- Presidential contests in Indiana, North Carolina, and West Virginia
- Presidential contests in Nebraska and Oregon
- Dept. of Labor's Bureau of Labor Statistics releases April 2012 Consumer Price Index (CPI) data.
- Presidential contests in Arkansas and Kentucky
- Presidential primary in Texas
- US Dept. of Commerce's Bureau of Economic Analysis releases its second estimate of 2012 first quarter GDP growth.
CBO's latest Monthly Budget Review for March gives us a look at how the federal budget looks compared to last year halfway through the fiscal year. This year's deficit through six months is $777 billion, compared to $829 billion through the same period last year. The smaller deficit is the result of revenue being $46 billion higher and outlays actually being $7 billion lower compared to FY 2011.
A few factors have contributed to the changes from last year. Countercyclical spending measures that have been elevated due to the recession (both from the stimulus and automatic stabilizers) have either gone away or diminished somewhat. Federal Medicaid spending is down by 16 percent due to increased aid to states through the program expiring at the end of June last year. Defense and discretionary spending overall is down due to spending reductions from the Budget Control Act. Unemployment insurance spending has gone down as the unemployment rate has dropped and some people have used up their maximum weeks on the program. Meanwhile, categories such as Medicare, Social Security, interest, and financial stabilization efforts (TARP and GSE support) have gone up.
Revenue has creeped up as more people have become employed during this fiscal year, pushing up income and payroll tax revenue. Corporate revenue is way up from last year, possibly due to fewer companies taking advantage of the expensing provision that is in effect for 2011 and 2012, or because businesses have fewer losses to carry over from previous years. Overall, revenue is up by 4.5 percent.
In March, CBO estimated that the deficit this year would be $1.17 trillion, about $130 billion lower than last year. Judging by the halftime score for FY 2012, we appear to be on our way to hitting that mark.
As readers of The Bottom Line and our releases will know, CRFB strives to compare as many plans as possible on a similar basis so that policymakers, experts, and the public can truly see the differences between competing proposals. We do this because it's all too easy for people to get confused about various baselines and actual new savings from proposals.
With that in mind, the President made three claims yesterday about how his budget compares to the Simpson-Bowles recommendations, which warrant some additional clarification. Here's what the President said:
"[the Fiscal Commission] proposed about $600 billion more in revenue and about $600 billion more in defense cuts than I proposed in my own budget... By the beginning of the next decade, [my budget] achieves the same amount of annual health savings as the plan proposed by Simpson-Bowles -- the Simpson-Bowles commission, and it does so by making changes that people in my party haven’t always been comfortable with."
On revenues, the President is basically right. Although the Fiscal Commission called for about $1 trillion in new revenue from tax reform (and small amounts of revenue from other sources), it did so against a baseline that assumed the upper-income tax cuts were going to be allowed to expire at the end of 2010. Instead, the President and members of Congress extended those tax cuts, which means that going to the original Simpson-Bowles numbers would result in more than $600 billion of higher net revenue and $400 billion of higher gross revenue than the President through 2021.
On defense, on the other hand, the President's numbers are somewhat off the mark. The original Fiscal Commission report cut and grew security and non-security spending equally off of 2010 discretionary numbers, whereas subsequent discretionary reductions have focused primarily on non-security spending. As a result, going back to the Fiscal Commission's numbers would mean about $600 billion in security reductions relative to the BCA (through 2022, and extrapolating both out past when the "firewalls" expire). However, it is important to note that security is a much broader category than just defense; it includes homeland security, the State Department, Veterans Affairs, and certain programs within the Energy Department as well. If we assumed the security cuts were allocated equally between among the security agencies, defense cuts under the original Fiscal Commission numbers would be less than $450 billion through 2022, not $600 billion. And only $80 billion of that would come in years where "firewalls" mandated that policymakers find savings from both sides of the discretionary budget (through 2015).
On health care, lastly, the President claims his budget would save as much as the Fiscal Commission by the beginning of next decade. In reality, the health care savings in the Fiscal Commission are much more significant. Looking at 2020, the Fiscal Commission saves nearly $70 billion from health care, while the President saves less than $50 billion. To make their claim work, it appears that the President is including the costs of repealing the CLASS Act (though there is currently no cost, since the Administration has decided not to implement it) and excluding three policies which would not directly reduce Medicare or Medicaid spending, but rather indirectly save money in these programs while also reducing spending on federal civilian and military health benefits and the health system more broadly.
