October 2012

Saving For a Rainy Day

As the East Coast and other communities affected by superstorm Sandy begin the work of rebuilding and assisting those who need help, the CRFB and Fix the Debt teams are keeping everyone in our thoughts. Just as there are preparedness lessons we can learn from Sandy, there are very important takeways for the federal budget too.

The storm can remind us that country's need the resources to be able to step in and respond to unpredictable disasters like hurricanes, tornadoes, or deep recessions. But of course, it isn't easy to predict these events, whick makes it very difficult to budget for. In order to maintain the ability of our country to respond to unpredictable events in the future -- be it a natural, international, or economic crisis -- we must have the budget flexibility and healthy levels of debt.

The breathing room to respond to crises before debt levels become suffocating is known as fiscal space, and it has been an important factor in allowing us to avoid making deep and abrupt spending cuts or tax increases to assuage our creditors during the recent downturn. Other countries did not have a sufficient buffer.

However, as a result of the economic downturn, the aging of the population, rising health care costs, and unsustainable policies enacted in the past, our fiscal space won't be what it once used to be. We previously discussed a study based on IMF data showing that the U.S. has a comparatively low level of fiscal space relative to other countries. The study looked at the projected debt to GDP path of the U.S. and compared it to the IMF's estimate of the point at which it would be impossible to get debt back under control without default. According to the study, we have similar levels of fiscal space to countries like Greece and Ireland, who have had debt troubles in the aftermath of the Great Recession and have been unable to respond with fiscal expansion. Reasonable people can disagree as to what the exact number level of debt will prompt a crisis, but it is clear that our current fiscal path would bring us to ever-increasing debt levels and an eventual debt crisis.

When disaster does strike, we need resources to deal with the damages that do occur. Having fiscal space can allow us to properly and adequately deal with rare and unpredictable events. In order to have that space we need to put the debt on a stable and downward path as a share of the economy. It's always better to prepare in advance and not wait until a crisis forces action.

Debt Ceiling Watch 2012

In order to avoid bumping up against the statutory debt ceiling, the Department of the Treasury has begun undertaking a number of so-called "extraordinary measures".

Keep checking back as we update this table (and click here for last year's Debt Ceiling Watch of 2011).

 

Date Extraordinary Measure Headroom Given

Debt (Gross / Subject to Limit)

10/31/2012

Treasury Re-affirms Debt Limit to last to early 2013

Today, the Treasury Department re-affirmed that the Debt Ceiling, currently $16.4 trillion, will last until early 2013. Treasury will once again use extraordinary measures to prevent a breach of the limit. The debt ceiling and the fiscal cliff are thus expected to occur near one another. Read more here

  $16,198,994/ $16,159,952
5/17/2012

Current Debt Limit said to last to early 2013

Today, Secretary Geithner said that the current $16.4 trillion debt ceiling will be sustainable until sometime in early 2013. The ceiling is expected to be hit sometime after the November elections and before the end of 2012, but due to extraordinary measures, such as the ones taken last summer, the ceiling would not be hit until early 2013. Read more here

  $15,712,823/ $15,670,365
01/27/12

Debt Ceiling Increases by $1.2 Trillion

Today, the Debt Ceiling was increased to $16.4 trillion because the Congress failed to pass into law a measure to prevent the increase requested by President Obama earlier this month. This is a $1.2 trillion increase. The Treasury Department estimates that this latest increase will be sufficient until the end of 2012. Read more here.

  $15,193,975/ $15,236,223
01/26/12

Senate fails to Block Debt Ceiling Increase 

Today, the Senate voted 52-44 to prevent a vote on blocking the debt ceiling increase. This comes after last weeks House vote where the House did vote to prevent the increase in the debt ceiling by $1.2 trillion as requested by President Obama. Because the Senate failed to block it, the debt ceiling will increase to $16.4 trillion at the close of business on January 27th. Read more here. 

  $15,193,975/ $15,236,232
01/18/12

House Votes to Block Debt Ceiling Increase

Today, the House of Representatives voted 239-176 to block a $1.2 trillion debt ceiling increase requested by President Obama, pursuant to the Budget Control Act. This is largely a symbolic vote because it is unlikely that the Senate would also vote to block the increase and the president can veto the measure if it does. The debt ceiling is scheduled to increase to $16.4 trillion at the close of business on January 27th. Read more here. 

