The final budget of the Obama Presidency continues a mix of long-standing policies (including a few that have been in all eight budgets) and policies that are finding their way into the budget for the first time. With regards to new policies, some were previewed during the State of the Union address last month, while others have been laid out in the weeks since then. Here's a rundown of some of the major new proposals in the President's budget.
Business Tax Reform
In his past three budgets, President Obama had proposed a revenue-neutral reserve fund for business tax reform, which included several corporate tax changes amounting to a net tax increase that would offset a reduction in the corporate tax rate to 28 percent. This year, the President has largely maintained the policies that were included in the reserve fund but is now dedicating the $549 billion of revenue to deficit reduction to pay for the business tax cuts in last year's tax deal.
Clean Transportation Investments
The President's budget includes several proposals to tackle climate change, the most ambitious being a $312 billion over ten years clean transportation investment plan. The proposal includes $200 billion for transportation projects including subways, buses, rail, and the TIGER grant program (part of this funding reflects a previous budget proposal to increase surface transportation spending by $116 billion). Another $100 billion would go to state and local governments for clean infrastructure projects. Finally, $20 billion would go to clean transportation research for things like self-driving cars, electric vehicle charging stations, and clean energy airplanes. These policies would be paid for with another new policy in the President's budget: a $10.25 per barrel oil tax. This tax comes on top of a pre-existing policy to reinstate Superfund taxes, which include a 9.7 cent per barrel oil tax.
Medicare Advantage Competitive Bidding
It’s the end of the year and like so many organizations, CRFB wanted to share with you our top 10 list: a look back at Congress’s 10 top fiscal achievements of 2015.
The problem is, we couldn’t. Even pooling the creative minds of our entire staff, we could not produce 10 solid Congressional actions that reduced the national debt or deficit, or were a clear step toward a responsible federal budget.
Compiling a list of the year’s 10 greatest fiscal follies was a lot easier, so we are delighted to share that with you now.
Carrying on the tradition of retired Senator Tom Coburn (R-OK), Senator Jeff Flake (R-AZ) this week released the 2015 edition of the Wastebook: The Farce Awakens, where he cites 100 examples of wasteful federal spending totaling more than $100 billion. Sen. Flake's Wastebook is the latest in a series of lawmakers attempting to carry on Sen.
Senator James Lankford (R-OK), former Sen. Tom Coburn's (R-OK) successor, is maintaining the Debt Doctor's legacy with his Federal Fumbles book published Monday. Lankford examines federal programs, agencies, and regulations to come up with 100 "fumbles" that he thinks could be corrected in order to enhance efficiency and cut government waste while streamlining the essential services that government can and does provide. Not only does Lankford provide descriptions of each misstep, he also proposes a solution for each of them.
As Lankford notes:
The purpose of this book is to highlight the work needed to make the federal government more fiscally responsible and less burdensome on the American people. It is not intended to collect dust on a shelf, sit in somene’s [sic] email to wait for later, or just receive honorable mention in the history books. It is truly a guide for next year—to guide us while we work through the federal budget, to encourage federal oversight, and to remind those of us who work in the federal government that we must be responsible servants of the people.
The Bipartisan Budget Act of 2015, signed into law earlier this week, is fully offset over the next ten years, according to the scoring conventions of the Congressional Budget Office. However, we showed that the deal truly offsets only half its cost if you include interest costs and exclude the savings from several budgetary gimmicks. This blog explains the five gimmicks used in the deal.
Republican Presidential candidate Ben Carson has frequently talked about constraining the growing national debt, and this summer said that "you could balance the budget by just not spending one penny more than we do today each year for the next three years. No cuts, just no growth for three years. Surely, serious adults could agree on that." This claim is technically correct, but unrealistic as it lacks context of what it would actually take to freeze all spending.
According to CBO, the federal government spent $3.68 trillion in FY 2015, which would be $50 billion lower than the $3.73 trillion of projected revenue in 2018. Yet freezing total spending is not as easy as Carson suggests. It would mean allowing spending to erode relative to inflation, population growth, GDP growth, and other pressures. In fact, relative to projected spending, it would represent a $500 billion spending cut in 2018 alone – a 12 percent cut to total spending and 13 percent to non-interest spending.
Congressman Scott Rigell (R-VA) released a plan today we might like even better than our own Sequester Offset Solutions (SOS) plan. Congressman Rigell's America First Act would permanently replace about three-quarters of the sequester-level cuts with a combination of mandatory spending cuts, Medicare reforms, limits on tax expenditures, and the savings and revenue from the adoption of the chained CPI. All told, it would reduce the debt by about $135 billion after a decade and according to our estimate nearly $2.5 trillion over twenty years.
