The Bottom Line

January 22, 2015

The House Energy and Commerce (E&C) Health Subcommittee yesterday held the first of two hearings on the Sustainable Growth Rate (SGR) formula for Medicare physician payments. Set to cut those payments by 21 percent in April 2015 when the latest "doc fix" runs out, the SGR will be one of the first "Fiscal Speed Bumps" the new Congress will confront this year. Fixing it permanently could cost at least $140 billion through 2025.

Yesterday's hearing focused on replacing the formula as well as whether and how to pay for the cost, featuring health care policy experts and policymakers. The session today featured representatives from various provider groups.

The witnesses at yesterday's hearing were:

    • Former Senator Joe Lieberman (D/I-CT)
    • Former OMB and CBO Director and current director of Brookings's Engelberg Center for Health Reform Alice Rivlin
    • American Institutes of Research Institute Fellow Marilyn Moon

In their opening statements, both E&C Chairman Fred Upton (R-MI) and Health Subcommittee Chairman Joe Pitts (R-PA) encouragingly stated that repealing the SGR must be paid for, with Pitts citing CRFB's finding that doc fixes have been paid for 98 percent of the time since 2004.

Both noted that there exist numerous options with bipartisan support to pay for a replacement. Upton went further, calling on lawmakers to not just fix the SGR but make Medicare sustainable.

January 22, 2015
CRFB Releases Budget Resolution Principles

Yesterday, the Committee for a Responsible Federal Budget released a one-page list of principles to help guide policymakers in crafting a budget resolution this spring. CRFB called on Congress to follow regular order by agreeing to a budget resolution conference report that lays out a framework for pursuing priorities and addressing issues in a fiscally responsible manner before making major decisions on spending or revenues. The principles include four primary criteria for a responsible budget resolution:

  • Put the debt on a downward path - The budget should include realistic, gimmick-free tax and spending levels sufficient to reduce the debt as a share of the economy in the medium and long term. You can learn about the unsustainable path of federal debt by reading our Report: Deficit Falls to $483 Billion, but Debt Continues to Rise.
  • Responsibly address upcoming "Fiscal Speed Bumps" - These are the upcoming budget-related deadlines -- such as the impending cuts required by the Medicare Sustainable Growth Rate, depletion of the Highway Trust Fund, and reinstatement of the debt limit -- that present lawmakers with an opportunity to add up to $3 trillion to the debt, or take the more fiscally responsible route. You can read more about them in our paper Fiscal Speed Bumps: Challenges, Risks, and Opportunities.
January 22, 2015
Fix the Debt and Concord Coalition Launch First Budget Initiative

Today, Fix the Debt and the Concord Coalition launched First Budget – an effort to engage voters and candidates in a discussion about the nation’s unsustainable budget during the 2016 presidential campaign.

First Budget's mission is to ensure that “the first budget that the next president submits to Congress must chart a more sustainable course that strengthens the nation, encourages growth and protects coming generations from excessive government debt.” Read the full press release here.

With a long history of advocating for fiscal responsibility, these two organizations hope to raise public awareness about the growing national debt and encourage candidates to make fiscal responsibility a top priority and put forward plans to deal with our long-term fiscal imbalance. With these goals in mind, First Budget will engage voters and mobilize volunteers, starting with the early primary states of Iowa and New Hampshire, to ask candidates directly about the debt and start a public discussion on the campaign trail.

January 21, 2015
President Obama’s Middle-Class Tax Message in the State of the Union

Dr. Eugene (Gene) Steuerle is the Richard B. Fisher chair and Institute Fellow at the Urban Institute and a member of the Committee for a Responsible Federal Budget.  He wrote a column today on his blog - The Government We Deserve. It is reposted below. 

President Obama’s tax proposals for the middle class were a key element of his State of the Union address. But they represent only relatively modest efforts to create subsidies through the tax code rather than through other departments of government. Looked at broadly, many only tinker around the edges of tax policy and count on an overloaded and troubled agency, the IRS, to administer them.