  $15,236,279/ $15,193,975
01/17/12

Suspension of New G-Fund Securities

Today, the Treasury Department stopped issuing new securities for the retirement savings program for federal and postal workers, commonly known as the G-Fund.

Measures like this have been used in 1996, 2002, 2003, 2004, 2006 and 2011. Read more here.

Unknown $15,236,288/ $15,193,975
01/12/12

President Obama Requests $1.2 trillion Increase

Today, President Obama formally requested that the debt ceiling be raised by an additional $1.2 trillion. This is the legal limit set in the Budget Control Act that the president can ask for because the Super Committee did not find more than $1.2 trillion in savings. If the Super Committee had found more than $1.2 trillion, the maximum ask would have equaled that amount, up to $1.5 trillion. If the Congress does not disapprove this increase, which it has 15 days to do, the new ceiling would be $16.4 trillion. Read more here.

$0 Billion $15,236,332/ $15,193,976
01/04/12

Debt Ceiling Reached and Suspension of Reinvestment of Exchange Stabilization Fund 

Today, the Treasury Department has announced that it has reached the statutory debt ceiling. Additionally, in order to prevent breaching the ceiling, Treasury  suspended reinvestment of funds into the Exchange Stabilization Fund, an extraordinary measure.

Measures like this have been used in 1996, 2000, 2003, 2004, 2006 and in 2011. Read more here.

Unknown $15,236,542/ $15,193,975

 

MY VIEW: Gene Steuerle

Urban Institute Fellow and CRFB Board Member Gene Steuerle points out the great confusion in the recent Medicare debate. Both President Obama and Governor Romney are accusing each other of seeking to cut Medicare to the great loss for seniors.

However, if both candidates are going to be fiscally responsible as they have promised, then health care spending, especially spending in Medicare, must be constrained. Both should and do seek to cut Medicare, but the disagreement is how to do it to minimize the pain. Steuerle writes:

Both presidential candidates claim to save money on Medicare without cutting benefits.  President Obama says his reforms “will save Medicare money by getting rid of wasteful spending…that won’t touch your guaranteed Medicare benefits. Not by a single dime.” Meanwhile, Governor Romney promises that his “premium support” plan will save money while still providing “coverage and service at least as good as what today’s seniors receive.”

But politicians aren’t the only ones dispensing that free-lunch rhetoric. Even highly respected journalists and researchers get pulled into it.

Consider two New York Times stories. After the first presidential debate, Michael Cooper, Jackie Calmes, Annie Lowrey, Robert Pear and John M. Broder said that President Obama “DID NOT CUT BENEFITS by $716 billion over 10 years as part of his 2010 health care law; rather, he reduced Medicare reimbursements to health care providers.” A few days later, David Brooks cited an AMA study of a premium support plan put forward by vice presidential candidate Paul Ryan and Democratic Senator Ron Wyden, saying that “costs might have come down by around 9 percent with NO REDUCTION IN BENEFITS” [cap emphases mine].

Can you see what is going on? Politicians, reporters, and experts all recognize that cost growth must be brought under control. But they also want to suggest that benefits won’t be reduced—if only we go with a particular approach.

Steuerle argues that there is no magic bullet. There are many ways to make health care spending more efficient, but if were are going to contain costs we are also going to have to make some tough choices.

Ferreting out the truth in this Medicare debate also requires looking beyond health care. Benefit losses in health care must be contrasted with benefit gains elsewhere. Yet even health care will likely be much worse if we continue to borrow hundreds of billions of dollars more from unfriendly nations and let excessive debt inhibit economic growth.

Bottom line: both parties favor cutting Medicare benefits, or, more accurately, slowing down the rate of benefit growth. The issue isn’t whether but how this can best be done.

The full article can be found here.

"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.

