House of Representatives
Update (6/12/15): A new CBO score estimates that repealing IPAB will cost $7.1 billion over ten years, with all of the cost recorded after 2021. The text has been updated to reflect this score.
The House Ways and Means Committee today will markup several bills, including repeal of the Independent Payment Advisory Board (IPAB) and the medical device tax. You can find out more about the markup on the Ways and Means Committee website.
Unlike full ACA repeal, these policies stand a chance of overcoming a Presidential veto due to the bipartisan support already exhibited for each: as of this writing, the medical device tax repeal bill in the House (HR 160) has 281 cosponsors while the IPAB repeal bill (HR 1190) has 233 cosponsors. However, repealing these policies without offsetting savings from health care or revenue would be a mistake. IPAB, in particular, should not be abolished without a replacement that can similarly restrain long-term Medicare cost growth.
The Joint Committee on Taxation (JCT) has estimated that repealing the 2.3 percent medical device tax would cost $26.5 billion over ten years. However, JCT estimates that the amendment in the nature of a substitute that is expected to replace the bill in markup will reduce revenues by $24.4 billion over the same period.
Although the original co-sponsors of the bill, Reps. Erik Paulsen (R-MN) and Ron Kind (D-WI), said they expect the bill to be offset, no cost-savers have been produced yet. We suggested bundling payments for inpatient care as one option, which not only would produce enough savings to fully offset repeal but also achieve much of its savings from providers cutting their medical device costs. Thus, the medical device industry would still be asked to contribute to deficit reduction, but in a more efficient manner. There are many other options available as well, as we showed at the time and in our latest health care options.
|Potential Offsets for Medical Device Tax Repeal|
|Memo: Repeal Medical Device Tax||-$24 billion|
|Expand bundled payments for inpatient care||$25 billion|
|Reduce state Medicaid provider taxes to 4.5 percent of patient revenues||$35 billion|
|Reduce Medicare coverage of hospital "bad debts"||$30 billion|
|Encourage use of generic drugs by low-income Part D beneficiaries||$20 billion|
|Equalize payments for similar services performed in different settings||$20 billion|
|Increase Medicare Advantage coding intensity adjustment||$20 billion|
|Increase Medicaid drug rebates||$10 billion|
|Move up "Cadillac tax" by one year to 2017||$35 billion|
|Eliminate tax breaks for oil and gas companies||$40 billion|
|Increase cigarette tax by 50 cents||$35 billion|
|Close "John Edwards/Newt Gingrich" loophole||$35 billion|
|Limit tax benefit of retirement accounts||$30 billion|
|Eliminate tax exclusion for private activity bonds||$30 billion|
|Require Social Security numbers for refundable portion of child tax credit||$25 billion|
|Eliminate the mortgage interest deduction for second homes and yachts||$15 billion|
Source: CBO, JCT
This week, Representatives John Carney (D-DE) and Jim Renacci (R-OH) introduced a bipartisan bill to improve the budget process. The Budget Integrity Act of 2015 contains many changes similar to the recommendations we have made in our Better Budget Process Initiative papers Improving Focus on the Long Term and Improving the Debt Limit.
The bill would make five main reforms:
1. Require Long-Term Cost Estimates for Legislation with a Significant Fiscal Impact – As we proposed in our paper, Improving Focus on the Long Term, the Budget Integrity Act would require more long-term scoring of select legislation. Specifically, it would require the Congressional Budget Office (CBO) estimates to include an analysis of the 30-year impact of legislation with a projected gross budgetary impact of at least 0.25 percent of Gross Domestic Product ($45 to $69 billion) in any year this decade. This is similar to the provision included in the conferenced budget resolution that we've written about.
2. Codify Rules Objecting to Legislation That Would Increase Long Term Deficits – As we mentioned in our paper, Improving Focus on the Long Term, Senate rules currently include a point of order against legislation that increases the deficit by more than $5 billion in any of the four decades beyond the 10-year budget window; 60 votes are required to wave this point of order. The Budget Integrity Act codifies this rule into law so it cannot be repealed or changed by a new Senate rule, and also applies this point of order to legislation in the House.