January 20, 2015

Tonight at 9:00 PM, President Obama will address Congress and the nation in the State of the Union address. As he lays out his agenda for this year, CRFB will be following along and providing analysis of the budget-related policies he mentions. We hope the President will address our long-term debt problem in his remarks and set the stage for a bipartisan deficit reduction effort.

January 20, 2015

President Obama's State of the Union address is tonight at 9 p.m. In preparation of his speech, we've brought back our great State of the Union fiscal bingo game - DEBT-O!

Play with your friends and keep track of budget-related words and terms used by the President. Although the speech will cover many issues, President Obama should still address the nation's fiscal issues in his speech, and perhaps talk about how to handle the upcoming Fiscal Speed Bumps. Click here for a printable PDF of eight different boards.

January 20, 2015
A Big Bang on Tax Reform?

Judd Gregg, a former Republican senator from New Hampshire, served as chairman of the Senate Budget Committee from 2005 to 2007 and ranking member from 2007 to 2011. He recently wrote an op-ed featured in The Hill. It is reposted here.

There is a growing consensus that one of the more fertile fields for possible bipartisan action between President Obama and this new Congress is tax reform.

This is logical.  

January 15, 2015

With tax reform heating up, House Ways and Means member Rep. Devin Nunes (R-CA) has gotten the ball rolling with a business tax reform plan called the American Business Competitiveness Act. The draft would dramatically overhaul and simplify the corporate tax code, broadening the tax base in many areas while lowering tax rates on businesses.

Nunes's draft would change business taxation to be a cash-flow tax, making it more closely related to businesses' actual inflows and outflows. Nunes has said that the plan would be deficit-neutral over ten years using conventional scoring, although he has not made the estimate publicly available. The main elements of the plan include:

  • Reducing the top tax rate to 25 percent for both corporate and non-corporate businesses, phased in over ten years
  • Allowing businesses to write off the full cost of investments immediately (known as expensing) rather than writing them off over the life of the investment (see here for background on depreciation rules)
  • Repealing deductions for interest expenses while reducing taxes on interest income to the dividend rate (20 percent)
  • Eliminating other business deductions and credits
  • Changing the international tax system to a territorial system, where U.S. companies' income earned outside the country is not taxed by the federal government
  • Repealing the corporate Alternative Minimum Tax (AMT)

One of the most unique aspects of the proposal is the move to full expensing and the repeal of interest deductions.

January 14, 2015

Stronger economic growth is one possible way to reduce deficits, but it is often difficult to identify which policies produce the strongest growth because advocates for any policy will contend that their approach is best. However, one way to encourage economic growth is by supporting policies that encourage the formation of startup companies. The University of Virginia's Miller Center released a report today with ideas to do just that, entitled Can Startups Save the American Dream?. The report was the product of the Milstein Commission on Entrepreneurship and Middle-Class Jobs, a part of the five-year Milstein Symposium initiative to advance innovative, nonpartisan, action-oriented ideas to help rebuild the American Dream. CRFB President Maya MacGuineas is a member of the Commission.

January 14, 2015

At an event at the Center for American Progress, House Budget Committee Ranking Member Chris Van Hollen (D-MD) unveiled an "Action Plan" to broadly cut taxes for the middle class. The reported $1.2 trillion cost of the plan would be offset with revenue from high earners and the financial sector. The details of the plan have not been completely spelled out yet, but it is encouraging that Van Hollen is committed to paying for the full costs. However, using increased revenues to pay for a middle class tax cut will make future deficit reduction more difficult.

Here are the major elements of Van Hollen's plan, including four parts that would cost money and three proposals to raise money.

