House of Representatives
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.
The House of Representatives is considering this week whether to revive several tax breaks known as the "tax extenders" and add their cost to the deficit. The bills under consideration, which include extensions of previously renewed tax breaks in addition to new and expanded tax breaks, would cost almost $320 billion, or almost $385 billion with interest.
The tax extenders are a set of temporary tax breaks that have typically been continued for a year or two at a time. Most recently, about 55 extenders expired at the beginning of 2014 and were renewed retroactively for one year last December, before expiring a few weeks later at the end of 2014.
The House Ways & Means Committee today approved renewing and permanently extending two of these provisions, including a drastically expanded research tax credit and a deduction for sales taxes paid, as well as new modest expansions to 529 education savings accounts. The three approved bills being considered would cost about $225 billion, or $265 billion with interest.
The House is also voting today and tomorrow on permanent extensions of six more provisions, as well as a policy from last year's Tax Reform Act that would reduce taxes paid by private foundations on their investment income.
The House Energy and Commerce (E&C) Health Subcommittee yesterday held the first of two hearings on the Sustainable Growth Rate (SGR) formula for Medicare physician payments. Set to cut those payments by 21 percent in April 2015 when the latest "doc fix" runs out, the SGR will be one of the first "Fiscal Speed Bumps" the new Congress will confront this year. Fixing it permanently could cost at least $140 billion through 2025.
Yesterday's hearing focused on replacing the formula as well as whether and how to pay for the cost, featuring health care policy experts and policymakers. The session today featured representatives from various provider groups.
The witnesses at yesterday's hearing were:
- Former Senator Joe Lieberman (D/I-CT)
- Former OMB and CBO Director and current director of Brookings's Engelberg Center for Health Reform Alice Rivlin
- American Institutes of Research Institute Fellow Marilyn Moon
In their opening statements, both E&C Chairman Fred Upton (R-MI) and Health Subcommittee Chairman Joe Pitts (R-PA) encouragingly stated that repealing the SGR must be paid for, with Pitts citing CRFB's finding that doc fixes have been paid for 98 percent of the time since 2004.
Both noted that there exist numerous options with bipartisan support to pay for a replacement. Upton went further, calling on lawmakers to not just fix the SGR but make Medicare sustainable.
The recently adopted House rules for the 114th Congress are getting attention in the budget world mostly for their requirement that the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) take into account macroeconomic effects when scoring budget legislation, a process known as dynamic scoring. But that requirement isn't the only new rule with fiscal implications.