3. Require CBO and Office of Management and Budget (OMB) Reports on Revenue, Deficits, and Debt over 40 Years – The Budget Integrity Act proposes specifying that CBO and OMB should report 40-year budget outlooks with their normal 10-year projections. It also requires these reports to include long-term projections for both current law and current policy.
Big economic policy news came last week when lawmakers announced a bipartisan agreement (H.R. 1890) to revive Trade Promotion Authority in order to give fast-track consideration for trade deals. Flying somewhat below the radar are two accompanying bills introduced in the House (H.R. 1891 and 1892) that would extend various trade-related provisions and fully offset them. The Senate Finance Committee is marking up versions of these bills today, although there is only a CBO score for the Senate equivalent of H.R. 1891. Here's a rundown of what's in the House bills:
- Trade Adjustment Assistance: A main sticking point in the agreement was the fate of Trade Adjustment Assistance (TAA), which helps domestic workers who are adversely affected by imports. The deal extends TAA through June 2021 at a cost of $2.7 billion over ten years. In addition, the deal revives and extends the closely-related Health Coverage Tax Credit that subsidizes health insurance premiums for TAA recipients (among others). The credit expired at the end of 2013, but was one of the few provisions not revived in last year's tax extenders legislation. This legislation revives the credit retroactive to 2014 and continues it through 2019 at a cost of $173 million.
- Trade Preference Extensions: A separate bill from the TAA legislation would revive/extend several trade preferences. Specifically, it would revive the Generalized System of Preferences (expired since July 31, 2013) and extend it through 2017, extend the African Growth and Opportunity Act (which expires at the end of September) through FY 2025, and extend several preferences for Haiti (which expire in 2018 and 2020) through 2025. These extensions cost $5.8 billion.
- Customs and Merchandising Fees: Customs user fees have frequently been extended a year or two at a time, providing savings in the tenth year of the budget window. The most recent extension pushed them through 2024 in last year's highway bill and it was the only legitimate savings found in the bill. This bill would extend those fees through 2025, saving $1.7 billion. In addition, the trade preference legislation extends merchandising fees originally enacted in the Korean free trade agreement from June 2020 to June 2025, saving $5.9 billion.
In an ode to former Sen. Tom Coburn (R-OK) and his work to shed light on government waste with the annual publication of his Wastebook, freshman Rep. Steve Russell (R-OK) published Waste Watch No. 1 last week. It is the first publication in a series that hopes to expose areas where Russell thinks money could be spent more wisely. This installment identifies wasteful spending over the last few years in just ten government projects.
In Rep. Russell's words:
The items listed in this report total over $117 million. For the most part, this money has already been wasted. However, each item points to larger, ongoing issues that merit further oversight, investigation, or action by Congress in order to protect taxpayer money. Due to my 21-year background in the Army, most of the articles relate to defense and foreign policy—but I intend to scrutinize all areas of the federal budget. I look forward to working with my colleagues in Congress to dig into these and other issues to identify ways to save taxpayer money.
The Congressional Black Caucus (CBC) has released an alternative budget proposal highlighting their policy goals and preferred fiscal path for the coming years. The budget reduces the deficit relative to current law, bringing it to 2.3 percent of Gross Domestic Product (GDP) in 2025. The deficit reduction in the budget would result in a lower debt-to-GDP ratio, which would be just under 72 percent in 2025 - about 7 percentage points of GDP lower than under current law (CBC estimates it to be 68 percent with dynamic effects, or 11 percentage points of GDP lower than under current law). This budget supports many progressive policies focusing on programs intended to reduce poverty, also includes significant tax increases, and is very similar to the Democratic budget and the President's budget.
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.
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.
House Budget Committee Chairman Tom Price (R-GA) released his FY 2016 budget yesterday, outlining a framework that would significantly reduce the debt as a share of the economy and balance the budget by 2024. Our initial analysis of the budget showed it decreased deficits and placed debt on a clear downward path. This post examines the House budget's spending and revenue levels.
