The Bottom Line

April 22, 2015

At the end of May, lawmakers will have to reauthorize surface transportation spending, and by the summer, they will need to have a solution to address the Highway Trust Fund's impending insolvency. Hopefully, they will use an enduring and, more importantly, fiscally responsible solution in contrast to the irresponsible physician payment legislation.

Fortunately, last week a bipartisan group of House members led by Reps. Jim Renacci (R-OH), Bill Pascrell (D-NJ), Reid Ribble (R-WI), and Dan Lipinski (D-IL) introduced the Bridge to Sustainable Infrastructure Act, which would use fuel tax increases as an enforcement mechanism to force Congress to find a permanent solution to the HTF's financing issue. The HTF faces a $168 billion shortfall through 2025, and there are many possible ways to close that shortfall, as we detailed last year.

The bill would start by indexing fuel taxes dedicated to the HTF to inflation, a policy the sponsors estimate would generate $27.5 billion of revenue over ten years. On its own, this policy would not buy much time, since it would only raise a few billion dollars per year while the FY 2016 shortfall alone is $11 billion. Instead, the bill would use the revenue as an offset for what is essentially a loan from the general fund of $16 billion, closing the FY 2016 shortfall and leaving the $5 billion cushion the Department of Transportation says is necessary to avoid disruptions in HTF operations. To avoid a double-counting issue -- the fuel taxes couldn't offset a general revenue transfer on their own since both would go into the HTF -- the HTF would repay the general fund the $16 billion over a period of time.

April 21, 2015

We published a paper with our partners at Fix the Debt last week to help answer questions about the budget conference committee that met for the first time yesterday. The paper answers many common questions about a budget conference – from its goals and its timeline to the differences that the conferees need to settle –and tells us what we can expect when they agree to a concurrent resolution. Below are some of the highlights.

Click here to read the full paper.

What is a budget conference?

A budget conference is a process by which the House and Senate iron out the differences in the budget resolutions they each passed separately to arrive at a unified “concurrent budget resolution” that each chamber will then vote on whether to adopt. The leaders of each party and budget committee in both the Senate and House chose members to participate in the conference committee.

What is a concurrent budget resolution?

After both chambers agreed to their own budget resolutions that set spending and revenue levels over the coming years, they must pass a single agreed-upon concurrent resolution. Although the House and Senate both vote on a concurrent budget resolution, it is not signed by the President and thus does not carry the force of law; however, it can establish rules for Congress that make future laws easier or harder to enact. For more on the rules aspects in these budgets, see our paper Budget Process in the FY 2016 Budget Resolutions.

April 17, 2015

Earlier this week, CRFB analyzed a new plan from New Jersey Governor Chris Christie that, among other things, would close about 60 percent of the program's funding shortfall.

What we failed to mention is that our readers could analyze this and other plans themselves through CRFB's interactive Social Security Reformer tool. The Social Security Reformer allows users to simulate an existing plan or create their own. Although the Social Security Reformer does not have every permutation of every Social Security policy out there, it has enough capability to understand the broad financial impact of most Social Security plans, as well as the impact in each year.

Below, we take the Social Security Reformer for a test drive, showing how it can be used to analyze Governor Christie's plan as well as a plan from Senator Bernie Sanders (I-VT).

April 16, 2015

In an ode to former Sen. Tom Coburn (R-OK) and his work to shed light on government waste with the annual publication of his Wastebook, freshman Rep. Steve Russell (R-OK) published Waste Watch No. 1 last week. It is the first publication in a series that hopes to expose areas where Russell thinks money could be spent more wisely. This installment identifies wasteful spending over the last few years in just ten government projects.

In Rep. Russell's words:

The items listed in this report total over $117 million. For the most part, this money has already been wasted. However, each item points to larger, ongoing issues that merit further oversight, investigation, or action by Congress in order to protect taxpayer money. Due to my 21-year background in the Army, most of the articles relate to defense and foreign policy—but I intend to scrutinize all areas of the federal budget. I look forward to working with my colleagues in Congress to dig into these and other issues to identify ways to save taxpayer money.

April 16, 2015

With the House and Senate preparing to go to conference to work out the differences between their budget resolutions, we published a paper Tuesday outlining the various budget process measures contained in the respective resolutions as well as our recommendations about which should be kept. Both budget resolutions contain several items that could help or hurt the process, and we suggest that the conference committee hammer out these differences in line with the recommendations we've made in the Better Budget Process Initiative. We also published a blog and press release containing some recommendations not related to budget process.

