When considering raising the retirement ages for Social Security or the eligibility age for Medicare, some critics usually argue that change would disproportionately harm poorer workers, who do not live as long as wealthier workers. Michael Fletcher alludes to this in his recent article in The Washington Post about disparities in life expectancy among different socioeconomic groups.

While research has suggested a relationship between life expectancy and income inequality, it is not true that raising the retirement age would represent a transfer from poorer Americans to wealthier Americans. We've taken on this idea before, showing that raising the retirement age would amount to a slightly progressive reduction in benefits.

^{Source: Social Security Office of Retirement Policy}

As far as the difference in received benefits due to the link between income inequality and life expectancy, that is a regressive feature of the Social Security program, not the change itself. Urban Institute fellow and CRFB board member Gene Steuerle explains on his blog The Government We Deserve:

Suppose I designed a government redistribution policy that increases lifetime Social Security benefits by $200,000 for every couple with above-average income that lives to age 62. For every couple with below-average income that reaches age 62, my program would increase benefits by $100,000.

Does this sound like a good policy? Well, that’s exactly what Social Security has done by providing all of us with increasing years of retirement support. People retiring today get many, many more years of Social Security benefits than those retiring when the system was first created. And, the primary beneficiaries are the richer, not the poorer, among us. Throwing money off the roofs of tall buildings would be a more progressive policy, since the poor would likely end up with a more equal share.

Why, then, do some Social Security advocates oppose increasing the retirement age?  Because the $100,000 in my example could mean proportionately more money for the poor. For instance, it might add one-tenth to their lifetime earnings (of, say, $25,000 a year for 40 years of work, or $1 million over a lifetime), while the $200,000 to rich individuals might add only one-fifteenth to their lifetime earnings. As it turns out, even this assumption isn’t correct, but let’s assume for the moment it is.

Why would we want to redistribute that way? Following that logic, we should have protected the jobs of all the Wall Street bankers after the recent crash because their wages represented a smaller share of their income than the wages of poorer workers providing support services. Or perhaps we should provide $5,000 of food stamps to those making more than $50,000 and $3,000 of food stamps to those making $20,000; after all, the latter would still get proportionately more.

As it turns out, however, more years of retirement benefits don’t benefit the poor proportionately more than the rich. Yes, the poor have lower life expectancies, but other elements of Social Security offset this factor. A greater share of the poor doesn’t make it to age 62, so a smaller share of them benefit from expansions in years of retirement support. More importantly, those who are poorer are more likely to receive disability payments that aren’t affected one way or the other by the retirement age; hence, again, a significantly smaller share of them benefit from more retirement years. Other regressive elements such as spousal and survivor benefits also come into play for reasons I won’t further explain here. Empirically, these various factors add up in such a way that increases in years of benefits help those who are richer and those who are poorer in ways roughly proportionate to their lifetime incomes.

It's not that this income disparity is unimportant, and the differences in life expectancies is something policymakers should consider in Social Security reform. But it doesn't mean that an increase in the retirement age would be a regressive policy change. As Steuerle explains:

In sum, the recent widening gap in life expectancy, likely due to such factors as differential rates of cigarette smoking, deserves serious attention. But let’s not pretend that throwing money off the roof, or providing more years of retirement support to the non-disabled who make it to age 62, addresses the core issue. There are better ways to compensate than converting a system originally designed to protect the old into one offering middle-age retirement to everyone.

The full post from Steuerle can be found here.

Not all deficit reduction is equal. Our debt problem is primarily driven by population aging, health care cost growth, and an inefficient tax code. It's why the focus should be putting debt on a downward path toward the end of the decade and addressing entitlement and tax reform, which the sequester does not do.

Former U.S. Comptroller General and CRFB board member David Walker writes in the USA Today about three myths that need to be corrected to move forward in the fiscal debate:

Reductions in the projected 10-year deficit matter. That's the wrong target. Those figures are easily and often manipulated. Assumptions about the future and technical details drive the numbers as much as real change in government programs. The measure of progress less prone to manipulation is the percentage of public debt to GDP.