Why It Is Important to "Go Smart" on Deficit Reduction

Some commentators have pointed out that the fiscal cliff itself is a large deficit reduction package, one that would put the debt on a downward path as a share of GDP. But just because the cliff would reduce the deficit does not mean that it is good fiscal policy. Going over the cliff would also likely send the U.S. into another recession, seeing how the cliff would be among the largest single years of deficit reduction in the past 75 years. When compared with a comprehensive plan that would gradually put debt on a downward path, it is very frontloaded and often across-the-board in nature, eschewing the kind of targeted changes that a fiscal plan would make.

The CBO has previously estimated that the economy will contract by 2.9 percent in the first two quarters of 2013, but recent multiplier estimates from the IMF suggest that the contraction could be even greater. The IMF finds much larger fiscal multipliers for economies with interest rates that have reached the zero lower bound (as the currently the case for the U.S.), implying that the combined sudden tax increases and spending cuts could have a much larger impact on the economy than CBO's estimate anticipates.

Economist Barry Eichengreen tells The New York Times that it might be more realistic to double the CBO's 0.5 percent negative contraction projected for next year. Eichengreen argues that a large fiscal contraction could create more damage than normal because the economy is still weak, and the Federal Reserve is unlikely to be able to fully offset the cliff's economic impact. Countries that have been successful in substantial reducing their debt have strategically timed their deficit reduction with otherwise favorable economic conditions to minimize the damage.

As this chart from Tim Fernholz at Quartz shows, the fiscal cliff is quite large compared to other austerity measures--far greater than what was done by the U.K., and only slightly less than what Greece was forced to do a few years ago. As long as lawmaker's plans to reduce the debt are credible, they can backload the deficit reduction while giving confidence to the public and credit markets. The near-term pain caused by the fiscal cliff is not needed to make the budget sustainable over the long term.

This is why comprehensive plans like Simpson-Bowles and Domenici-Rivlin gradually phased in cuts, delaying much of the deficit reduction until when the economy has had more time to recover. Simpson-Bowles specifically put off cuts for a year and phased them in very gradually beyond that--and even then, most of the cuts that took place upfront were discretionary spending cuts which have already taken place. Domenici-Rivlin even included some additional stimulus in the form of a full payroll tax holiday. We have pointed out before that going big on longer-term deficit reduction allows room for short-term stimulus measures or at least slowly phased-in cuts.

We need to address our unsustainable deficits and we cannot wait to come up with a plan to do it. Repealing the sequester and extending the Bush tax cuts would almost assure the U.S. of another credit downgrade and leave us with an increasingly bigger problem. However the sudden cuts under the fiscal cliff are not an effective way to deal with the debt. If we enact a comprehensive plan, we can both put debt on a downward path and protect the economy as it recovers.

Line Items: Frankenstorm Edition

Storm Brewing – The Northeastern U.S. is being impacted by the freak concurrence of several major storms that has caused major population centers like Washington and New York to effectively shut down. The economic impact from the so-called “Frankenstorm” is expected to be substantial. Not far off is another tempest that is brewing that also represents numerous events coming together. However, unlike the current storm, the fiscal cliff at the end of the year is the result of the forces of nature in Washington – gridlock, partisanship, dysfunction – not Mother Nature. This storm has been forecast a long ways out and can be prevented, yet many policymakers have refused to take the necessary steps. Without action, the economic impact of the fiscal cliff could far outpace that of the Frankenstorm. Will we avert this coming gale or will we take our chances with a storm surge of red ink?

Cliff Barrels Towards Us – Like a slow-moving hurricane that is building strength off the coast, the fiscal cliff is coming. The abrupt tax increases and across-the-board spending cuts could also be joined with the statutory debt ceiling being reached again and the need for another increase. Investors indicate that the fiscal cliff is their primary concern and suggest they may be open to higher taxes to avoid it. Some observers are claiming that the effects of the fiscal cliff are already being felt through slower growth and fewer jobs and some economists fear the cliff will be even worse than forecast.

Sandbags Slowly Being Filled – While there is not exactly a blizzard of activity so far to avoid the fiscal cliff, there are some signs of action. Reuters reports on congressional aides working on a $55 billion down payment to replace the fiscal cliff to buy more time to find further savings. President Obama says a reelection victory will be a mandate to pursue a grand bargain with Congress and that he is confident he could reach it within the first half of 2013. And some Republicans reportedly are considering tax options to raise revenue in order to facilitate a deal that avoids the cliff. The presidential candidates must be listening as the fiscal situation received some attention in the last debate.