Click here to read the full paper.

Both budgets tackle process reform by enacting provisions to address the lack of accountability, transparency, and long-term focus in current budgeting.

April 16, 2015

The House and Senate are going to a conference committee to reconcile the differences between their budget resolutions, but legislative developments may make reaching their goal of a balanced budget more difficult. Building off of the numbers laid out in their original budgets, neither the House nor Senate budget would get to balance by 2025 after accounting for legislation that has already passed each chamber. Budget conferees have the choice of either requiring that savings be identified to offset these new costs, or making their budgets only add up on paper, ignoring real costs that they intend to pass.

The one major bill with budgetary effects that passed both chambers is the Sustainable Growth Rate (SGR) replacement bill, now on its way to the President. Including interest, the bill increases 2015-2025 deficits by nearly $175 billion and increases 2024 and 2025 deficits by $17 billion per year. This deficit increase is enough to flip the Senate budget's $16 billion 2025 surplus to a $2 billion deficit.

The House budget did assume the cost of the SGR bill in their budget but assumed it would be paid for, so the budget would need to now find $290 billion of Medicare savings instead of the original $148 billion to stick to its numbers. Nonetheless, the SGR bill itself does not flip the budget to deficit in 2025.

However, the House has also passed $400 billion worth of tax cuts by reviving and continuing select tax extenders permanently and repealing the estate tax.

April 15, 2015

In honor of tax day, CRFB and our partners at Fix the Debt released a Tax Day 2015 chartbook yesterday, with ten charts (and one table) that explain federal taxes – who pays them, what they pay for, and how they are collected.

Fundamental tax reform that simplifies the tax code, encourages growth and raises revenue could go a long way in closing the gap between spending and revenues and putting debt on a sustainable path. Click here to see the full chartbook. We've also highlighted a few of the charts below.

April 14, 2015

The House and Senate will soon appoint a formal conference committee to iron out differences between their two budgets, even though press reports indicate the Chairmen of the House and Senate Budget Committees have already started negotiating. In addition to agreeing to the total spending levels (by function) within the budget, a number of important issues must be agreed upon. Specifically, the conferees will have to decide how broadly to write reconciliation instructions, whether to limit use of the OCO designation to spend in excess of statutory caps, how to address potential sequester relief, and whether to include other budget enforcement provisions cracking down on budget gimmicks. This blog summarizes these issues and our views on them.

Provide reconciliation instructions broadly

The House budget included instructions for all committees with mandatory spending to produce legislation achieving at least nominal savings in mandatory programs within their jurisdiction. The Senate only had reconciliation instructions for the Finance and Health, Education, Labor, and Pensions (HELP) committees. 

Given the very real need to slow the growth of entitlement spending, the budget conference should adopt the House’s approach, providing instructions for every committee with jurisdiction over mandatory programs. Doing so will offer opportunities to enact the mandatory savings assumed in the budget resolution, or at least a smaller set of savings with the potential for broader support.

The House budget also included provision allowing the Chairman of the Budget Committee to publish guidelines to supplement the nominal savings instructions currently included, which could be used to provide guidance for reconciliation legislation with a significant amount of mandatory savings. Our hope is that the budget committee and the relevant committees will work together to produce a reconciliation bill with, at minimum, enough savings to offset the spending increases Congress is likely to approve, including costs associated with the Medicare Access and CHIP Reauthorization Act of 2015 and sequester relief. For further reading on reconciliation in the two budgets, see our blog "Reconcila-What?"

April 14, 2015

This morning, Governor Chris Christie (R-NJ) delivered an important speech in New Hampshire on the need for entitlement reform. The speech not only focused on the need to address the rapid growth of Social Security, Medicare, and Medicaid but actually put forward a plan to begin addressing these issues. By our rough estimate -- and depending on many of the details -- this plan would save over $1 trillion in the next decade alone while significantly improving the solvency of Social Security and Medicare.

Below is a short summary of Governor Christie's plan.

Social Security Reform

In his speech, Governor Christie called for Social Security reform, explaining that the program "is slowly working its way to insolvency – which the actuaries say will come in the early 2030s, less than 20 years from now... as the number of workers relative to the number of beneficiaries continues to shrink."

To address Social Security's looming insolvency, Christie proposes a number of changes. The most significant policy, in terms of savings, would be to raise the normal retirement age by two months per year from age 67 in 2022 (as under current law) to age 69, and then index it for life expectancy. At the same time, his plan would raise the earliest eligibility age from 62 to 64.