Most economists will tell you that if we want to avoid economic harm and damage to our ability to respond to foreign crises or domestic catastrophes, we should stabilize public debt at about 60% of gross domestic product. Back in 2010, before any of the deficit reduction deals took place, the Congressional Budget Office (CBO) projected under its more realistic set of assumptions that public debt to GDP would be 100% by 2023. Based on reasonable assumptions, budget agreements since then have resulted in an estimated debt to GDP no lower than 80% in 2023 and rising thereafter. That's progress, but to get moving in the right direction, we need to add $1.5 trillion or so to the $4 trillion in deficit cuts so far.

Cuts to our deficit are coming overwhelmingly from spending, not tax increases. That's exaggerated. The Times asserts that cuts to date represent $4 in spending reductions to every $1 in new revenue. But that calculation conveniently excludes the anticipated costs of the Affordable Care Act.

At the time of enactment, the congressional budget watchdog said the health law would increase spending by $382 billion over 10 years and raise taxes by $525 billion. Based on these estimates, the law would decrease the deficit, so why not include these spending and revenue numbers in the ratio?

If you do, we get a ratio of spending cuts to revenue increases of less than 2 to 1. Quite a change. Even that could be too optimistic. The chief actuary of Medicare reports that over 75 years, projected savings from health reform might come in short $10 trillion.

Federal budget cuts we've made are improving the long term budget outlook. That's flat out wrong. We have not made significant cuts to the part of the budget that is responsible for our mounting fiscal problems. As of today, 64% of our federal budget is mandatory spending, meaning that it is on autopilot rather than voted on by Congress. By 2023, it is projected to be 76% of the budget. Medicare, Medicaid and Social Security account for most mandatory spending and, along with other health care costs, are the real drivers behind our growing long-term debt. Our aging population will also help ensure that these budget items gobble up more and more federal money.

Yet, except for revenue raised in the recent "fiscal cliff" deal, our reduction has come largely from cuts in discretionary spending. This is money that goes to our national defense as well as to investments in our future, such as education, transportation, infrastructure and research. Without sufficiently funding these needs, America will not grow as fast and will become less competitive over time. In 2023, discretionary spending will be 5.5% of the economy, split roughly between defense and non-defense programs. That's a huge drop from today's 7.7%.

The fiscal proposal from House budget Chairman Paul Ryan properly recognizes that spending on mandatory programs, including Medicare and Medicaid, needs to be reduced. However, it fails to provide the additional revenue needed to avoid more discretionary spending cuts. While Senate budget Chair Patty Murray has yet to release her fiscal plan, it will likely include significantly more revenue, but it is unclear how much in reductions to programs like Medicare, Medicaid and Social Security will be included.

Elected officials must recognize that slashing discretionary spending doesn't treat our fiscal disease. Our elected officials should tell the American people the truth about our fiscal condition and its causes.

Until we fundamentally reform our tax code in a way that brings in more revenue, address demographic trends that threaten our social insurance system, and rein in heath care, we can't claim to have achieved deficit reduction in an honest and meaningful way. Meanwhile, the clock is against us: 2014 is an election year for Congress, and a "grand bargain" will be off the table for political reasons. The presidential election cycle kicks in right after. Tough choices will get delayed further.

Click here to read the full post.

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.

Big Week – The budget once again takes center stage this week. House Budget Committee Chair Paul Ryan (R-WI) released his fiscal year 2014 budget blueprint on Tuesday. His counterpart, Senate Budget Committee Chair Patty Murray (D-WA) will follow suit this week as well. Meanwhile, the Senate Appropriations Committee moved forward a spending plan for the rest of this fiscal year, and President Obama is making the rounds on Capitol Hill to drum up support for a grand bargain on the national debt. These developments could shape prospects for long-term debt action.

Dueling Budgets – The Ryan budget plan reflects the priorities of Republicans who run the House and will cut $4.6 trillion in federal spending over ten years compared to current policy in order to balance the budget. The Murray budget is the standard bearer for Democrats controlling the Senate and features $1.85 trillion in deficit reduction through a mix of spending cuts and additional revenue. The House Budget Committee will mark up the Ryan budget on Wednesday and the Senate Budget Committee is expected to finish marking up the Murray budget on Thursday. Both budgets are expected to be considered on the floors of their respective chambers next week where they will compete with other proposals and amendments. While the two plans have little in common, considering both approaches could spark a necessary debate on fiscal priorities and what fiscal direction the country should take. Check out our criteria for what to look for in budget plans. Read our statement and see our preliminary analyses of the Ryan budget here and here, and come back for more throughout the week.