Warnings Issued Left and Right – Alarms are being raised from multiple sources regarding the fiscal cliff. Business leaders are coming together to call for action now. Lawmakers are also getting pressure from their former colleagues. Former senators Sam Nunn (D-GA) and Pete Domenici (R-NM) called for a comprehensive debt reduction plan to replace the fiscal cliff in an op-ed. The fiscal cliff is also on voters’ radar as a recent poll by CenterForward indicates that many voters are aware of the cliff and are concerned about it while a Bankrupting America poll shows that Americans believe that the national debt personally affects them.

 

Key Upcoming Dates (all times are ET)

November 2

  • Unemployment statistics for the month of October released

November 6

  • Election Day

November 13

  • House and Senate due to convene for lame duck session

November 15

  • Consumer Price Index for October released

November 29

  • Second estimate of Third Quarter GDP figures released

December 7

  • Unemployment statistics for the month of November released

December 14

  • Consumer Price Index for November released

December 20

  • Third estimate of Third Quarter GDP figures released

January 1, 2013

  • The “fiscal cliff” occurs, including the expiration of the 2001/2003/2010 tax cuts and across the board spending cuts the following day

 

Tax Reform is Very Hard

Recently, we released an analysis demonstrating that it is indeed possible to substantially reduce tax rates while still cutting the deficit. Despite some claims that repealing all tax expenditures could reduce the top rate to only 38% (or by only 4 percent), we showed that doing so would allow the top rate to fall to 23 percent while still allowing for over $1 trillion in deficit reduction. We also pointed to three bipartisan tax plans -- the Simpson-Bowles illustrative plan, the Domenici-Rivlin tax plan, and the 2005 Tax Panel -- which reduced the top rate to 30% or lower while maintaining some support for housing, charitable giving, and savings as well as low-income protections.

On Friday, the Center for Budget and Policy Prorities released its own report arguing that we were somewhat optimistic about how low the rate could get. Though CBPP did not disagree with our findings or dispute our math*, they argued that just because rate-reducing tax reform is technically possible doesn't mean it is politically possible. As they write:

As policymakers assess the import of these analyses, we encourage them to be sure to include one important ingredient: a healthy dose of political reality. A finding that it is technically possible to achieve sufficient tax-expenditure savings to pay for sizeable reductions in tax rates is not the same thing as such a course being politically viable. Policymakers should avoid committing to a specific, lower top income tax rate until they know what measures to shrink tax expenditures Congress can actually pass and how much savings those measures will produce. Otherwise, the most critical goal of tax reform at this time — producing a significant contribution to deficit reduction (while maintaining or improving the progressivity of the tax code) — will likely be lost.

CBPP's analysis is certainly worth a read, as it provides important details on something we've been saying for quite some time: tax reform is really hard. To both reduce deficits and marginal tax rates, policymakers will have to make a number of very tough choices -- including repealing or reforming tax preferences which may have important purposes and certainly have strong political constituencies. Substantial rate reduction may also require going after some tax expenditures which may be administratively tough to eliminate, in some cases adding to the compliance burden of the tax code (while reducing it in other ways).

Yet while fundamental tax reform is quite hard, its potential benefits are large enough that we believe it is at least worth pursuing. Done right, tax reform could improve incentives to work and invest, reduce allocative distortions, increase progressivity, make the tax code fairer and simpler, and raise revenue to help reduce the deficit. By leading to faster overall economic growth, such a reform could be an important part of a "go smart" strategy to reduce the deficit.

To be sure, achieving all the goals above will be incredibly difficult. But that isn't a reason for policymakers not to try and achieve comprehensive and sweeping tax reform. Even tax reform which falls short of the ideal could still be a substantial improvement over the current tax code or over a code which raises new revenue from rate increases alone.

CBPP makes a very good point that rate reduction should not come before deficit reduction and that politicians should not lock themselves into more rate reduction than what they are willing to finance (including the costs of reducing the deficit). The benefits of tax reform, important as they are, would be more than offset by the economic cost of failing to deal with our mounting debt.

