The Bottom Line

April 30, 2015
Congress Should Not Use OCO as a Slush Fund

One of the most troubling elements of the budget conference agreement was the use of the Overseas Contingency Operations (OCO) account as a slush fund to circumvent the spending limits under the Budget Control Act (BCA). Specifically, the budget conference report allocated $96 billion in spending for OCO in FY 2016, $38 billion more than the President’s request, with the expectation that the additional spending would be used to increase funding for the base Department of Defense (DoD) budget above the limits under the BCA (it also provided funding above the President's budget for 2017-2021 for the same purpose). This strategy will face its first test today when the House of Representatives votes on a series of amendments by Representative Mick Mulvaney (R-SC) and Budget Committee Ranking Member Chris Van Hollen (D-MD) striking OCO funding in the appropriations bill for Military Construction and Veterans Affairs (MilCon/VA).

The MilCon/VA bill reported by the House Appropriations Committee included a new section for OCO that provided $532 million in spending for construction projects that were in the DoD budget request. Reps. Mulvaney and Van Hollen offered a series of amendments that would strike this funding. While the amount of funding involved is relatively modest, the principle is very important. The votes on whether or not to maintain funding for the base defense budget that uses OCO to get around the BCA caps will set an important precedent about whether or not Congress will follow through on the plan to use OCO to circumvent spending limits.

During the House debate on the amendments, Rep. Mulvaney argued that if Congress believes the BCA spending limits are too low, it should change the law and increase the spending limits instead of using OCO to circumvent the spending limits. Ranking Member Van Hollen noted that the use of OCO to fund items in the base defense budget was in conflict with the position taken by the House Budget Committee last year in their report accompanying the FY 2015 budget resolution. The report described the use of OCO for spending in the base defense budget as a “backdoor loophole that undermines the integrity of the budget process” and pledged to exercise oversight on the use of OCO that is not war-related and oppose increases above the levels military commanders say are needed to carry out operations.

April 29, 2015

With the budget conference complete, it is now up to each chamber of Congress to pass the FY 2016 concurrent budget resolution. We've already written about the House and Senate budgets in detail, and the final budget resolution aims to find compromise between the two.

As CRFB President Maya MacGuineas said in a press release today:

Congress should be commended for actually having a budget this year and for proposing to put the debt on a sharp downward path relative to the economy. Unfortunately, the budget fails to give lawmakers the tools to accomplish this important goal, and in some areas actually facilitates higher deficits.

Below we take a more detailed look at the good, the bad, and the ugly of the final product.

April 29, 2015

A group of House Democrats introduced a bill yesterday to repeal the tax on high-cost health insurance plans, commonly known as the "Cadillac tax," set to take effect in 2018. The repeal joins a similar House Republican bill released back in February. Needless to say, repealing the tax would be very expensive - CBO has estimated the tax raises $87 billion through 2025 while raising growing amounts over time - and likely counter-productive to health care cost control efforts. Importantly, the tax already seems to be having clear effects on the design of employer-provided health plans and has shown itself to be an important tool to slow private health spending growth (and may be playing a role in the recent slowdown). At the very least, lawmakers should plan to offset the lost revenue from repeal, but they should focus on policies that can also bend the health care cost curve.

The Cadillac tax is a 40 percent excise tax on employer-provided health insurance plan premiums that exceed $10,200 for individuals and $27,500 for families. Those thresholds are adjusted for inflation in future years so they would provide tighter limits over time since health care costs have almost always grown faster than inflation. As a result, it will raise growing amounts of revenue over time.

April 28, 2015

Lawmakers cleared their second Fiscal Speed Bump of the year - the expiration of the one-year "doc fix" - earlier this month, scuttling the Medicare Sustainable Growth Rate (SGR) formula for good by adding $141 billion to deficits through 2025 ($175 billion with interest). As a result, CBO's last baseline in March is now slightly out of date, and the agency usually doesn't release new ten-year numbers until August, so here's our estimate of what the baseline looks like in the post-SGR world.