Rigell's Plan would raise discretionary caps by about $630 billion over ten years and repeal $135 billion in mandatory sequester cuts, for a total cost of $765 billion. He would more than offset these costs with $820 billion of savings – including $620 billion from spending (and user fees) and $200 billion from tax revenue. He would also save $125 billion over ten years from Social Security, reducing the shortfall by approximately 15 percent.
To achieve these savings, Rigell's plan focusses largely on slowing the unsustainable growth of federal health spending. His plan includes over $450 billion of health savings. About one-third of this comes from beneficiary-oriented changes such as modernizing cost-sharing, restricting Medigap coverage, encouraging the use of generic drugs, and increasing means-tested Medicare premiums. Another half of the savings come from providers, where his plan would bundle payments for post-acute care, reduce hospital payments for medical education, equalize payments for services performed in different settings, reduce reimbursements for bad debts, and "rebase" nearly all payments to post-sequester levels.
The $165 billion of remaining spending reductions in the Rigell plan come from a variety of sources, many of which we recommend in our Sequester Offset Solutions (SOS) plan. For example, his plan would index various user fees to inflation, increase federal employee retirement contributions, increase PBGC premiums, and adopt the chained CPI for other spending, among other changes.
This blog is part of the “Fiscal FactCheck” series designed to examine the accuracy of budget-related statements made during the 2016 presidential campaign.
Last night marked the first Democratic Presidential debate, held in Las Vegas, and the candidates debated a number of different issues. While they did not mention any of our 16 Budget Myths to Watch Out For in the 2016 Presidential Campaign, there were other claims that related to the federal budget. Below is our analysis of these claims, and be sure to check our other fact checks of the first and second Republican debates.
Eliminating the Payroll Tax Cap Could Extend Solvency to 2061 and Allow for Expanded Benefits
Sen. Bernie Sanders (I-VT) discussed his plans to increase Social Security benefits and extend the program's solvency by saying "And the way you expand it is by lifting the cap on taxable incomes so that you do away with the absurdity of a millionaire paying the same amount into the system as somebody making $118,000. You do that, Social Security is solvent until 2061 and you can expand benefits." He is presumably referring to his plan that the Social Security Administration (SSA) evaluated in 2013, a plan that taxed all income over $250,000 and allowed the current payroll tax cap to eventually catch up so that all income was taxed. This plan did extend solvency to 2061 -- leaving a deficit of 1.5 percent of payroll in 2062, growing to 2 percent by 2090 -- but did not also increase benefits. If it had increased benefits, the insolvency date would be sooner.
This blog is part of a series of "Policy Explainers" for the 2016 presidential election, where we will explain some of the candidates' policy proposals that affect fiscal issues.
One of Democratic presidential candidate Hillary Clinton's first major policy proposals focused on college affordability. Called the "New College Compact," Clinton offered a two-pronged plan that aims to reduce costs for new students and reduce debt for past students. The plan is fully paid for and includes several ideas that have already been suggested by policymakers.
The two major goals of Clinton's plan aim to make college more affordable for both new and current college students and lessen the burden of student loan debt by: (1) controlling the rising costs of higher education and (2) reducing educational debt for those already with student loans.
A recent Wall Street Journal article highlighted the shortfalls facing the Pension Benefit Guaranty Corporation (PBGC), which guarantees defined-benefit pensions in the private sector. The financial condition of PBGC has improved due to a recovering economy and increased premiums brought about in the Murray-Ryan budget agreement. In 2013, before the agreement, the projected ten-year shortfall of the PBGC was $32 billion in 2013; it was $7.6 billion in 2014 after the agreement.
Nonetheless, the PBGC continues to face funding challenges. The improvement in PBGC finances has only delayed the date by three years at which the multiemployer fund is projected to be exhausted (with the expected date in 2025 instead of 2022), meaning that further action by policymakers will be necessary to ensure the PBGC can meet its commitments without relying on a general fund bailout.
The PBGC is tasked with stepping in when pensions fail to provide minimum pension benefits and is financed by premiums paid by employers. The PBGC offers two insurance programs with different premiums, rates, and payout rules: one for single employer plans, and another for multiemployer plans. Lawmakers have already raised PBGC premiums twice recently, first in 2012 in the highway bill and again in 2013 with the Murray-Ryan budget agreement. Last year's CROmnibus also gave pension plans the authority to reduce benefits to avoid needing a PBGC bailout. Still, the multiemployer fund has financial problems.
In February, the Government Accountability Office (GAO) put out a report, estimating the PBGC had a combined financial long-term deficit of $61.8 billion for 2014. GAO’s report estimates PBGC’s potential future losses at $184 billion, mostly stemming from the multiemployer fund.