Policymakers must not lose sight of the need to reduce the deficit, so it must be the priority when it comes to taxes. But ideally, they would also make the hard choices necessary to reform the corporate and individual tax codes and make them more efficient.

You can find our analysis JCT's tax experiment here.


*CBPP does warn that our revenue estimate from repealing the exclusion for employer provided health insurance may be too high if we do not take into account the increased costs to Medicaid and the exchange subsidies from people moving out of employer coverage. In fact, we do attempt to account for this cost by very roughly assuming that the net savings from repealing the exclusion will only be 75% of what it would be absent the existence of the Affordable Care Act.

Could We Go Bungee Jumping Off the Fiscal Cliff?

It is a point of consensus among those following the budget that the fiscal cliff would likely be very damaging for the economy in the short term, likely pushing it into a recession. However, there is less agreement on how quickly the cliff would hurt the economy. 

For example, the Center on Budget and Policy Priorities has argued that the cliff is more like a fiscal slope, where economic damage takes time to accumulate (in other words, we don't find ourselves suddenly in a recession in early January). There is good reason to think that this may be the case. The Treasury Department could keep income tax withholding the same as last year, so the effects of the income tax increases could be put off until taxpayers file their 2013 returns. Furthermore, the sequester would hit spending accounts' budget authority--essentially, their credit cards--so it would take some time before it started affecting the money actually going out the door. Plus, individual projects might not be affected until the accounts run up against their tighter budgetary constraints.

Thus, it is suggested that going over the cliff briefly may focus lawmakers' minds to make a deal before much harm could be done economically. The question is, how long do we have before the country starts to feel the pain or before we slip back into a recession?

In a recent Wonkblog post, Suzy Khimm interviews a few analysts on what they think would happen in the very short term. Mark Zandi states that if a deal could be done within a few weeks after the new year begins, there would be little impact on the economy. After that, he says:

If by early February there isn’t a deal, the first quarter will likely be negative, and if there is no deal by mid-March, when the Treasury is no longer able to navigate around the debt ceiling, then the economy will descend back into recession.

Even if serious damage might not happen for a month or two, Michael Hanson of Bank of America Merrill Lynch Global Research is skeptical that a deal in January would be attainable. According to Khimm:

If we go over the cliff, “I’m not sure how you get anything done until after the inauguration,” said Michael Hanson, chief U.S. economist for Bank of America Merrill Lynch Global Research, predicting that it would take until “late February or early March” to reach a resolution.

And by that point, significant damage would be done. ”It’s a messy process that could still damage the economy. It definitely increases the chance of having one quarter if not two of negative growth,” Hanson said. “There would be a sharp sell-off in the equity market, in business and consumer confidence.”

Indeed, we may already be seeing the effects of the cliff hitting the economy. Although growth in the third quarter has been initially reported as stronger than the second quarter, it was mostly buoyed by consumers who so far have been unconcerned about the cliff. Businesses have said they have been holding back hiring due to the uncertainty, and consumer sentiment can certainly change, especially if we actually go over the cliff.

Going over the cliff briefly is a risky strategy, but it may be necessary if the only alternative turns out to be extending everything instead of coming to agreement at the end of the year or briefly extending the cliff to buy time for an agreement next year. Having a deficit reduction plan would be ideal, but bungee jumping off the cliff would be preferable to adding trillions to the debt.

Medicaid Spending Growth At "Near-Record Low" for FY 2012

Though it seems we are far away from reaching a comprehensive debt deal, we can, at least for the moment, breathe a little sigh of relief.  A recent report from the Kaiser Commission on Medicaid and the Uninsured (KCMU) reveals that Medicaid spending has slowed to a "near-record low" growth for FY 2012.  This slow rate of spending growth for the program is anticipated to continue for FY 2013.

In analyzing the report, a Wall Street Journal piece states that the slowdown in Medicaid spending is "good news" for the federal budget.  Nevertheless, the article also portends disastrous consequences for healthcare in future, since physician payment cuts accounted partly for the slow growth in Medicaid spending, which were influenced by the wind down of stimulus spending. According to the article:

The Kaiser Family Foundation surveyed all states on their Medicaid spending this year. The biggest takeaway might surprise you: Medicaid spending hit a “near-record low” in 2012, with similar trends expected in 2013.