The new law increases debt by about one percentage point of Gross Domestic Product (GDP) by 2025, from 77 percent to 78 percent. It also increases ten-year deficits and health care spending by about one-tenth of a percent of GDP while slightly increasing interest spending from 2.9 to 3 percent of GDP in 2025. Not surprisingly, the law slightly increases the share of spending going to health care and interest.

The New Ten-Year Budget Outlook (Percent of GDP)
  2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016-2025
Revenue 17.7% 18.4%
18.3% 18.1% 18.1% 18.1% 18.1% 18.1% 18.2% 18.2% 18.3% 18.2%
                         
Health Care* 5.2% 5.4% 5.3% 5.2% 5.5% 5.5% 5.6% 5.9% 5.9% 5.8% 6.1% 5.7%
Medicare 3.0%
3.0% 2.9% 2.8% 3.0% 3.1% 3.2% 3.5% 3.4% 3.3% 3.6% 3.2%
Medicaid/CHIP 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.1% 2.1% 2.1% 2.1% 2.1%
Exchange 0.2% 0.3% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%
                         
Social Security 4.9% 4.9% 4.9% 5.0% 5.1% 5.2% 5.3% 5.4% 5.5% 5.6% 5.7% 5.3%
Other Mandatory 2.6% 2.9% 2.8% 2.6% 2.5% 2.5% 2.4% 2.5% 2.3% 2.2% 2.3% 2.5%
Discretionary 6.5% 6.3% 6.0% 5.8% 5.7% 5.6% 5.5% 5.4% 5.3% 5.2% 5.1% 5.5%
Interest 1.3% 1.5% 1.7% 2.0% 2.2% 2.4% 2.6% 2.7% 2.8% 2.9% 3.0% 2.4%
Total Spending 20.5% 20.9% 20.7% 20.6% 21.0% 21.2% 21.4% 21.9% 21.8% 21.7% 22.2% 21.4%
                         
Deficit -2.7% -2.5% -2.4% -2.5% -2.9% -3.2% -3.3% -3.8% -3.7% -3.5% -3.8% -3.2%
                         
Debt 74.2% 73.9% 73.5% 73.2% 73.5% 73.9% 74.5% 75.4% 76.2% 76.8% 77.8% N/A

Source: CRFB calculations based on CBO data
*Includes net Medicare, Medicaid/CHIP, and health insurance exchange subsidies

April 28, 2015

Our partners at Fix the Debt released a graphic yesterday highlighting the fiscal irresponsibility of the 114th Congress in the few months it has been in session so far. On top of the $7.2 trillion in deficits the federal government was already expected to run over the next ten years, they have already added $180 billion more to debt by 2025 through the Department of Homeland Security funding, the physician payment law that we have written extensively about, and additional interest costs produced by these two measures and some other pieces of very small deficit increasing legislation.

 

 

We hope that Congress will reverse this debt-digging trend and begin to fill in the budget holes with additional savings and revenues to make up for the position they have dug us into.

April 27, 2015
Congress's Foot is on the Gas Pedal

Congress sped through this year's second and third "Fiscal Speed Bumps" in March, ignoring the return of the statutory debt limit (though the hard deadline for the debt limit is not until this fall, due to the Treasury Department's "extraordinary measures") and hurrying through a fiscally irresponsible, though permanent, solution to the expiration of the Medicare "doc fix." We've updated our Speed Bumps graphic, below, showing lawmakers barreling full speed to the end of May when the Highway Trust Fund will run out of money.

This week, the House and Senate will announce their conferenced budget resolution, which outlines their blueprint for Fiscal Year 2016. The passage of the concurrent budget resolution signals the start of the appropriations process, which must be completed before an October 1 deadline. That deadline also coincides with the expiration of the Ryan-Murray budget deal and the return of sequestration discretionary spending levels. As we wrote last week, the House jumped the gun and has already started work on several appropriations bills in advance of the final resolution.

April 24, 2015

The House Appropriations Committee kicked off appropriations season this week by starting to mark up their Fiscal Year 2016 bills at the same time that the House of Representatives approved its allocations to the individual appropriations subcommittees. Technically, the House is jumping the gun by marking up appropriations bills before the Budget Committees complete their conference agreement that will set topline spending limits.