More to Come – Missing so far is a budget proposal from the White House, which missed the statutory first Monday in February deadline because of the fiscal cliff uncertainty at the end of last year. Sources say the budget could come on April 8. The Obama budget is expected to follow his previous outline for a mix of spending cuts and tax increases.

President Obama Comes to the Hill – As part of his new effort to reach out to lawmakers, President Obama will meet with both parties in both chambers this week. One of the top issues he will discuss is the national debt and a possible grand bargain to address it. Obama wants any debt deal accomplished by the end of July ahead of the next debt ceiling fight.

Senate Moves on Spending Bills – While Congress moves on next year’s budget, lawmakers are also trying to put spending for the rest of this year to rest. The stopgap measure currently funding the federal government expires on March 27 and Congress is working to avoid a government shutdown and fund the government for the rest of the fiscal year ending September 30. The House already passed legislation that takes sequestration into account and gives added flexibility to defense and veterans programs for meeting the cuts mandated by the sequester. The Senate Appropriations Committee agreed on a bill that will extend the flexibility to agriculture, homeland security and commerce, justice, and science. Democrats had to give up on flexibility for other areas, which was included in their original draft. The Senate will debate the measure this week, and votes on some amendments will be allowed.  

Tax Reform Moves Forward – House Ways and Means Chair Dave Camp (R-MI) released a draft proposal to reform small-business taxes on Tuesday as part of a larger push for fundamental tax reform. Underscoring how serious the effort is, lobbying on the matter is picking up steam considerably.

Pressure for Entitlement Reform – Although President Obama signaled he is open to some entitlement reforms as part of a comprehensive debt deal that also includes new revenue, many Democrats in Congress are leery of going there. Now comes some pressure to address the issue. Left-of-center Third Way warns that failure to address the unsustainable finances of entitlements will harm investments in areas such as education and infrastructure. Similarly, Isabel Sawhill of the Brookings Institution and Harry Holzer of the Georgetown University contend that entitlements must be reformed in order to preserve adequate funding that will strengthen the country in the future.

Key Upcoming Dates (all times are ET)

March 13

• House Budget Committee mark-up of FY 2014 budget resolution at 10:30 am.
• Senate Budget Committee begins mark-up of FY 2014 budget resolution at 2 pm.
• Senate Homeland Security and Governmental Affairs Committee hearing on "The Costs and Impacts of Crisis Budgeting" at 2:30 pm.

March 14

• Senate Budget Committee continues mark-up of FY 2014 budget resolution at 9 am.

March 15

• Dept. of Labor's Bureau of Labor Statistics releases February 2013 Consumer Price Index data.

March 27

• Current continuing resolution (CR) funding the federal government expires.

March 28

• Bureau of Economic Analysis releases third estimate of 2012 4th quarter and annual GDP.

April 5

• Dept. of Labor's Bureau of Labor Statistics releases March 2013 employment data.

April 15

• Congress must pass a budget resolution as specified in the Congressional Budget Act. Also, due to the debt ceiling suspension bill, lawmakers will have their pay withheld after this date until their respective chamber passes a resolution.

April 16

• Dept. of Labor's Bureau of Labor Statistics releases March 2013 Consumer Price Index data.

April 26

• Bureau of Economic Analysis releases advance estimate of 2013 1st quarter GDP.

May 3

• Dept. of Labor's Bureau of Labor Statistics releases April 2013 employment data.

May 16

• Dept. of Labor's Bureau of Labor Statistics releases April 2013 Consumer Price Index data.

May 19

• The debt limit is re-instated at an increased amount to account for debt issued between the signing of the suspension bill and this date. After re-instatement, the Treasury Department will be able to use "extraordinary measures" to put off the date the government hits the debt limit potentially for a few months.

May 30

• Bureau of Economic Analysis releases second estimate of 2013 1st quarter GDP.

Budget season is underway! House Budget Committee Chairman kicked off the budget resolution exchange by releasing his FY 2014 budget "The Path to Prosperity." As has been the case over the past few years, Ryan has shown an aggressive spending-side approach to getting debt and deficits under control. Let's take a look.