That’s good news for the federal budget. The entitlement program is growing more slowly than we expected at the start of this fiscal year. At the same time, that could be bad news for the program. Some of the spending slowdown has to do with states reducing how much they pay doctors, which could make providers less likely to accept new patients.

Therefore, this positive development can only be a first step in reducing Medicaid spending--and health care spending more broadly--as a lot more work still needs to be done in attaining more sustainable and comprehensive cost containment measures. It also serves as a lesson that simply reducing provider payments cannot be the sole solution. Delivery system reforms and changes to benefits must also be in the mix if we want to keep health care spending under control.

Read the Kaiser report here and the WSJ article here.

Campaign to Fix the Debt at the New York Stock Exchange

Today, our own CRFB President Maya MacGuineas, rang the Opening Bell at the New York Stock Exchange (NYSE) to convene trading for the day, joined by CEOs supporting the Fix the Debt Campaign. With the fiscal cliff on the horizon, business leaders have plenty of reasons to be concerned about this year, and much more down the road if our unsustainable debt is not dealt with soon.

The debt crisis is not just a Washington issue; it is a Wall Street and Main Street issue too. MacGuineas explained: "One of the reasons you're seeing business leaders step into this is because they understand that this isn't a partisan issue. This is a problem that's well known and we need to come together to fix it." 

MacGuineas was joined at the podium by: 

  • Thomas Quinlan, CEO and President, R.R. Donnelley & Sons Company
  • David Cote, Chairman and CEO, Honeywell
  • George Paz, Chairman and CEO, Express Holding Company
  • Nicolas Calio, CEO and President, Airlines for America
  • Paul Stebbins, Chairman and CEO, World Fuel Services Corporation 
  • Daniel Glaser, Group President and COO, Marsh & McLennan Companies
  • Former Senator Judd Gregg, Co-Chair of the Campaign to Fix the Debt
  • Steven Rattner, lead auto advisor in the United States Treasury Department under President Barack Obama, and Steering Committee member for the Campaign to Fix the Debt
  • Rob Foregger, Co-Founder, Citizens Petition to Fix the Debt

Video of the Opening Bell can be viewed below:

President Obama Comments on the Possibility of a Grand Bargain

In an initially off-the-record interview with the Des Moines Register, President Obama outlined his vision for his second term. As you would expect, this touched on how discussed how he would address the fiscal cliff, and the budget more broadly, in the next few months and into next year, should he win reelection. Here are his comments:

In the short term, the good news is that there’s going to be a forcing mechanism to deal with what is the central ideological argument in Washington right now, and that is: How much government do we have and how do we pay for it?

So when you combine the Bush tax cuts expiring, the sequester in place, the commitment of both myself and my opponent -- at least Governor Romney claims that he wants to reduce the deficit -- but we’re going to be in a position where I believe in the first six months we are going to solve that big piece of business.

It will probably be messy. It won’t be pleasant. But I am absolutely confident that we can get what is the equivalent of the grand bargain that essentially I’ve been offering to the Republicans for a very long time, which is $2.50 worth of cuts for every dollar in spending, and work to reduce the costs of our health care programs.

And we can easily meet -- “easily” is the wrong word -- we can credibly meet the target that the Bowles-Simpson Commission established of $4 trillion in deficit reduction, and even more in the out-years, and we can stabilize our deficit-to-GDP ratio in a way that is really going to be a good foundation for long-term growth. Now, once we get that done, that takes a huge piece of business off the table.

He then laid out his preferred way to stabilize the debt:

Number four, I want to reduce our deficit. It’s got to be done in a balanced way. I’ve already cut a trillion dollars’ worth of spending. I’m willing to do more. I’m willing to cut more, and I’m willing to work with Democrats and Republicans when it comes to making some adjustments that bring down the cost of our health care programs, which obviously are the biggest drivers of our deficit.

