The Bottom Line

April 3, 2015

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

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

April 2, 2015

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

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

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

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

April 2, 2015

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

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

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

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

April 2, 2015

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

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

April 1, 2015

Update: Director Hall has written an introductory blog post.

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

April 1, 2015

With the Murray-Ryan deal expiring at the end of September, the sequester will once again be a hot topic as lawmakers will be prompted to deal with the discretionary spending reductions it prescribes. Despite the House and Senate being controlled by the same party, their budgets take very different approaches to the sequester. The two budgets have large differences in the amount of defense and non-defense discretionary spending and slight differences in their approach to war spending. Although both only get a small portion of their deficit reduction from discretionary spending, the two budgets get there in different ways. In addition, the Senate budget provides a more realistic method for a future sequester relief deal, by establishing a deficit-neutral reserve fund for that purpose.

Both budgets abide by the sequester levels for non-war spending for FY 2016, although they would also effectively raise defense spending by creating a $38 billion slush fund in war spending so that their total defense requests equal the President's budget, which instead provides sequester relief through the normal channel, offset with other savings. After 2016, the budgets would remove the slush fund and make changes to the cap themselves.

 Changes in Discretionary Spending in the House and Senate Budgets (billions)
 Budget 2016 2017
2019 2020 2021
House NDD $0 -$44 -$63 -$71 -$79 -$84 -$92 -$100 -$108 -$117 -$759
Defense $0 +$38 +$50 +$49 +$47 +$45 +$43 +$41 +$38 +$36 +$387
Senate NDD $0 -$9 -$12 -$15 -$17 -$19 -$28 -$37 -$46 -$55 -$236
Defense $0 $0 $0 $0 $0 $0 -$14 -$14 -$14 -$14 -$56

March 31, 2015

Now that the Senate and House have passed their respective budget resolutions, a budget conference committee is right around the corner. One aspect of the competing resolutions that will have to be dealt with are provisions related to the budget process. Both budgets include provisions to address issues with the budget process that our Better Budget Process Initiative (BBPI) has identified. While we have previously written on both budgets' treatments of reconciliation instructions, below we’ll go further and highlight some of the other budget process provisions. 

The House

The House’s resolution embraces both the dynamic scoring rules put into place at the start of the 114th Congress as well as the rules prohibiting a general fund transfer from the Social Security Old Age and Survivors' Insurance (OASI) trust fund to the Disability Insurance (DI) trust fund that does not also improve overall solvency. In addition, the House’s budget scores general fund transfers to the Highway Trust Fund as new spending. This is significant given the impending insolvency of the Highway Trust Fund on May 31, one of the upcoming fiscal speed bumps.

We have advocated that the budget process should better focus on the long term. The House budget partially addresses this by including a long-term spending point of order.

The House budget also adds rules regarding so called fair-value estimates of government credit programs.  Specifically it provides for supplemental analysis from the Congressional Budget Office (CBO) at the request of the Chair or Ranking Member of the Budget Committee. Further, it allows the Chair of the Budget Committee to use this supplemental estimate as the official score for budget enforcement.

March 27, 2015
A Compilation of Doc Fix Offsets

We have spent much space on this blog highlighting the fact that temporary delays of the cuts dictated by Medicare's Sustainable Growth Rate (SGR) formula have almost always been offset (98% of the time since 2004), producing $165 billion in deficit reduction all told, almost entirely from health care programs.

And despite assertions to the contrary, these health savings shouldn’t be dismissed lightly. There have been numerous recommendations put forward by the Medicare Payment Advisory Commission (MedPAC), Health and Human Services' Office of the Inspector General (OIG), the Government Accountability Office (GAO), and others that likely would have been ignored but for the need to replace savings from the SGR.

MedPAC, for instance, has warned for years that Long-Term Care Hospitals (LTCHs) and Inpatient Rehabilitation Facilities (IRFs) are paid more than is necessary for many of the cases they handle. To offset the 10% cut dictated by the SGR in 2008, Congress adopted MedPAC recommendations to reduce payment updates for both IRFs and LTCHs, and also modified the prospective payment system for LTCHs. Then again in the 2013 “doc fix” bill, in line with recommendations under discussion by MedPAC at the time, Congress applied site-neutral payments for certain conditions treated in LTCHs.

The latest “doc fix” exemplifies this trend. The largest savings in the bill, from allowing the Department of Health and Human Services (HHS) to collect and use data on values of physician services to more accurately set Medicare payments, is a variant of a direct recommendation from MedPAC the last two years.

March 27, 2015

The bipartisan duo of Reps. John Delaney (D-MD) and Tom Cole (R-OK) have reprised a bill from last year to create a Social Security Commission. The bipartisan and bicameral commission would be required to come up with a plan to make Social Security solvent for 75 years.

The commission would involve 13 members, with 3 each appointed by the party leaders in the House and Senate and a Chair appointed by the President. It would have to report its recommendations within one year of its first meeting, and it would take 9 votes for the report to be sent to Congress. At that point, the legislation would get expedited consideration and an up-or-down vote in Congress.