|President's Claim on Commission Health Savings||$50||$237|
|Subtract FEHB Reforms||$3||$21|
|Subtract TRICARE for Life Reforms||$6||$44|
|Subtract Tort Reform||$3||$20|
|Charge Old Costs of Repealing CLASS Act (New Cost Is $0)||$6||$81|
|Actual Commission Health Savings||$68||$403|
|President's Estimate of Own Health Savings||$50||$291|
|CBO's Estimates of President's Health Savings||$47||$273|
Those reforms include tort reform ($3 billion in 2020), TRICARE reforms ($6 billion in 2020), and FEHB reforms ($3 billion in 2020). Taking those savings out, while still charging the Commission for the CLASS Act costs, puts the President's own health care savings estimates of $50 billion ($3 billion more than CBO's estimates, FYI) in line with the Commission's.
* * * *
The other week, CRFB released a comparison table of several prominent budget proposals. Since then, however, Rep. Paul Ryan has released his latest proposals, CBO has estimated the President's budget, and Representatives Jim Cooper (D-TN) and Steven LaTourette have put forward recommendations based off of the Fiscal Commission's framework. In short, it's time for an updated comparison.
|President's FY 2013 Budget||Ryan's FY 2013 Budget||Cooper-LaTourette Budget||Simpson-Bowles||Obama-Boehner|
|Health Care||$275||$2,100||$500||$475#||$350 - $400|
|Tax Reform||$1,500||$0||$1,000||$1,800||$800 - $1,200|
|Social Security||$0||S.S. Reform Process||S.S. Reform ($175)||S.S. Reform ($150)||Discussed|
|Unspecified SGR and Sequester Savings||$0||$1,025||$0||$0||$0|
|Interest||$200||$600||$400||$500||$250 - $350|
|Sub-Total, New Savings||$1,950||$4,500||$3,150||$3,900||$1,750 - $2,300|
|BCA and CR Savings||$1,300||$1,300
|Total Savings||$3,250||$5,800||$4,450||$5,200||$3,050 - $3,600|
Note: Numbers may not add due to significant rounding. Estimates calculated off of a current policy baseline, and through FY2021.
**Assumed to be roughly equal to the discretionary caps put in place in the Budget Control Act.
#Excludes $87 billion from CLASS Act repeal.
~Savings come from across the federal budget, including about $40 billion from revenues, $90 billion from Social Security, and $70 billion from other mandatory programs.
Note: Estimates for President's Budget updated to reflect more recent figures in the Mid-Session Review.
The IMF has a new report out called "Accounting Devices and Fiscal Illusions," a handy guide to different types of fiscal trickery that have been employed by European countries and the US. Mainly, these gimmicks have to do with increasing revenue or decreasing spending in the short term but creating new liabilities or lowering revenue over the longer term. In the case of Europe, these tricks move money around to meet present fiscal targets. Some of these gimmicks do apply to the US but are not the kinds of gimmicks we have been seeing recently.
The fiscal illusions break down into five categories:
- Hidden borrowing: This type of gimmick increases revenue upfront but increases spending later. The IMF gives the example of European countries taking over private pension schemes for compensating payments. Obviously, the payments show up on-budget immediately while the pension liabilities will not need to be met until later. They also point out that the state of Arizona sold and leased back many state buildings in 2010 to cover their deficit.
- Disinvestment: Disinvestment refers to any sort of gimmickry that increases revenue immediately but reduces revenue later. Any country that sold public assets that they were currently receiving fees for would be receiving a one-time payment but giving up future revenue. The IMF also mentions countries that have securitized fees or other government cash flows, gaining money upfront but giving up their ability to receive that revenue later. In the US, the 2010 law that created the Small Business Lending Fund included an offset that would allow more people to rollover their retirement accounts to Roth IRAs. Because the rollovers are taxed but withdrawals from Roth IRAs are not, that provision looked like an offset in the ten-year window, but actually would lose revenue over time.
- Deferred spending: As the name suggests, deferred spending pushes off spending into the future. This can be done in a gimmicky way--pushing payments scheduled for the last day of the current fiscal year into the first day of the next fiscal year--or in an intentional way--for example, by putting off maintenance of roads even though it could lead to greater liabilities later.
- Foregone investment: Foregone investment is gimmickry that reduces spending now but reduces revenue later. The IMF states that government making concessions to private companies to construct, for example, roads would incur fewer liabilities in the construction process but would likely lose out on some of the future tolls due to the concessions.