Congressman Ryan outlines a budget with $4.6 trillion in savings relative to a current policy baseline that includes the sequester cuts. Relative to CBO's current law baseline, the savings are about $5.7 trillion, and relative to the CRFB Realistic baseline, the savings total $6.1 trillion. You can see a more detailed breakdown of how the plan compares to different baselines below.

As we wrote last week, Ryan's last budget was already close to achieving the goal of balancing the budget in the tenth year, and he succeeds with a surplus of $7 billion in 2023. Debt would fall from 77.2 percent of GDP in 2014 to 54.8 percent of GDP in 2023.

To achieve these savings Ryan proposes a number of changes, many in health care. Ryan finds the most significant savings by repealing most of the spending increases in the ACA, including the Medicaid expansion and the exchange subsidies, but leaving the revenue increases and spending cuts in place. This saves about $1.8 trillion over ten years. He also proposes block-granting Medicaid and reducing spending on the program by about $750 billion. Medicare is largely unchanged in the first ten years, although Ryan does propose additional means-testing of premiums and tort reform. The budget, of course, still has premium support for Medicare beneficiaries born after 1959 starting in 2024. Medicare again is allowed to compete with private plans and bids are tied to the second-lowest bid or fee-for-service Medicare's bid, whichever is lower. The backstop growth rate of payments is GDP growth plus 0.5 percent.

Ryan's budget also contains a great number of cuts to domestic spending. He proposes reforms to the Pell Grant program, block granting of food stamps, farm subsidy cuts, increased federal employee retirement contributions, reforms to financial regulations, and the winding down of Fannie Mae and Freddie Mac. Ryan also retains the across-the-board cuts in sequestration, but it appears he would re-allocate at least some of the savings from defense to non-defense.*

On the tax side, Ryan proposes revenue-neutral tax reform similar to what he proposed last year, although he would maintain the revenue levels from the American Taxpayer Relief Act and the Affordable Care Act's tax increases. He would consolidate the tax code into two rates of 10 and 25 percent, repeal the Alternative Minimum Tax, and reform the corporate tax code to achieve a top marginal rate of 25 percent and a territorial tax system.

Below is a breakdown of the savings in the Ryan budget as we understand them, measured against three different baselines. As more information is made available, we will update this table with further details.

^{Source: House Budget Committee, CBO, CRFB calculations
*The budget resolution includes a deficit neutral “reserve fund” to pay for the doc fix, but does not offer details on the pay-fors.
^Current law assumes continued funding at inflation-adjusted levels for war spending and Hurricane Sandy disaster funding. By assuming a more realistic funding path, the Ryan budget is $931 billion below current law, but we would not count these savings as real.}

Ryan has certainly outlined a bold approach, albeit one that relies entirely on the spending side. However, it does show that significant deficit reduction can be achieved, even beyond the $2.4 trillion target we have proposed.

We will publish further analysis of the Ryan budget and Senate Budget Committee Chair Patty Murray's (D-WA) budget throughout the coming week.

*This sentence has been clarified since its original posting to indicate that the budget would shift funding to -- and thus shift sequester cuts away from -- defense spending.

Note: CRFB Realistic numbers have been corrected since original posting. Doc fix numbers have been changed to include interest.

Last Friday, the CBO released a report showing how much the business cycle has affected budget deficits since 1960. The report shows the effect that automatic stabilizers -- features of the budget that tend to automatically push up/down spending and revenue based on cyclical economic effects -- have had and what the budget would look like assuming that the economy is operating exactly at its potential. Examples of automatic stabilizers include income and payroll tax revenue falling as incomes fall during a recession and spending on safety net programs increasing as more people turn to them for assistance.

CBO finds that automatic stabilizers in recent years have been higher as a percent of potential GDP -- in the 2.5 to 3 percent range -- than at any other time since 1960 with the exception of a few years following the early 1980s double dip recession. This is not surprising, as we have had an output gap of about $1 trillion annually since 2009, or around 6 to 7 percent of potential GDP. The CBO expects the output gap to remain around $1 trillion through 2014, when it will decline until it is closed by mid-2017.

The chart below shows the difference between automatic stabilizer-inclusive and automatic stabilizer-exclusive deficits since 1960. Note that for future years, these estimates use current law assumptions.