The House Appropriations committee has approved both the Energy and Water bill (E&W) and the Military Construction and Veterans Affairs bill (MilCon/VA) on voice votes. Those bills will now head to the House floor for full consideration. 

The E&W bill provides $35.4 billion in discretionary funding, which is $1.2 billion above the FY 2015 level but about $0.6 billion below the President’s request. This is not surprising since the President's budget proposes a higher overall non-defense spending limit for FY 2016 than that prescribed by the sequester.

The MilCon/VA bill provides $76.6 billion in discretionary budget authority ($4.6 billion above FY 2015 and $1.2 billion below the President's request), of which $532 million is from Overseas Contingency Operations (OCO) funding. OCO funding is not subject to the Budget Control Act limits on discretionary spending, and we have written extensively in the past month about our concerns that both the House and Senate budgets allow a very high OCO budget of $96 billion without offsetting the increased cost with savings elsewhere. This funding level is $38 billion higher than the President’s request of $58 billion and $22 billion above the FY 2015 level. By providing significant funding above the President’s request, OCO will likely become a slush fund for regular defense spending to circumvent the spending cap.

April 23, 2015

The Committee for a Responsible Federal Budget is pleased to announce three new job openings. Those who are interested can visit our jobs page for a detailed description of each position's responsibilities and qualifications.

The positions are:

  • Legislative Director: The Legislative Director will contribute to the organization’s ongoing legislative efforts in the areas of federal tax, health, disability, budget, and economic policy. The Director will be a member of the senior team. We are looking for a team player who has previous Hill experience as well as a strong commitment to advocating for responsible fiscal policies.
  • Policy Analyst: The Policy Analyst will contribute to the organization’s analysis of federal tax, health, disability, budget, and economic policy issues. We are looking for a team player interested in writing, researching, and publishing new content, analyzing new legislation and approaches to federal budget policy, and becoming part of a growing team of fiscal policy thought leaders.
  • Policy Writer: The Policy Writer will assist the policy team in drafting and editing content on a variety of fiscal topics including federal tax, health, disability, budget, and economic policy. We are looking for a team player who is able to distill complex policy material into accessible and compelling content.

Applicants should send a resume, cover letter, and contact information for three references to info@crfb.org. Those applying for the Policy Analyst and Policy Writer positions should also send a writing sample of six pages or less.

April 22, 2015

Big economic policy news came last week when lawmakers announced a bipartisan agreement (H.R. 1890) to revive Trade Promotion Authority in order to give fast-track consideration for trade deals. Flying somewhat below the radar are two accompanying bills introduced in the House (H.R. 1891 and 1892) that would extend various trade-related provisions and fully offset them. The Senate Finance Committee is marking up versions of these bills today, although there is only a CBO score for the Senate equivalent of H.R. 1891. Here's a rundown of what's in the House bills:

  • Trade Adjustment Assistance: A main sticking point in the agreement was the fate of Trade Adjustment Assistance (TAA), which helps domestic workers who are adversely affected by imports. The deal extends TAA through June 2021 at a cost of $2.7 billion over ten years. In addition, the deal revives and extends the closely-related Health Coverage Tax Credit that subsidizes health insurance premiums for TAA recipients (among others). The credit expired at the end of 2013, but was one of the few provisions not revived in last year's tax extenders legislation. This legislation revives the credit retroactive to 2014 and continues it through 2019 at a cost of $173 million.
  • Trade Preference Extensions: A separate bill from the TAA legislation would revive/extend several trade preferences. Specifically, it would revive the Generalized System of Preferences (expired since July 31, 2013) and extend it through 2017, extend the African Growth and Opportunity Act (which expires at the end of September) through FY 2025, and extend several preferences for Haiti (which expire in 2018 and 2020) through 2025. These extensions cost $5.8 billion.
  • Customs and Merchandising Fees: Customs user fees have frequently been extended a year or two at a time, providing savings in the tenth year of the budget window. The most recent extension pushed them through 2024 in last year's highway bill and it was the only legitimate savings found in the bill. This bill would extend those fees through 2025, saving $1.7 billion. In addition, the trade preference legislation extends merchandising fees originally enacted in the Korean free trade agreement from June 2020 to June 2025, saving $5.9 billion.
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.

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