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
Update: Since this analysis, the Sanders campaign has added additional offsets to their website that will reduce the plan’s gap between new spending and new revenues, most significantly the taxation of capital gains at death. In the coming days, we will be updating our analysis to reflect the new additions.
Democratic presidential candidate Sen. Bernie Sanders (I-VT) recently released arguably his most ambitious policy proposal yet, to move to a single-payer health care system in the U.S., but debate quickly arose over just how much such a far-reaching proposal would actually cost.
The Sanders campaign relies on an estimate from UMass-Amherst economist Gerald Friedman suggesting the plan would cost $13.8 trillion over ten years. But Emory University health economist Kenneth Thorpe contends that it could actually cost closer to $24.7 trillion, particularly without simultaneously enacting very large provider payment cuts – which are not mentioned anywhere in Sen. Sanders's plan.
Sen. Sanders's single-payer proposal would cover every American under a single government-administered health insurance plan that would provide a comprehensive set of benefits, including things like mental health services and long-term care, with no cost-sharing. He also proposed several tax increases that his campaign claims would fully offset the cost of the plan.
Differing Cost Estimates
However, with many of the details left unspecified, including the exact services that would be covered and provider payment rates, different estimates have been produced that project widely different costs.
Friedman's estimate used by the campaign assumes that moving to single-payer would reduce national health spending by $10 trillion – or a full fifth – due to reduced administrative costs, reduced prices for pharmaceuticals and medical devices, and controls on administrative costs and drug prices (the estimate also assumes $3.7 trillion of added costs due to higher health utilization). It is unclear exactly how such dramatic savings would be achieved, and it would likely require tough choices that go far beyond simply adopting a single-payer plan, including significantly cutting provider payment rates closer to the much lower levels seen in some other nations with single-payer systems.
The deficit will grow from less than $550 billion in 2016 to $1.4 trillion in 2026, according to this week's report by the Congressional Budget Office (CBO), driven by a $2.5 trillion rise in spending that is only partially offset by a $1.7 trillion revenue increase. And according to CBO, nearly three-quarters of that spending increase comes from just three items – Social Security, Medicare, and interest on the debt.
CBO projects that Social Security spending will increase by about $700 billion over the next 10 years, while Medicare spending will increase by about $500 billion over the same period. These two programs account for 50 percent of the spending increase. Meanwhile, interest spending will rise nearly $600 billion over the decade – accounting for another quarter of the spending increase.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget and head of the Campaign to Fix the Debt, was interviewed by the George W. Bush Institute and appeared in The Catalyst. It is reposted here.
Social Security, Medicare, and other entitlement programs face an uncertain future as the funds that run the programs dwindle. Strong leadership will be needed to save these programs.
We asked Maya MacGuineas, president of the Committee for a Responsible Federal Budget and head of Campaign to Fix the Debt, these questions about one of America’s most pressing domestic challenges: reforming entitlement programs.
MacGuineas has spent a large part of her professional career working on budget issues, advising members of both parties on tax and spending policies. As she makes it clear, modernizing these programs starts with strong leadership.
Kicking off the new year in style, the Congressional Budget Office (CBO) released its latest estimate of the reconciliation bill passed by the Senate that aims to repeal parts of the Affordable Care Act (ACA), updating its numbers to account for the enactment of last year's tax deal. The bill repeals many key provisions of the ACA, including:
- Coverage expansions, including subsidies to purchase private insurance and the Medicaid expansion (starting in 2018);
- Certain other spending changes (such as the Prevention and Public Health Fund and the reductions in Disproportionate Share Hospital payments);
- Individual and employer mandates; and
- Most of the law's tax increases.
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.
The $700 billion price tag on the rumored deal to permanently extend expired tax breaks might actually be underselling just how expensive the package could end up being. If some of the delays in the deal beget permanent tax cuts (as at least many members of Congress intend), the price tag would grow substantially.
The reported package would delay three separate Affordable Care Act (ACA) taxes for two years, including one of the law's most important cost-control mechanisms. Although the two-year delays don't cost very much money on paper now, the cost of continuing to delay or completely repealing these taxes could climb over $1 trillion over the next 20 years. In a "fiscal worst case scenario," where the remaining tax extender provisions that expired after two years were also continued, the ultimate 20-year cost of this deal could be $4.1 trillion.
The three health-related delays currently rumored in the deal are the Cadillac tax, medical device tax, and the health insurer excise tax. Although our estimates are very rough and simply based on press reports about what is being considered, the two-year delays of each revenue source would cost about $40 billion over ten years. But if those delays become permanent, they would cost about $250 billion over ten years and $1.1 trillion over 20 years.
The Brookings Institution’s Center on Children and Families recently held an event to discuss issues for the 2016 presidential candidates to emphasize during their campaigns. Eight papers were presented on topics that will be of significance during this coming election cycle, including one on the federal debt by CRFB president Maya MacGuineas and Concord Coalition executive director Bob Bixby.
Alice Rivlin and Robert Reischauer, board members for the Committee for a Responsible Federal Budget, also wrote about important health care topics in their piece Health Policy Issues and the 2016 Presidential Election, which offers three recommendations for candidates during the campaign season. The paper advises candidates to put forward specific ideas to address the impending insolvency of the Medicare Trust Fund, address healthcare costs that are projected to accelerate in the coming years, and offer firm, cost-effective proposals to improve or replace (depending on the party) the Affordable Care Act.
There were many legislative developments in the past week, including the passage of a five-year highway bill and continued negotiations on a tax deal, and among them was the Senate's narrow passage of a reconciliation bill to repeal many key provisions of the Affordable Care Act. There were several amendments considered, but one of the more discouraging adopted amendments was a 90-10 vote to repeal the Cadillac tax (the original legislation instead delayed its start date to 2025). Over the weekend, the Washington Post editorial board rightly criticized the vote as a backwards step for health care policy.
The editorial gives a good summary of some reasons to claw back the tax preference for employment-based health insurance, as the Cadillac tax would do.
Current law provides a tax exclusion for employer-paid insurance. This is how nearly half the public gets insurance, but the exclusion subsidizes overutilization of health care, causes “job lock” by linking work and insurance, and redistributes income upward because tax breaks increase in value for higher income brackets. According to the Congressional Budget Office, 34 percent of the benefits go to the top 20 percent of income earners.
Repealing the exclusion would have been a progressive way to curb health-care costs and raise revenue for coverage expansion. Taxing high-value plans was a second-best solution that would claw back $87 billion in revenue between 2018 and 2025, according to the CBO.