Both Congressmen stressed the need to make changes to Social Security to avoid a large across-the-board cut in benefits when the program goes insolvent, currently projected to happen in 2033 according to the Social Security Trustees. Both also noted the need to move quickly, a smart move because the needed changes get larger the longer we wait.

March 26, 2015

The Senate is undergoing vote-a-rama, an annual event where the Senate considers hundreds of amendments before voting on the budget resolution. Of the dozens which are normally voted on, most are typically policy statements or messaging documents, rather than changes to the underlying numbers in the budget.

One of the few amendments that would actually lead to savings will be offered by Senator Mark Warner (D-VA). The amendment would restore $1.6 billion in funding on “program integrity” activities to reduce overpayments and fight fraud and abuse in Medicare, Medicaid, and disability programs. Program integrity funding is currently not included in either the House or Senate budgets, despite the fact that the Budget Control Act allows funding of up to $1.6 billion for these activities in FY 2016.

March 26, 2015

A big discussion has ensued in both the House and Senate about defense spending, and for the FY 2016 budget, that has meant how much to increase war spending (Overseas Contingency Operations) above the President's request which would effectively provide a defense slush fund. The original Senate budget had no slush fund at all, setting war spending at $58 billion and creating a point of order against exempting more than that amount from statutory spending caps that could only be overcome with 60 votes. However, an amendment in the committee markup increased war spending by $38 billion so that total defense plus war spending would match the President's budget, with the difference being that the President's budget provided $38 billion of sequester relief in 2016 and paid for it.

For background, the Budget Control Act established statutory caps on discretionary spending which have subsequently been reduced by sequestration, with any spending above the caps offset by an across-the-board cut in spending. For FY 2016, the limit on defense discretionary spending set by sequester is $523 billion, an increase of just $2 billion above the FY 2015 level. However, any spending designated as being for “Overseas Contingency Operations” is effectively exempt from those spending limits, creating temptation to use the OCO designation as a way to circumvent spending limits. The budget resolutions reported by the House and Senate legitimize this gimmick by setting defense spending levels that purport to comply with the spending limits under sequestration but blatantly create a slush fund by providing for substantially higher spending levels for OCO than the President requested.

The amendment offered in committee increased the amount of OCO spending in the Senate budget resolution, but it did not remove the point of order against the amount of spending that could be designated as OCO funding exempt from the statutory budget caps created by the Budget Control Act. This meant that an appropriations bill which used the $38 billion slush fund for "war spending" above the President's request could not exempt that extra spending from the BCA spending caps without 60 votes to get around the point of order. Otherwise, lawmakers would have to increase the normal defense spending caps by $38 billion and offset that spending or simply live within the current spending cap and $58 billion of war spending.

March 26, 2015

Despite official estimates tabbing the Medicare Sustainable Growth Rate (SGR) formula replacement bill at a cost of $141 billion this decade and implying it would add upwards of $500 billion to the debt over 20 years, lawmakers have taken to fuzzy math – or simply ignoring math altogether – in order to pretend that the bill is fiscally responsible.

Needless to say, applying that label requires some generous assumptions. Take, for example, a press release from the House Energy and Commerce Committee, which deserves a point-by-point refutation:

March 26, 2015

The Congressional Progressive Caucus (CPC) threw their hat into the budget ring last week with the release of their “People’s Budget”. This is the fifth time the CPC has released an alternative to the official House budget. The progressive budget offers a more liberal alternative than that proposed by either party or the President.

The CPC's budget proposes both higher taxes and greater spending in most areas. The budget calls for $7.4 trillion of savings via revenue and spending changes and $5.1 trillion in investments over ten years, resulting in $2.3 trillion of deficit reduction over the next decade, including interest savings. This deficit reduction would be sufficient to put debt on a downward path from 74 percent of GDP today to 66 percent of GDP in 2025. By contrast, CBO estimated that debt under the President's budget would be 73 percent, or about where it is today.

March 26, 2015

The House Ways & Means Committee on Wednesday approved the “Death Tax Repeal Act of 2015,” which would permanently repeal the estate tax that applies to inheritances over $5.43 million. Repealing this tax would cost almost $270 billion over the next ten years, according to the Joint Committee on Taxation, or about $320 billion with interest. Since the bill does not include any offsetting revenue increases or spending cuts, the cost would be added to the national debt.

The bill repeals the estate tax on inheritances and its close cousin – the generation-skipping transfer tax.  The top rate on the gift tax, imposed on gifts of over $14,000 per person, is reduced from 40 percent to 35 percent. Since 99.8 percent of estates are worth less than the exemption amount, the $270 billion tax break would go to the wealthiest 0.2 percent of estates.

