House of Representatives
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.
This week, the House approved a rule change related to dynamic scoring. Specifically, the rule would require the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) to "incorporate the macroeconomic effects of 'major legislation' into the official cost estimates "to the extent practicable" used for enforcing the budget resolution and the other rules of the House." The rule also asks for a qualitative assessment of the impact of major legislation on the long-term budget and macroeconomic outlook.
Major legislation is defined as legislation that causes a gross budgetary effect of at least 0.25 percent of GDP in a given year. By this definition, it wouldn’t apply to appropriations bills or legislation subject to appropriations, including highway spending. Instead, it would apply to legislation affecting mandatory spending and revenue, so legislation repealing all or major parts of the Affordable Care Act, for example, would be subject to the requirement for dynamic scores. The rule is not clear whether it applies to off-budget effects such as changes in Social Security taxes and benefits.
If a law doesn’t have a large enough effect to qualify, it can still be designated as “major” by the Chairman of the Budget Committee (or for revenue legislation, by the House member serving as Chair or Vice-Chair of the Joint Committee on Taxation).
The Committee for a Responsible Federal Budget hosted a policy discussion this past Tuesday on dynamic scoring. CRFB President Maya MacGuineas opened the event by noting that dynamic scoring is an issue that will receive considerable attention over the coming months and could have an impact on fiscal policy decisions. Speakers offered their perspectives on the merits and challenges of using dynamic estimates in the legislative and budget process. Senator Rob Portman (R-OH) and Representative Chris Van Hollen (D-MD) offered remarks on their opinions and perspectives on dynamic scoring. A panel of dynamic scoring experts followed, moderated by CRFB President Maya MacGuineas. See CRFB's paper on dynamic scoring for a detailed discussion or our updated 2-page summary.
Sen. Portman spoke in favor of CBO and JCT providing dynamic estimates of bills. He argued that, at the very least, estimates should be done to inform staff and lawmakers how bills will affect the economy. He spoke about the bipartisan support for his bill, which passed by a vote of 51-48 with six Democrats voting in favor of it, when he offered it as an amendment during consideration of the FY 2014 Senate budget resolution. Portman acknowledged that there is a legitimate debate over which models and assumptions should be used, but he encouraged detractors to support presenting dynamic estimates as supplemental information, as his amendment would, not for official purposes. It would be apparent if dynamic estimates are significantly different than current methods, and policymakers would be able to look back to see which estimates were more accurate.
Congressman Van Hollen gave the opposing viewpoint. Van Hollen argued that dynamic scoring inherently demands that CBO or JCT adopt a specific ideology when estimating a bill. He mentioned estimates from the Heritage Foundation predicting revenue increases from the 2001/2003 tax cuts and claims that the 1993 tax increases would harm the economy. He also said that many models for dynamic analysis make assumptions about future actions to offset the cost of tax cuts, effectively giving legislation credit for policies not in the bill. He drew a distinction between the CBO estimate of immigration reform legislation, which took into account the direct impact of additional workers in the labor force, and dynamic estimates which incorporate the estimated indirect economic effects of legislation. Van Hollen reminded audience members that CBO and JCT already use microdynamic analysis in scoring bills—they weigh behavioral responses from individuals and businesses and the factors of supply and demand. He also acknowledged that dynamic analysis is useful as supplemental information, as long as policymakers understand the underlying assumptions.
Earlier today, CRFB Senior Policy Director Marc Goldwein testified before the House Energy and Commerce Health Subcommittee. The hearing, entitled "Setting Fiscal Priorities," discussed policy options to reduce health care spending. Also testifying were Executive Director of the Medicare Payment Advisory Commission Mark Miller, the American Action Forum's Director of Health Care Policy Chris Holt, and Georgetown Professor of Public Policy Judy Feder. The witnesses represented different perspectives and focused on different parts of the health care system.
Miller's appearance made up the first panel, and naturally, his testimony focused on Medicare. He gave some background on Medicare but focused on the types of savings policies that MedPAC has recommended in its reports. These policies include simple recommendations on annual payment updates (increases or decreases) or more far-reaching recommendations like site-neutral payments and bundled payments (two policies that were part of our PREP Plan). Questions for Miller spanned a far range of topics, including the Affordable Care Act's payment reductions.
The second panel had the other three witnesses. Goldwein's testimony focused on both the need to rein in health spending to control debt and the options available to do so. He noted the large run-up in debt that is projected to have in the coming decades and the central role health care plays in that.
For solutions, he focused on two different types of policies: "Benders" which have the potential to bend the health care cost curve and "Savers" which are not as transformative but lead to a better allocation of health care spending. In his oral testimony, he focused on the policies in the PREP Plan, which involve reforming Medicare's cost-sharing structure and provider payments to encourage more efficient care. His written testimony included many other options with the potential for bipartisan support.
A new bipartisan bill seeks to drive down prescription drug costs for consumers and the federal government.
The Fair Access for Safe and Timely Generics Act or FAST Generics Act (H.R. 5657) was introduced late last week by Rep. Steve Stivers (R-OH) and Rep. Peter Welch (D-VT). It's goal is to close a loophole in drug safety rules (Risk Evaluation and Mitigation Strategies, or REMS) that allows name-brand drug manufactures to withhold access to some drug samples from generic manufactures, who generally use these samples to help produce safe and cheaper generic versions of drugs.
This bill comes on the heels of a report by Matrix Global Advisors that estimated:
[the] delay [in] generic market entry for these products totals $5.4 billion in lost savings to the U.S. health care system annually. The federal government bears a third of this burden, or $1.8 billion… Among government health care programs, Medicare, which accounts for nearly 26 percent of total U.S. prescription drug spending, experiences lost savings of $1.4 billion annually. The economic cost to Medicaid (both federal and state) totals $400 million.