^{Source: CBO}

One thing to note about these numbers is that even when automatic stabilizers are accounted for, the remaining deficit sometimes follows the business cycle as well. This is because automatic stabilizers do not count discretionary use of fiscal policy that policymakers often resort to during recessions. Conversely, when the economy is operating at full potential, they are often inclined to reduce deficits through policy changes, like what happened in the 1990s. In this business cycle, the decline in the cyclically-adjusted budget deficit since 2009 represents both specific policy changes (discretionary spending caps and tax increases) and the fading out of things like the 2009 stimulus.

Looking forward, as one can see from the chart above, CBO projects that the cyclically-adjusted deficit will decline from a high of 7.1 percent of potential GDP in 2009 to 0.4 percent in 2015 before rising to 2.9 percent by 2018. Although the report does not include numbers beyond 2018, we know that the deficit is projected to increase to 3.8 percent by 2023 under current law and that the economy will be operating at its potential during that time (at least in CBO's projection) so the total deficit would be the same as the cyclically-adjusted deficit.

CBO's report makes clear that the budget and the economy are closely related. Going forward, though, it makes clear that while a significant portion of our current deficit is cylical, it will not disappear even once we reach full employment and erase the output gap. In fact, it will grow significantly over the long term. That calls for a deficit reduction plan that addresses our longer-term structural deficits and phases in gradually.

The Urban Institute's Robert Berenson, John Holahan, and Stephen Zuckerman recently released a very useful paper entitled "Can Medicare Be Preserved While Reducing the Deficit?" The paper presents a number of Medicare reforms for beneficiaries, providers, and health insurance plans, with gross savings of $735 billion and savings of $600 billion net of a repeal of the Sustainable Growth Rate (SGR) formula.

Of the total gross savings, $535 billion comes from the spending side, and $200 billion comes from additional revenue. The authors detail a number of ways that Medicare costs could be reduced by better targeting resources towards beneficiaries who need them more, by encouraging lower-cost options and greater price sensitivity, and by reducing provider payments where services are overvalued.

First, the authors present three findings about Medicare:

1. Although Medicare spending is estimated to grow at 6 percent a year, the problem is not program inefficiency. Rather, it is the combined effect of annual enrollment growth of about 3 percent and a similar rate of growth in spending per enrollee—the latter is lower than commercial health insurance.
2. There is no evidence that competition among private health plans, alongside or replacing Medicare, would decrease costs. Medicare Advantage plans have lower costs than traditional Medicare in only about 15 percent of counties, representing 30 percent of Medicare Advantage spending. In all other counties, Medicare Advantage plans have costs equal to or greater than traditional Medicare.
3. Medicare has led payment reform in the past and continues to do so. From the implementation of the inpatient prospective payment system in 1984 to the myriad of prospective payment systems for other services, Medicare has created payment systems that have been adopted by other payers and hold the potential for further spending reductions.

Their package of reforms includes:

• Medicare age increase with buy-in: To address changing demographics, the authors recommend increasing the Medicare age to 67. However, for those age 65 and 66, they would offer an actuarially fair "buy-in" so seniors above 65 could continue to receive Medicare benefits. For the top half of the income spectrum, 65- and 66-year olds would pay the full cost of their benefits. Those with incomes below 400 percent of the poverty line would receive subsidies equal to those provided under the Affordable Care Act. Those making below 133 percent of the poverty line -- who would generally qualify for Medicaid under the Affordable Care Act -- would instead receive a full Medicare premium subsidy from the federal government. By having a buy-in plus subsidies for lower-income people, the authors address two common critiques of the Medicare age increase. Overall, they expect this proposal would save $90 billion over ten years.
• Restructured cost-sharing and premiums: The report, like many other reform plans, would restructure Medicare's cost-sharing in a number of ways. First, they would have a single income-related deductible for Parts A and B. It would be higher than the current deductibles for people over 400 percent of the poverty line, about the same for people between 300 and 400 percent, and lower for people below 300 percent. Second, they would raise Part B and D premiums from about 25 percent of program costs to 40 percent, again limiting premiums to a similar amount by which they would be limited with the premium tax credits in the Affordable Care Act. Third, they would have an out-of-pocket cap on total cost-sharing again based on income. For example, the cap could be $6,000 for people at 400 percent of the poverty line or higher, gradually reducing to zero for people at or below 133 percent. Finally, they would limit Medigap supplemental coverage of cost-sharing by, for example, prohibiting Medigap from covering the first $500 and 50 percent of the next $4,950. They estimate these reforms could save $150 billion.
• Medicare Advantage benchmark reductions: The Affordable Care Act reduces Medicare Advantage (MA) benchmarks, which determine how much insurance plans are paid in Part C, to 95, 100, 107.5, and 115 percent of traditional Medicare's costs for counties with the highest to lowest costs, respectively. Although this does reduce overpayments in MA, the authors would go further. Instead of this schedule of benchmarks, they would have benchmarks be set at 95 percent of traditional Medicare's costs for the highest cost areas and 100 percent for everyone else. They estimate this would save $30 billion.
• Prescription drug rebates and reforms: The authors would take two main steps to reduce prescription drug costs in Part D. For one, they would expand drug rebates that drug manufacturers currently provide to Medicaid to dual eligibles in Medicare as well, savings $137 billion over ten years. Second, they would encourage substitution of generic drugs for brand-name drugs for people with subsidized cost-sharing in Part D (people below 135 percent of the poverty line) by eliminating cost-sharing for generic drugs and having a $6 co-payment for substitutable brand-name drugs. This would save an estimated $17 billion.
• Reductions in certain provider payments: The authors propose reducing spending on indirect medical education (IME), which pays for clinical costs associated with graduate medical education (GME). They would significantly reduce spending on IME and re-orient the program to incentivize training physicians to provide higher-value, lower-cost care, saving $50 billion. The authors also would reduce payments to skilled nursing facilities (SNFs) and home health agencies (HHAs), two groups of providers that currently have very high profit margins. Rather than just lowering payments, they would also create a shared savings factor which would allow SNFs and HHAs to keep a share of payments that exceed their actual costs. This policy could save $35 billion.
• Reforms to physician payments: Naturally, the authors would repeal the SGR formula, which sets physicians up for a 25 percent cut in payments next year, costing $140 billion. To replace the system, they would target areas where services are misvalued and payment differentials based entirely on where a service is performed. For one, they would reduce fee schedules for non-primary care physicians by 6 percent over three years and leave them flat for the next seven, saving $15 billion. To address the latter problem mentioned above, they would reduce payments for hospital outpatient services to be roughly equal with those for physicians performing the same services outside a hospital setting. Payments for services that are exclusively performed in a hospital would be increased. Finally, payments for clinical labs would also be reduced, since the marginal cost of tests are generally small. Overall, these reforms would save $25 billion.
• Hospital Insurance (HI) tax: Recognizing the role that the aging of the population has in the growth of Medicare spending, the authors suggest compensating for the rise in beneficiaries by raising the Part A's funding source, the HI tax, by 0.5 percent starting in 2017. This would raise $200 billion through 2022.

This paper includes a number of targeted and thoughtful reforms to reduce Medicare spending. Policymakers would be wise to take notice, as these proposals could be very useful. They should certainly be on the table, along with the numerous other health care reforms that have been proposed in recent years.

With the new expectation that the House budget resolution will reach balance in 10 years -- more than 15 years earlier than was projected last year -- there has been much speculation about how House Budget Committee chairman Paul Ryan (R-WI) will modify last year's budget to reach the more aggressive target. Jeanne Sahadi of CNNMoney has an article talking with budget experts, including our own Marc Goldwein, about ways in which the budget could balance within a decade. The ideas involve more optimistic assumptions, more aggressive health spending cuts, or an earlier start date for Medicare premium support. 

But the first idea mentioned in that article may be the most accurate one: banking the revenue increases from the fiscal cliff deal (ATRA). The deal reduced 2014-2023 deficits by about $850 billion relative to current policy, thus improving the budget outlook. Since these tax increases were not included in last year's House budget, they would improve the budget outlook automatically, assuming that Ryan chose not to roll them back.