- Disappearing government: This trick involves shifting liabilities to public entities that are not counted as part of the government or to lower levels of government. In the US, the most obvious example of disappearing government is Fannie Mae and Freddie Mac prior to 2008. Although they were widely viewed as being backed by the government, their operations were not counted in the federal budget. In Greece, many publicly-owned entities were kept off-budget to hide the true size of the country's debt. Other European countries have kept entities that were created in response to the financial crisis off their balance sheets.
These types of gimmicks are especially present in countries that have to meet fiscal targets but don't have the ability to get there through straight-forward fiscal policy, but we also see them frequently in the federal government even though no tight fiscal regime is present. Worry not, though, because The Bottom Line will be watching out for these gimmicks from the President, the Congress, and the campaign trail. Stay tuned as we continue to call them out.
Via Wonkblog, Sarah Kliff reports on an initiative by nine medical specialty groups to identify procedures that they find to be either unnecessary or unlikely to improve patient outcomes. The initiative, called "Choosing Wisely" tasked these nine groups to come up with five procedures each, for a total of 45 (the list is here).
As health care costs throughout the system have continued to rise, there has been greater emphasis placed on figuring out what is effective treatment and what is unnecessary, wasteful, or perhaps even harmful to the patient. Choosing Wisely is a start in that effort and is doing its best (along with other groups) to push these guidelines out into the public and to get doctors to pay attention.
The debate is an important one to be having, and one that could be helped by policy changes. For example, pushing forward on payment reforms that shift away from fee-for-service will have doctors thinking more carefully about the benefits relative to the costs of different procedures. On the other side, Medicare cost-sharing could be changed to better reflect the value of different services and to discourage wasteful medical spending.
There are many changes we can make to federal health care programs themselves in order to hold down their growth. At the same time, though, we should be pursuing reforms that will bring down costs in the whole system by squeezing out the inefficiencies that currently exist.
Following up on a project they did last year, the White House has released its 2011 Federal Taxpayer Receipt. This tool allows you to put in how much you paid in Social Security, Medicare, and income taxes last year and see how much of your tax dollars went to various areas of the budget. You can see how much of your money pays for defense, health care, income security, veterans benefits, international affairs, and, yes, also interest on the debt.
Here is a sample receipt from a single taxpayer with no children who makes $25,000 (one of the generic income estimates available).
Note that you can also expand the general categories to see subcategories, like Medicaid and CHIP spending under health care.
As we said about last year's receipt, this tool is a great way to reach out to the public on the debt issue and make it more real than numbers like debt as a percent of GDP in 2022. It can also give people a much better idea of what federal spending is composed of, or to put it another way, where the big money is. It could also help to dispel budget myths about small ways in which we we could solve the problem.
Try the receipt yourself here.
With a number of budget resolutions coming out, honest budgeting might be too much to ask for. As we took a look at the Republican (Ryan) and Democratic (Van Hollen) budgets, in fact, we found a number of gimmicks. Some of the major ones include:
- Doc Fix Gimmick: The House Republican budget creates what is known as a "deficit-neutral reserve fund" for the doc fix. Essentially, this is budget resolution-speak for having placeholder savings to offset the cost of the doc fix. This magic asterisk saves the budget from $271 billion of additional cost over ten years. There is no hint as to where these savings might come from, nor does the budget count the costs of enacting a doc fix. Although the House Democratic budget does include the cost of the doc fix in their numbers, they claim to pay for it with war savings, which brings us to our next gimmick described below.
- War Spending Gimmick: In the past, we've criticized the use of the "war gimmick," where policy makers take savings from a war drawdown already in place and use it to pay for new priorities. When the President's budget did this, CRFB President Maya MacGuineas reacted by saying:
Drawing down spending on wars that were already set to wind down and that were deficit financed in the first place should not be considered savings. When you finish college, you don’t suddenly have thousands of dollars a year to spend elsewhere – in fact, you have to find a way to pay back your loans.
The House Democratic budget goes further than this. It eliminates war spending after 2014--whereas the President spends $44 billion per year beginning in 2014--even as it claims to reflect the President's policies. This means that either they support paying for the war out of the regular budget -- which is a responsible policy if true but means they are proposing $350 billion of spending cuts without admitting so or including a plan to achieve them -- or else they are reverting to a Bush-era practice of failing to budget for war spending which they fully expect will occur.