In addition, Christie proposes to calculate COLAs based on the more accurate chained CPI (with a benefit bump-up for 85 year olds), to phase out Social Security benefits for the highest earning seniors (phased out between $80,000 and $200,000 of non-Social Security income), and to eliminate the payroll tax for senior workers.

April 13, 2015

We have described at length the fiscal irresponsibility of the Sustainable Growth Rate (SGR) reform bill (H.R. 2) working its way through Congress -- both its significant near-term and long-term costs and its exemption of the cost of the bill from pay-as-you-go (PAYGO) rules. But the PAYGO exemption is not the only way the bill violates budget rules intended to enforce fiscal discipline.

The bill also runs afoul of several points of order (POOs) under the Congressional Budget Act and Senate rules that will require 60 votes to override. The most significant budget points of order that apply to H.R. 2 as passed by the House are:

  • Senate PAYGO Point of Order: The Senate provides a point of order against bills that increase deficits over the Congressional Budget Office’s (CBO’s) ten-year budget window. This rule is distinct from the statutory PAYGO rule that would automatically recoup costs that are not offset with a sequester if the bill was not exempted. By contrast, this point of order prohibits consideration of legislation that would increase the deficit unless 60 Senators vote to waive the prohibition.
  • Senate Long-Term Deficit Point of Order: Although some advocates of H.R. 2 have suggested that the legislation would be fully offset or even reduce the deficit beyond the ten year window, CBO wrote in its estimate of H.R. 2 that “Taken as a whole, H.R. 2 would raise federal costs (that is, increase budget deficits) relative to current law in the second decade after enactment.” As a result, the bill would be subject to the Senate’s long-term deficit point of order, which prohibits legislation increasing deficits by more than $5 billion in any of the following four decades beyond the ten-year budget window.
April 10, 2015

There's a simple way to make the $141 billion House-passed Medicare Sustainable Growth Rate (SGR) bill more fiscally responsible: don't exempt it from PAYGO.

As currently written, not only would the SGR legislation add $500 billion to the debt by 2035, but it includes a provision (in Section 525 of the bill for those reading along at home) exempting it from the pay-as-you-go law specifically designed to prevent Congress from adding to the debt over the course of a year.

This PAYGO loophole not only codifies the debt increases within the bill, but it also makes it more difficult for the Congress to follow through on achieving the Medicare savings in the House and Senate Budgets.

Luckily, there is an easy solution. By simply striking Section 525 and removing the PAYGO loophole, the Senate would effectively require Congress to identify $141 billion or more of deficit reduction by the end of the year.

This wouldn't require savings to take place immediately and wouldn't hold up passage of the SGR bill, but it would allow Congress the time it needs to identify savings and reforms to ensure they don't add to the nation's credit card over the long-run. And if Congress fails to find those savings, an automatic mandatory cut would reduce the cost of Medicare and (to a much lesser extent) several other smaller mandatory programs by about $15 billion per year until savings are identified.

Notably, striking the PAYGO Loophole would not impact any of the spending or savings currently in the bill.

Recent articles suggest that the Senate may consider an amendment to close this PAYGO loophole, which represents a huge improvement to the bill's fiscal responsibility.

April 10, 2015
This Gimmick is Bananas

The Senate budget by Chairman Mike Enzi (R-WY) contains an important provision to limit a gimmick often used to increase spending using phony savings from CHIMPs, which stands for Changes In Mandatory Programs. While we have written extensively about the abuse of the Overseas Contingency Operations account to allow for defense spending above the caps established by the Budget Control Act, Congress has also relied on CHIMPs to provide non-defense discretionary spending above spending limits. CHIMPs are scored as savings on paper despite often producing no real savings, but are still used to pay for real increases in spending.

What are CHIMPs?

CHIMPs are provisions in appropriation bills making changes in mandatory spending programs, usually to reduce or limit mandatory spending. The savings are then available to be used to offset an increase in discretionary spending. This can be perfectly acceptable when the savings created are real, but it does create the opportunity to game the system.

April 9, 2015

The Congressional Budget Office (CBO) has released its Monthly Budget Review for March, rounding out the first half of Fiscal Year 2015. The report shows a first half deficit of $430 billion, $17 billion higher than the deficit reported for the same period in FY 2014. In its March baseline, CBO projected the FY 2015 deficit would be $486 billion, $1 billion higher than FY 2014; CBO doesn't indicate whether the actual totals so far are better or worse than expected.