In fact, when taking into account other changes in CBO's baseline since March 2012 (the one the House budget was based off), most of the work may have already been done. The 2022 deficit in last year's House budget was estimated at $287 billion. The fiscal cliff deal, according to the OMB, will shave about $125 billion off that. Other non-legislative changes in CBO's baseline since March 2012, some of it coming from reduced health spending, reduce the 2022 deficit by an additional $75 billion or so. If the budget chooses to account for a timing shift which pushes payments that would be made in FY 2023 into FY 2022 (as the CRFB Realistic baseline does), that would take another $45 billion off the year's deficit. Thus, the budget would only need to make additional cuts beyond last year's budget of about $40 billion to reach balance in nine years. The story would likely be similar for 2023.

^{Source: CBO, OMB, CRFB calculations
Note: Other than 2012 House budget resolution deficit, numbers are rounded.}

Richard Kogan of the Center on Budget and Policy Priorities reaches a similar conclusion in an exchange with Ezra Klein. He notes that both the economic and technical changes and deficit reduction from ATRA have reduced 2014-2023 deficit projections by $1.6 trillion. In addition, although the budget did not balance until around 2040, it was relatively close to balanced ten years out.

One caveat to this analysis is that the specific numbers in this post depend on how the budget is scored this time. Certain policies could be scored differently, and interest savings will generally be larger than projected previously because interest rates are projected to be higher. It is unknown if or how the updated scoring could factor in.

Still, after speculation about how the House budget might change to reach its new goal, the answer might actually be: not much.

After the Storm – Winter Storm Saturn moved through the Washington, DC area on Wednesday and was given the nickname "Snowquester" by the inside-the-beltway crowd, named after the budget sequester that kicked in last week. After much hype the storm brought little snow within the Washington city limits, causing many to compare the storm to its namesake as an over-hyped event with little impact. Yet, locations just an hour west of the DC Metropolitan area saw snow accumulation of a foot or more. Is it possible the sequester will have a similar impact? While those inside the DC beltway bubble see little change, those outside it are significantly affected? Only time will tell.

Sequestration Blankets the Landscape – The automatic spending cuts of the sequester officially were triggered on Friday with an order from President Obama as the two sides could not agree on how to replace it. Dueling alternatives both failed in the Senate. The White House also provided some details on how the across-the board cuts will be implemented, with 9 percent cuts to domestic programs and 13 percent cuts to defense to achieve the total of $85 billion in cuts this year. Federal Reserve Chair Ben Bernanke recommended to legislators in congressional testimony that they replace sequestration with a smarter, long-term plan. “To address both the near- and longer-term issues, the Congress and the administration should consider replacing the sharp, front-loaded spending cuts required by the sequestration with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run.”

Plowing Into the Next Deadline – With the sequester hitting, policymakers moved right on to the next fiscal deadline, the March 27 expiration of the continuing resolution that is funding the federal government in lieu of a budget. The government will shut down without another stopgap measure or more detailed spending plan. While there is talk of using the opportunity as a vehicle to replace or at least alter the sequester, both parties are wary of causing a government shutdown. On Wednesday the House of Representatives passed a stopgap measure that factors in the sequester and provides more flexibility for defense and veterans programs to make the cuts mandated by the sequester. The Senate and White House will seek to expand the bill to provide similar flexibility to other programs. After they negotiate the latest drill, there are plenty more fiscal speed bumps ahead.

Blizzard of Budgets Coming – House Budget Committee Chair Paul Ryan (R-WI) says he plans to unveil his fiscal year 2014 budget blueprint next week. It will balance the budget in ten years. Senate Budget Committee Chair Patty Murray (D-WA) is working on a budget as well that could be released next week. Under a law passed earlier this year, members of Congress will have their pay withheld if their chamber does not pass a budget by April 15. While the two budgets will be worlds apart, the Washington Post points out that conference committee negotiations to reconcile the two approaches could possibly be the impetus for a bipartisan deficit deal. Meanwhile, the White House will not release its budget request until later in the month, possibly March 25. The White House missed the early February deadline for submitting a budget due to the fiscal cliff. Relatedly, on Tuesday the House passed a bill requiring that the annual budget submissions of the President provide an estimate of the cost per taxpayer of the deficit.

President Looks to Thaw Relations – President Obama reached out to rank-and-file Republicans this week with phone calls and dinner and will speak to both party’s caucuses on Capitol Hill. It is part of an effort to bypass the party leadership in garnering support for a deficit deal. The outreach comes as some Republican lawmakers have suggested they would be willing to accept additional tax revenue as a part of a grand bargain and as the President has reiterated his support for entitlement reforms as a part of a deal.