- Sequester Gimmick: The Republican budget claims to replace the sequester with savings from reconciliation instructions to committees. As they claim, "There is bipartisan agreement on the devastation to America’s national security that would result if these deep cuts go into effect...this budget reprioritizes sequester savings." As we've explained, this statement is true for FY 2013: the budget replaces most of the sequester in that year with spending cuts required from other Congressional committees. However, the budget does nothing to address the sequester after 2013; instead, the budget keeps it in place and counts it toward their low debt numbers. As we've explained:
On the mandatory side, the sequester is allowed to cut spending across-the-board to various programs. On the discretionary side, the budget retains the overall levels of the sequester but keeps them classified as "allowances" -- which is budget speak for unspecified savings. In this way, it allows the apparent defense numbers to substantially exceed sequester levels (and BCA levels as well), while counting all of the sequester savings on the non-defense side.
If you remove the sequester entirely, it would add $900 billion of additional spending through 2022.
Getting our debt under control will require honest budgeting. In the meantime, we'll keep calling out gimmicks as we see them.
The USA Today has joined us in the praise of the 38 Congressmen that had the courage to support the Cooper-LaTourette budget last week. With an editorial today, they commended those who supported the only bipartisan budget resolution under consideration last week. While the plan may not be either party's ideal solution, the USA Today argued that a bill similar to Bowles-Simpson was the only realistic opportunity to stabilize the debt. A mix of tax increases and spending cuts would be necessary for a fiscally responsible and Congressionally passable plan.
After expressing dismay with the partisanship surrounding the annual budget debate in Congress, USA Today noted that there was one ray of hope:
There aren't many heroes in this soul-destroying process, but we found a tiny band of 38 — the 22 Democrats and 16 Republicans who voted for a bipartisan alternative budget based on the proposal from 's fiscal commission in 2010. The budget proposed by Reps. Jim Cooper, D-Tenn., and Steven LaTourette, R-Ohio, backed a combination of the tax increases most Republicans won't vote for and the cuts in entitlement programs such as Social Security that most Democrats won't support.
In the end, the editorial argued that partisan and interest group politics won out:
Cooper and LaTourette both say about 100 members said they'd be with them, but then conservative and liberal organizations — groups LaTourette colorfully called "bloodsuckers" — began an unusually aggressive effort to pressure Republicans and Democrats to vote no. By the final 382-38 vote, two-thirds of Cooper's and LaTourette's allies had slunk away. Some came around afterward to sheepishly apologize. One member, says Cooper, told him that if he hadn't voted no, his favorite lobbyist would have been fired.
The USA Today felt that the time for partisan posturing was over, and that it was time to see some leadership on this issue from Members of Congress.
The belief that this fall's election will clarify voter sentiment and make the job easier is naive. Voters almost always send mixed messages. The job of representatives in a democracy is to govern, which requires compromise. The fact that only 38 members of the House did so is shameful.
This is just one of the many editorials to praise Cooper-LaTourette. Newspapers and other publications across the country have been shaking their head about how the vote played out. They all hope for a revival of bipartisanship in Congress so something can be done on the fiscal front. We hope messages like these will show Congress that we cannot use party rhetoric to put off solving our fiscal problems any longer.
Richard Haass, the President of the Council on Foreign Relations, argues that the biggest threat to U.S. national security might not be a continent away, but right here in Washington. In an interview with the Daily Ticker, Haass said that domestic issues, including the failure to address rising federal debt, might hinder our international standing in the future. Specifically, he said:
What we do to improve our schools, our infrastructure, what we do to reduce the budget deficit…this is going to be critical in years and decades ahead. The most important national security question for the coming year is actually the domestic set of issues that involves the economy.
He declared that these issues, if left unsolved, are part of what makes the U.S. vulnerable to external shocks and other events from foreign governments or economies. Addressing the debt would eliminate one of these vulnerabilities and would give the country fiscal breathing room to address other domestic issues.
Haass identified entitlement reform as an issue he thought would become central after the 2012 election, regardless of who wins the presidency. Still, he said that while both sides have deficit reduction plans out there (which you can compare to one another here), we were past the point of simply having proposals. Bipartisanship is what's needed going forward.
Haass's comments somewhat echo the prominent statement by then-Chairman of the Joint Chiefs of Staff Admiral Mike Mullen, who said almost two years ago that excessive debt would hurt the nation's ability to prioritize resources. Admiral Mullen said specifically that defense needed to be on the table to force the Pentagon to look at what they wanted and didn't want to do, something that hadn't happened in a decade of increased budgets. Still, like Haass, he recognized that a deficit reduction plan (even if it involved defense) was better than subjecting the nation to the vulnerability that is associated with very high debt.
Certainly, economic vulnerability related to high public debt can be seen across the Atlantic. We're not at the point of those troubled European countries yet, but continued inaction will open up the nation to unnecessary risks, both economically and potentially geopolitically.