Between FY 2014 and FY 2015, spending has grown by 6.6 percent while revenue has grown by 7.4 percent. Driving the growth in revenue are sizeable increases in individual and corporate income taxes as a result of economic growth. On the spending side, growth is driven by the Affordable Care Act's (ACA) coverage provision being in effect for the entirety of FY 2015 - unlike FY 2014, where it was not in effect for the first three months - and by lower offsetting receipts from profits received by Fannie Mae and Freddie Mac.

The Federal Budget in the First Half of FY 2015 (Billions of Dollars)
Area FY 2014 FY 2015 $ Change % Change Full-Year Projection*
Individual Income Tax $585 $642 $57 9.7% 8.0%
Corporate Income Tax $118 $133 $15 12.8% 2.2%
Other Revenue $620 $646 $25 4.2% 4.0%
Total Revenue $1,323 $1,420 $98 7.4% 5.6%
Social Security $415 $434 $19 4.5% 4.5%
Medicare $244 $268 $23 9.4% 4.3%
Medicaid $140 $172 $31 22.3% 13.9%
Defense $294 $284 -$10 -3.5% -2.3%
Fannie/Freddie -$57 -$11 $46 N/A N/A
Interest $122 $105 -$17 -13.7% 0%
Other $578 $600 $22 3.8% 3.1%
Total Spending $1,736 $1,851 $115 6.6% 4.9%
Deficit -$413 -$430 -$17 4.1% 0.2%

Source: CBO
*Full-year projection taken from CBO's March 2015 budget outlook

April 8, 2015

Lawmakers often lament the difficulty of reforming Medicare and other health care programs, but the difficulty is not a lack of viable options. One particularly lush source of ideas to examine is the President’s budget.

His budget offers $435 billion in health care savings, which would pay for reforming the Sustainable Growth Rate (SGR), new health initiatives (some of which are in the SGR bill), and repealing the Medicare sequester while leaving an additional $100 billion for deficit reduction. On top of many reforms found in previous budgets, it also includes efforts to improve the delivery system and enact payment reforms – as well as new spending – not seen in previous budgets.

Here are a few highlights of the proposed savings:

  • Allow the Health and Human Services (HHS) Secretary to negotiate certain drug prices: Although this item is budget-neutral, it would let the Department negotiate with pharmaceutical manufacturers to lower the price of high-cost prescription drugs and biologics for Medicare Part D. This policy is in addition to other proposed drug payment reforms in the budget that save $165 billion.
  • Equalize payments for similar care performed in different sites of service: A trend in Medicare is the shift of ambulatory care from doctors' offices to hospital outpatient facilities, the latter of which receives a higher reimbursement from the government. The budget proposes to equalize payments for services that can be well provided in physician offices, regardless of whether that care is provided in a hospital outpatient department, physician's office, or an Ambulatory Surgery Center. CBO estimates that this would save $13 billion over the next decade.
April 6, 2015

The Congressional Black Caucus (CBC) has released an alternative budget proposal highlighting their policy goals and preferred fiscal path for the coming years. The budget reduces the deficit relative to current law, bringing it to 2.3 percent of Gross Domestic Product (GDP) in 2025. The deficit reduction in the budget would result in a lower debt-to-GDP ratio, which would be just under 72 percent in 2025 - about 7 percentage points of GDP lower than under current law (CBC estimates it to be 68 percent with dynamic effects, or 11 percentage points of GDP lower than under current law). This budget supports many progressive policies focusing on programs intended to reduce poverty, also includes significant tax increases, and is very similar to the Democratic budget and the President's budget.

April 3, 2015

The Republican Study Committee (RSC) has released an alternative budget proposal that outlines their vision for the country’s fiscal future. Their plan aims to balance the budget after only six years and reduce the ten-year deficit by almost $7 trillion. As a result, debt would decline faster than under any of the other budget resolutions, with debt at 48 percent of GDP by the end of the 10-year window, down from nearly 74 percent today.

By their own estimates, the plan would cut spending from 19.4 percent of Gross Domestic Product (GDP) in 2016 to 17.5 percent by 2025. Revenues would remain at current law levels, falling slightly from 18.4 percent in 2016 to 18.3 percent in 2025.