March 26, 2015

With budget consideration underway this week, the House has passed its own resolution and rejected several proposed alternatives, while the Senate budget is still in the debate and amendment process. So far, different FY 2016 budgets have been proposed by President Obama (and scored by CBO), the House Republicans (from Chairman Price), the Senate Republicans (from Chairman Enzi), the House Democrats (from Ranking Member Van Hollen), the Congressional Progressive Caucus (CPC), the Republican Study Committee (RSC), and the Congressional Black Caucus (CBC). Each budget offers a variety of different plans for funding the government over the next decade.

Importantly, each budget goes to varying lengths to at least temporarily reduce our debt as a share of the economy in the next 10 years, though some go farther than others. On one hand, the President's budget, the Van Hollen budget, and the Black Caucus budget leave debt stable or on a slight upward path after 2020. The Price, Enzi, Progressive, and Republican Study Committee's budgets all put debt on a clear downward path, with the RSC budget reaching 48.1 percent of Gross Domestic Product (GDP) by 2025.

March 25, 2015

Earlier today, the Congressional Budget Office (CBO) released its score of the Medicare Sustaintable Growth Rate (SGR) reform bill under consideration in the House. According to CBO, the legislation would increase federal deficits by $141 billion through 2025 and much further in the second decade. By our rough calculations, including interest, that means the SGR reform bill would add over $500 billion to the debt by 2035.

More specifically, CBO estimates the spending increases in the legislation will total $210 billion over the next decade. Only about one-third ($70 billion) of this spending would be offset, with a combination of provider reductions, increased means-testing of Medicare premiums, and other minor reforms. (Details are available in the table at the bottom of this blog.)

As we had predicted, savings would then grow in the second decade but not by enough to pay for costs. In fact, according to CBO it would most likely barely be enough offset the additional costs beyond a payment freeze.

March 25, 2015

While considering the FY 2016 budget, the Senate Budget Committee voted on about 50 amendments before passing the budget resolution on a party line 12-10 vote.  (We described the underlying budget here).  Some of these amendments were steps toward fiscal responsibility, some were steps backwards, and some were more mixed. Below, we describe the good, the bad, and the other notable amendments, even though not all of them passed.


March 24, 2015
How the House and Senate Use Reconciliation Instructions in Their Budgets

Although the numbers in the budget resolution draw a lot of attention, one of the most impactful parts of the resolution deals with budget process, setting up the parameters for legislation later in the year. A key part of this process is reconciliation instructions, which help turn the assumptions in the resolution into reality.  Additionally, it provides a bill prepared by a committee filibuster-proof consideration on the floor.  This legislation would need to be signed by the President and have the force of law, while the budget resolution does not. Both the Senate and House Budgets provide reconciliation instructions, starting this potentially powerful legislative process.

But what are reconciliation instructions?

Reconciliation instructions are directions to a committee to report legislation that changes existing law to bring spending, revenues, or the debt limit in line with the budget resolution. Reconciliation specifies the committee or committees, the nominal dollar savings needed, and sometimes a deadline for legislation to be reported. A reconciliation bill that comes to the floor cannot be filibustered in the Senate – meaning it does not need 60 votes – and has a 20-hour debate clock in both chambers (unless waived by rule or unanimous consent). Reconciliation's special privileges are important because they are intended to ease the passage of politically difficult (usually) deficit reduction legislation.

March 24, 2015
House to Vote on Two Competing Frameworks

In order to resolve disagreement between defense hawks and fiscal hawks, the House will vote on two competing budgets with different approaches to funding for Overseas Contingency Operation spending (also known as OCO or war spending) and offsets. Neither of these versions is responsible, but one is more irresponsible than the other.

The first and less irresponsible version is the original House budget provision, which would provide $94 billion for OCO, $36 billion above the President's request for FY 2016 and $20 billion above the current level of $74 billion. This increase fills in almost all of the difference in the non-war defense budgets between the House and the President, thus creating a slush fund to slip normal defense spending into the war category. This would effectively provide the same amount of sequester relief for defense spending for next year while purporting to comply with the sequester caps on paper. However, the budget does require that the $20 billion of spending above current law be offset, so it at least partially pays for this increase.

As potentially irresponsible as this approach is, it is not as bad as the alternative, which would eliminate the requirement that the $20 billion in spending above the FY15 level be offset. This approach is counterproductive in both legitimizing the use of OCO as a slush fund and undermining the principle that sequester relief must be offset by savings elsewhere in the budget.

March 24, 2015

House Budget Committee Ranking Member Chris Van Hollen (D-MD) yesterday released the House Democratic alternative budget, which provides similar deficit reduction to the President's budget. The budget reduces deficits on net by just under $1.3 trillion compared to CBO's baseline, the majority of which comes from eliminating war spending after FY 2016.

The budget would put debt on a downward path by its own numbers to 70 percent of GDP by 2025, down from 74 percent in 2015. However, it appears that the budget takes into account the economic benefits of immigration reform; using CBO's GDP numbers, debt would be on a stable (if not a slight upward) path at 72-73 percent in the latter part of the budget window.

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