But nobody who looks at the numbers thinks it’s realistic for us to actually reduce our deficit in a serious way without also having some revenue. And we’ve identified tax rates going up to the Clinton rates for income above $250,000; making some adjustments in terms of the corporate tax side that could actually bring down the corporate tax overall, but broaden the base and close some loopholes. That would be good for our economy, and it would be good for reducing our deficit.

It's good to hear the President speak of the need for a comprehensive deal to replace the fiscal cliff. We can only hope lawmakers won't succumb to the temptation of simply putting off deficit reduction indefinitely. Compromise between the two parties will be critical in enacting a comprehensive plan.

Medicaid Physician Payments Add to Year-End Uncertainty

When we talk about policy uncertainty these days, most of the time we are referring to the fiscal cliff. However, several other policies remain in uncertain situations and await Congressional action, among them the increased payments to Medicaid providers that were enacted in the Affordable Care Act.

Currently, doctors are paid nearly 30 percent more by Medicare on average than by Medicaid, although this varies state by state (a few states, in fact, have higher Medicaid payments than those for Medicare). To encourage physicians to treat the newly-eligible Medicaid expansion population under the ACA, Medicaid physicians will be reimbursed at the same rates as Medicare in 2013 and 2014 – at an estimated cost of $11 billion. Many of the details, including what the Medicaid rates are, have not been worked out yet. This uncertainty makes it more difficult to lure physicians into providing care for Medicaid enrollees as intended.

One technical challenge is that Medicare has not yet published its rates for 2013. Medicare physician payments are set to be cut by 27 percent under the sustainable growth rate (SGR) formula. This so-called "doc fix" for Medicare physician payments – legislation that rolls back this cut – could affect Medicaid rates as well. However, Congress has a history of waiting until the eleventh hour to prevent these cuts from taking place.

Another element of uncertainty is the temporary nature of the Medicaid provider payment increase. If continued, higher fees might encourage doctors to join the program, but its effectiveness might be limited because these higher payments are only guaranteed for two years. These Medicaid physician payments may therefore become another "doc fix" issue. Previously, we estimated that making this provision permanent would cost an additional $45 billion through 2022. This new doc fix would be in addition to many other temporary policies in the budget that are routinely extended.

We have written about temporary budget policies before. Ideally, Congress would review the temporary measures periodically and either make them permanent or eliminate them. While temporary policies serve an important purpose by allowing lawmakers to gauge their effectiveness, they are often extended indiscriminately. As a result, we now have too many provisions for Congress to take the time to thoroughly examine, often leading to last-minute blanket extensions with little review. If these extensions are financed with deficit spending, the result is even more detrimental to our long term fiscal problems.

Many of these temporary measures should be addressed in a comprehensive debt reduction plan. By reviewing expiring tax and spending provisions and deciding whether they should be made permanent – instead of the status quo of politically-fraught extender packages – the budget that would be more efficient and easier to project into the future.

CRFB President Maya MacGuineas One of "25 Women to Watch"

Today, The Hill released its list of the "25 Women to Watch," featuring rising stars in the political world, including Sen. Kelly Ayotte (R-NH), Massachusetts Senate candidate Elizabeth Warren, and our very own CRFB President Maya MacGuineas. Over the last few years, MacGuineas has gained greater prominence as the debt issue has taken on greater priority in Washington.  The piece highlights the great work and leadership she has contributed to the issue of deficit reduction. Here is what they had to say:

In Washington you’re hot when your issue is hot, and with the budget deficit skyrocketing to the top of the national conversation, Maya MacGuineas is on fire.

MacGuineas, 44, the president of the Committee for a Responsible Federal Budget, has spent her entire career on the deficit. These days she’s become a go-to analyst for information about the budget plans of President Obama and Mitt Romney....

Leading the charge to make sure Congress cuts a big, long-term deal to replace automatic spending cuts and tax increases in January, MacGuineas is playing both inside and outside games. She is working with the secretive Senate “Gang of Eight” on a plan, and is also helping coordinate the Campaign to Fix the Debt coalition to promote the deficit as an issue in congressional races.

Known as much for her optimism as for her role as an honest judge of fiscal plans, MacGuineas is hopeful Congress can avoid the fiscal cliff and tame the debt.

We congratulate MacGuineas on her feature in The Hill, and we hope that her work will pay off!

The full piece can be found here.