April 2, 2015

The Sustainable Growth Rate (SGR) formula returned yesterday with 21 percent cuts to Medicare physician payments, although the actual effect won't be felt for a few weeks because of Medicare's ability to withhold payments for a period of time. Lawmakers have come up with a solution that is expected to be voted on when the Senate returns from recess, but it would add about $500 billion to debt by 2035. 

The legislation replaces the large and blunt SGR-prescribed cuts with 0.5 percent payment increases for five years before freezing payment growth through 2024 alongside a new, consolidated quality incentive program for Medicare physicians, called the Merit-Based Incentive Payment System (MIPS). In a budget-neutral manner, the MIPS program would reward or penalized physicians based on quality, resource use, meaningful use of electronic health records, and clinical practice improvement activities. Simultaneously, the bill would also provide payment incentives for physicians to utilize alternative payment models (APMs), such as Accountable Care Organizations (ACOs), that reward quality of care over quantity of care delivered. From 2019-2024, physicians earning a significant share of their revenue from models that involve risk of financial losses and have quality measurement would get a 5 percent bonus payment each year. Over the long run, physicians in APMs would also receive annual updates of 0.75 percent while non-APM professionals receive 0.25 percent updates.

This new system is estimated to cost $175 billion through 2025 by the Congressional Budget Office, but lawmakers are choosing only to offset the $35 billion amount by which this policy exceeds the cost of a permanent payment freeze. There is at least some hope, though, that the reformed physician payment system can begin to slow costs and improve quality of care in Medicare.

In addition, the bill extends several "health extenders" that are often included with doc fixes. Most of the extensions run through 2017, but two policies -- the Qualified Individual (QI) program, which provides Medicare premium assistance for certain low-income beneficiaries, and Transitional Medical Assistance (TMA), which allows low-income workers whose income rises to temporarily keep Medicaid eligibility -- get permanent extensions. These extenders cost $19 billion through 2025 and are fully offset.

April 2, 2015

We've already provided topline comparisons of the budget metrics in the FY 2016 Congressional budgets and the President's budget, showing that most of the budgets would put debt on a clear downward path as a share of GDP. But it is also interesting to see how the major budgets presented match up with another plan: the Bipartisan Path Forward (BPF) put forth by Erskine Bowles and Al Simpson in April 2013.

For context, the BPF was presented after the fiscal cliff negotiations yielded only small deficit reduction and no lasting solution to the projected rise in debt. The plan replaced most of the sequester, which had taken effect the prior month, with significant mandatory savings and revenue from tax reform to put debt on a downward path to 69 percent of GDP by 2023.

Our re-estimate of the plan updates the BPF by moving the start dates of most policies to 2016 or 2017, accounts for policies that have already been enacted, and most importantly, accounts for changes in CBO's budget baseline since February 2013. Overall, compared to a "PAYGO baseline," CBO's concept of current law but excluding savings from drawing down war spending, the BPF (including Step 4) would save $2.2 trillion over ten years and leave debt in about the same place as the original estimate.

Compared to CBO's estimate of the President's budget, the BPF would provide for more deficit reduction and put debt on a downward path as opposed to a slightly upward path. Despite having slightly more sequester relief and less revenue, the BPF saves much more in health care on net, while not having the other mandatory spending increases that the President's budget contains.

April 2, 2015

Rep. Mick Mulvaney (R-SC) wrote a commentary published in The Wall Street Journal on Monday in which he decried the recently-passed budgets in the House and Senate for their irresponsible approach to defense spending. The budgets use a gimmick to provide higher defense spending than allowed by the spending limits in the Budget Control Act without having to pay for it.

Mulvaney called for any increases in defense spending to be offset with spending cuts elsewhere. This principle of offsetting sequester relief with savings elsewhere in the budget has been followed by most sequester relief plans, whether in the President's Budget, the 2013 Ryan-Murray budget agreement, or the Senate amendments to this year's budget. If lawmakers are going to relax the sequester, they should replace it with other savings, preferably smarter savings that are more focused on long-term deficit reduction.

April 1, 2015

Update: Director Hall has written an introductory blog post.

Today marks not just April Fool's Day but also the end of Doug Elmendorf's six-plus year tenure as director of the Congressional Budget Office (CBO) and the beginning of Keith Hall's tenure. Hall was appointed at the end of February to be the ninth director in CBO's history after a long career in government and academia. Elmendorf's time as director saw CBO be a key player in several pieces of legislation - including the 2009 stimulus, the Affordable Care Act, and the Budget Control Act - and economic debates involving things like the health care slowdown, the post-recession labor market, and the minimum wage.

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