Tax Reform Snowballs – Fundamental tax reform may be the best vehicle for generating bipartisan support for more revenue. The Simpson-Bowles plan showed the way for tax reform that can simplify the tax code, lower rates, and reduce the deficit by eliminating or limiting tax credits, deductions and other loopholes known as tax expenditures. Senator Murray held a Budget Committee hearing on the topic on Tuesday, and her budget proposal may include reconciliation instructions for tax reform, which would make it easier to pass by making it filibuster-proof. Meanwhile, both the House and Senate tax-writing committees are pushing a coordinated reform effort, and Speaker Boehner says that tax reform will be designated a H.R. 1 in the House, a sign that it is a priority. Economists are also signaling support for tax reform.

Key Upcoming Dates (all times are ET)

March 8

• Dept. of Labor's Bureau of Labor Statistics releases February 2013 employment data.

March 15

• Dept. of Labor's Bureau of Labor Statistics releases February 2013 Consumer Price Index data.

March 27

• Current continuing resolution (CR) funding the federal government expires.

March 28

• Bureau of Economic Analysis releases third estimate of 2012 4th quarter and annual GDP.

April 5

• Dept. of Labor's Bureau of Labor Statistics releases March 2013 employment data.

April 15

• Congress must pass a budget resolution as specified in the Congressional Budget Act. Also, due to the debt ceiling suspension bill, lawmakers will have their pay withheld after this date until their respective chamber passes a resolution.

April 16

• Dept. of Labor's Bureau of Labor Statistics releases March 2013 Consumer Price Index data.

April 26

• Bureau of Economic Analysis releases advance estimate of 2013 1st quarter GDP.

May 3

• Dept. of Labor's Bureau of Labor Statistics releases April 2013 employment data.

May 16

• Dept. of Labor's Bureau of Labor Statistics releases April 2013 Consumer Price Index data.

May 19

• The debt limit is re-instated at an increased amount to account for debt issued between the signing of the suspension bill and this date. After re-instatement, the Treasury Department will be able to use "extraordinary measures" to put off the date the government hits the debt limit potentially for a few months.

On Friday, the Office of Management and Budget (OMB) released its latest detailed report of how the cuts in sequestration will be allocated. The sequester was reduced by $24 billion under the fiscal cliff deal, so the cuts are slightly smaller as a percentage of full fiscal year spending than under OMB's previous report (with the exception of the Medicare cuts).

The percentages by which each category of spending would be cut differ slightly from the previous estimates of the sequester after the American Taxpayer Relief Act (ATRA) from the Center of Budget and Policy Priorities. We have updated those estimates of the sequester reductions below. Defense spending is facing a nearly 8 percent cut, Medicare spending is still facing a 2 percent cut, and non-defense spending is facing about a 5 percent cut. However, the report notes that because the cuts are squeezed into 7 months, the effective percentage reduction for defense programs is closer to 13 percent, and 12 percent for non-defense programs.

^Source: OMB

The report also warns, in harmony with private forecasts, that the sequester could reduce economic growth in 2013 by 0.5 to 0.7 percent. CBO director Doug Elmendorf previously said that the cuts could reduce growth by about 0.6 percent.

The chart below shows where the cuts would fall relative to their proportion of the budget.

^{Source: OMB, CRFB calculations}

Debt on its current path is unsustainable, and deficit reduction needs to be a primary concern for lawmakers are they look to deal with the sequester. A well-designed deficit reduction plan may help grow the economy over the longer term. A report from the Congressional Budget Office estimated that a $2 trillion deficit reduction plan could increase output by nearly one percent by 2023.

Sequestration is a particularly dumb way reduce the deficit. It doesn't distinguish between wasteful and valuable spending, is not slowly phased-in to allow people to prepare and to minimize short-term economic harm, and doesn't address the main drivers of the increase in spending, demographics and health care cost growth. But we cannot send the message that we are unserious about dealing with our debt problem and kick the can further down the road. Hopefully, lawmakers use the sequester as an opportunity to find an agreement with the $2.4 trillion in deficit reduction we need to put debt on a clear downward path.