Paycheck Bonus Tax Credit

The plan's centerpiece is a Paycheck Bonus Tax Credit, which would provide a $1,000 credit for single earners and $2,000 for couples. The credit would phase out at incomes of $100,000 and $200,000 indexed for inflation. Van Hollen indicated that the credit was not refundable, meaning that people with no income tax liability would not benefit, but that he intends to consider changes to make it at least partially refundable, which would be more expensive and provide more benefit to lower-income households. This credit is the plan's most expensive, potentially making up four-fifths of the plan's cost, depending on the exact details.

If taxpayers put at least half of their tax credit into a tax-preferred savings plan, they would qualify for an additional $250 Savers' Bonus credit.

January 14, 2015

The brand new 114th Congress is at it again. Only weeks into the term, a second fiscally irresponsible change to the Affordable Care Act (ACA) has been introduced -- a repeal of the law's 2.3 percent tax on medical devices sold in the U.S. that is expected to add roughly $25 billion to the debt over ten years.

The medical device tax was included in the ACA in order to help pay for the law's new health coverage subsidies and in part to compensate for the financial gains device companies could expect as a result of increased coverage.

Repeal of the tax, though, is one of the few ACA-related changes with bipartisan support -- an amendment to the FY 2014 Senate budget creating a deficit-neutral reserve fund for repeal passed by a 79-20 vote, with more than 30 Democrats joining every Republican in favor. Notably, this vote was different than outright repeal since the action was both non-binding and stipulated deficit-neutrality, but it indicated the support that repeal has in both parties. Yesterday, a bipartisan group of Senators introduced a repeal bill. If repeal is to happen, though, lawmakers need to make up the lost revenue.

Criticism of the tax generally focuses on the potential negative effects on the medical device industry, but there are also concerns about the economic inefficiency of selectively taxing one type of product and the Treasury's difficulty in administering the tax.

January 9, 2015

Interest in increasing the gas tax appears to be heating up as policymakers realize the Highway Trust Fund is running on fumes, and an upcoming Fiscal Speed Bump offers the opportunity to change that. At the end of May, the latest highway bill will expire, and lawmakers will have to find a way to plug the $15 billion annual gap between highway spending and revenue.

Over the next ten years, that gap will total $180 billion, and the practice of filling the difference with general revenue and budget gimmicks is becoming increasingly difficult. Highway spending has exceeded dedicated revenues for most of the past 15 years, and since 2008, lawmakers have transferred $65 billion from the general fund to the trust fund to cover its shortfalls rather than adjust highway spending or revenue.

In the past, some policymakers have proposed raising the gas tax to close the gap structurally, but a major development may have made this possibility more likely: oil and gas prices plunging by more than half and two-fifths, respectively, leading to the lowest prices drivers have faced in six years. This plunge has led to speculation that the first gas tax increase in more than 20 years could now pass Congress (assuming the trend doesn't reverse in the next few months). For context, the 15 cent gas tax increase necessary to fully close the HTF shortfall is only one-tenth the size of the roughly $1.50 per gallon drop in gas prices.

January 9, 2015

Although the 114th Congress is just getting settled, it will have to move quickly to address a series of deadlines with serious policy and fiscal consequences. These "Fiscal Speed Bumps" present serious challenges and risks but also opportunities for policymakers, as we explain in a new paper.

The paper lays out the seven speed bumps -- six this year and one in 2016 -- that policymakers will have to (or should) address this year, what policymakers have usually done in the past, and the consequences of inaction for each. These speed bumps are:

January 9, 2015

The recently adopted House rules for the 114th Congress are getting attention in the budget world mostly for their requirement that the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) take into account macroeconomic effects when scoring budget legislation, a process known as dynamic scoring. But that requirement isn't the only new rule with fiscal implications.

January 8, 2015

This week, the House approved a rule change related to dynamic scoring. Specifically, the rule would require the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) to "incorporate the macroeconomic effects of 'major legislation' into the official cost estimates "to the extent practicable" used for enforcing the budget resolution and the other rules of the House." The rule also asks for a qualitative assessment of the impact of major legislation on the long-term budget and macroeconomic outlook.