The Price budget achieves balance entirely on the spending side, using a cumulative $5.5 trillion of spending cuts over 10 years to gradually reduce spending from 20.4 percent of GDP today to 18.3 percent by the end of the decade. This brings spending and revenue closely in line, with the small difference made up for by an assumed "fiscal dividend" of about 0.3 percent of GDP in 2025.
We described some of the details of Chairman Price's $5.5 trillion in spending cuts here. They included significant reductions to both domestic discretionary and mandatory spending. Some of the largest cuts include a repeal of the coverage provisions in the Affordable Care Act and block granting Medicaid and food stamps. Beginning in 2017, the budget proposal would also cut future non-defense discretionary spending to well below sequester levels – by over $700 billion through 2025, on top of the $360 billion from sequester. At the same time, it would restore over $350 billion of the $550 billion of defense sequester cuts.
One of the most important functions of budget resolutions is to set the spending limits for the coming fiscal year. At first glance, the House budget would seem to take a straightforward approach by abiding by the sequester-level defense and non-defense caps for FY 2016. But as David Rogers of Politico points out, the budget in effect breaks with the caps by increasing war spending by $36 billion above the Pentagon's request. Although the budget would follow the President's budget path for war spending after that, the 2016 figure represents a dangerous precedent that could significantly undermine the spending caps.
We have long warned about the practice of lawmakers using the uncapped war spending category (Overseas Contingency Operations, or OCO) as a slush fund to slip in non-war defense spending to get around the spending caps. We have shown how they have done this in the past two omnibus bills by overfunding categories in the OCO category relative to the Pentagon's request. By stretching the definition of war spending or sometimes outright ignoring it, lawmakers make extra room in the non-war defense budget for other spending.
However, the House budget's approach goes further in both scope and purpose than previous attempts. It provides $94 billion for OCO, more than was provided in FY 2013 when full combat operations were ongoing in Afghanistan and $36 billion more than the Pentagon's request for 2016. The $36 billion increase is much greater than the amounts actual spending has exceeded requests in the past, and the increase seems more explicitly designed to provide nearly the entire amount of sequester relief the budget seeks in other years rather than reflect actual funding needs. In other words, rather than having appropriators marginally game the OCO category late in the budget process, the budget would give lawmakers license up front to shift large portions of non-war spending into OCO.
This morning, House Budget Committee Chairman Tom Price released his FY 2016 budget proposal, "A Balanced Budget for a Stronger America." The budget reaches balance in 2024 by cutting about $5.5 trillion of spending over ten years (relative to a "PAYGO baseline" which excludes savings from drawing down war spending), and it assumes an additional $147 billion in deficit reduction from a "fiscal dividend" that incorporates the longer-term economic benefits (and short-term economic drawbacks) of the deficit reduction contained in the budget.
Importantly, the budget puts debt on a clear downward path as a share of the economy, with debt falling from about 74 percent of GDP today to 55 percent by 2025. Even excluding the higher revenue, lower spending, and higher GDP created from the fiscal dividend, debt would still fall to 56 percent by 2025 and would still be on a clear downward path.
Chairman Price’s first House budget is very similar to last year’s budget by then-Chairman Paul Ryan. It gets the bulk of its savings from health care programs, particularly the Affordable Care Act, and also includes sizeable cuts to other mandatory programs. In addition, the budget calls for somewhat similar domestic discretionary cuts (while increasing defense spending) after abiding by the current spending caps in law for the first year, as the budget resolution did last year. Finally, the budget assumes the fiscal dividend would generate $83 billion of savings in 2025.
This last assumption is based on CBO's estimate about the economic benefits of the budget's deficit reduction, though we would caution against banking these uncertain savings. Still, even without the fiscal dividend, the 2025 deficit would only be $50 billion, or less than two-tenths of one percent of GDP. However, the budget might balance, because it calculates its savings against CBO's January baseline, which has a 2025 deficit that is about $49 billion higher than their most recent baseline released last week.