Major legislation is defined as legislation that causes a gross budgetary effect of at least 0.25 percent of GDP in a given year. By this definition, it wouldn’t apply to appropriations bills or legislation subject to appropriations, including highway spending. Instead, it would apply to legislation affecting mandatory spending and revenue, so legislation repealing all or major parts of the Affordable Care Act, for example, would be subject to the requirement for dynamic scores. The rule is not clear whether it applies to off-budget effects such as changes in Social Security taxes and benefits.

If a law doesn’t have a large enough effect to qualify, it can still be designated as “major” by the Chairman of the Budget Committee (or for revenue legislation, by the House member serving as Chair or Vice-Chair of the Joint Committee on Taxation). 

January 7, 2015

The 114th Congress has barely even started and House Republicans are already proposing to explicitly ignore pay-as-you-go (PAYGO) rules that require deficit-increasing policies to be offset with other deficit reduction. The "Save American Workers Act of 2015" would change the definition of full-time work from 30 to 40 hours for purposes of enforcing the ACA’s employer mandate, which the Congressional Budget Office (CBO) projects will add $53 billion to the debt over the next ten years.

The bill attempts to reduce the incentive within the employer mandate to reduce part-time workers' hours below the current 30-hour threshold in order to avoid penalties. Additionally, the legislation could be seen as a way to minimize the impact of the employer mandate by applying it to less firms and workers.

The cost primarily stems from significantly fewer penalties ($55 billion over ten years) being collected from employers in violation of the mandate to provide their employees with health coverage. The new workweek definition would both reduce the number of full-time-equivalent employees (FTEs) a company is deemed to have in many cases – thus reducing the number of companies meeting the minimum 50 FTEs necessary to be subject to the mandate – and by exempting employers from any penalties for employees working between 30 and 40 hours per week.

CBO also expects this bill to reduce the amount of people receiving employer-based health coverage by roughly one million, with at least half and possibly all of them instead receiving coverage through an ACA exchange, Medicaid, or CHIP. As a result, this policy change would increase the number of uninsured by less than 500,000.

January 6, 2015

If tax reform is going to happen in the 114th Congress, Sen. Orrin Hatch (R-UT) will be a central figure as the incoming Chairman of the Finance Committee. In a National Review op-ed yesterday, he reiterated seven principles for tax reform that he first outlined in a report last month. Many of these principles are frequently discussed as important goals of tax reform, but lawmakers may disagree about the best course to achieve them.

Hatch first notes the serious need for reform:

Everyone agrees that the American tax system is broken and in need of reform. It stifles job creation, innovation, and competitiveness. It’s counterproductive, confusing, and a serious drag on the economy. Simply put: Tax reform is no longer an option but an obligation.

We certainly agree that after nearly 30 years without a major reform and the tax code getting more and more complex since then, the time is now for tax reform. Even setting aside fiscal concerns, it should be done to improve the code for taxpayers and the economy alike.

Hatch's seven principles involve promoting:

    1. Economic growth
    2. Fairness
    3. Simplicity
    4. Permanence
    5. Competitiveness
    6. Savings and investment
    7. Revenue-neutrality
December 30, 2014

This year was an eventful one for the federal budget. To explain the year's events, CRFB wrote 427 blogs, 17 papers, and created more than a hundred charts. Below are some of our favorite charts that represent the budget events of 2014.

1. Debt scheduled to reach record levels only seen around WWII within 25 years

Our long-term debt problem remains unsolved, despite some commentators' claims that the debt is not worth worrying about. For instance, economist Paul Krugman said not to worry because the debt in 25 years will only reach the levels we had in World War II. In Actually, Paul, the Debt is Still a Problem, we showed how returning to World War II levels of debt is actually quite alarming. Not only will debt levels be too high, but they are projected to keep rising upwards, without a sharp decline like the 1950s.

2. 2014 deficit decreased by 66%, but only after an 800% rise

September marked the end of the 2014 fiscal year, and saw year-end deficits fall to their lowest level since the Great Recession. Some claimed victory over the debt and urged moving onto other issues. In our report, Deficit Falls to $483 Billion, but Debt Continues to Rise, we showed that these low deficits are nothing to celebrate. In dollar terms, the deficit may have decreased by 66 percent, but that was after it had risen by almost 800 percent during the Great Recession. Moreover, debt remains at a post-WWII record high, and trillion-dollar deficits are likely to return within a decade. 

 

3. Debt is worse if Congress does not pay for changes

These debt projections assume that Congress will be fiscally responsible and pay for all new legislation. However, if they stick to the all-too-common practice of continuing various policies or enacting new ones without offsetting the cost, the debt situation could be almost 10 percent of GDP worse, as this animated chart from Everything You Need to Know About Budget Gimmicks shows. 

December 22, 2014

The end of the 113th Congress saw the retirement of two Senators who actively fought for controlling and limiting the U.S. federal debt. Senators Saxby Chambliss (R-GA) and Dr. Tom Coburn (R-OK) gave farewell speeches in the final days of the Congress that addressed the fiscal position of the U.S.

Senator Saxby Chambliss has been a strong voice for the need for bipartisan action to address the debt. Along with Senator Mark Warner (D-VA), he was one of the cofounders of the bipartisan "Gang of Six", who attempted to assemble a bipartisan agreement on the deficit and debt in 2011. In his final speech on the U.S. Senate floor, he spoke briefly on the debt problem facing the country.

Second, it is imperative that the issue of the debt of this country be addressed. Just last week, our total debt surpassed $18 trillion. We cannot leave the astronomical debt our polices have generated up to our children and grandchildren to fix. It is not rocket science as to what must be done. Cutting spending alone, i.e. sequestration, is not the solution. Raising taxes is not the solution.

His farewell speech also covered the need for future budget agreements to bridge the gap between the two parties.

As Simpson-Bowles, Domenici-Rivlin, and Gang of Six agreed, it will take a combination of spending reduction, entitlement reform, and tax reform to stimulate more revenue. Hard and tough votes will have to be taken but that is why we get elected to the United States Senate. The world is waiting for America to lead on this issue and if we do, the U.S. economy will respond in a very robust way. The Gang of Six laid the foundation for this problem to be solved, and it is my hope we do not leave the solution for the next generation.

December 19, 2014

It is clear that Social Security faces financial challenges. This year, its own Trustees estimated the combined trust funds would run out of reserves in 2033 while CBO estimated a 2030 exhaustion date. But yesterday, CBO released a more detailed set of numbers, which show their projections of year-by-year revenue and spending, along with a range of other possible outcomes. The results aren’t pretty.

CBO estimates that the Disability Insurance trust fund will run out during FY 2017 and the Old Age and Survivors' Insurance trust fund would run out in 2032. If lawmakers patched up SSDI by reallocating revenue from OASI, the combined trust fund will run out in 2030, at which point benefits would be cut by 26 percent.

The exhaustion of the trust fund is caused by a large run-up in spending over the next few decades while revenue rises only slightly. As a percent of payroll, outlays have already risen significantly from 10.4 percent in 2000 to 13.8 percent in 2014, both a factor of higher spending and relatively slow payroll growth. Going forward, outlays will continue to rise, exceeding 18 percent in 20 years and 20 percent in 75 years, almost twice as much as was spent in 2000. Meanwhile, revenue will creep up only slightly from 12.8 percent of payroll in 2014 to 13.6 percent in 75 years.

As a percent of GDP, outlays would rise from 4.9 percent in 2014 to 5.7 percent in 2024 and 6.4 percent by the mid-2030s. After dipping slightly, spending would rise again, reaching an all-time high of 6.9 percent 75 years from now. Revenue would stay fairly flat at 4.6 percent.

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