For more explanation of each of these charts, see the blog Everything You Need to Know About Budget Gimmicks, in 8 Charts
Note: This document was updated on February 12 to reflect CBO's newest projections for interest costs.
The Hill | January 14, 2014
By all accounts, 2014 is unlikely to be the year of the grand bargain…or anything close. Neither the President nor any of the political leadership is actively trying to fix the nation’s fiscal problem; there is no immediate crisis; and the issues of major entitlement reforms and revenues are hard enough that most politicians are quite happy to just look the other way.
That said, Congress has returned to DC to find many outstanding issues including the expiration of extended unemployment benefits, an impending 25 percent cut in Medicare payments to physicians, and the expiration of various targeted tax cuts known as “tax extenders”, all of which will create a number of important fiscal litmus tests.
These policies all come with a cost, and the question is; will congress find ways to pay for them or will they resort to their old habit of charging them to the national credit card?
One of the important achievements of the Ryan-Murray budget deal passed at the end of last year was that while it lessened the constricting caps of the sequester, it not only fully paid for the changes, it banked a little extra savings.
Congress should, at the very least, hold itself to the same standard for all of the mini-fiscal moments of 2014. One way to do this would be to pursue three bite-sized $150 billion packages focused on each of these policies.
Already, discussions are underway about an extension of unemployment insurance. Given the still weak condition of the economy, it makes sense to extend unemployment benefits and to consider doing a larger package to create jobs and spur the economy. A package could extend and reform unemployment benefits, along with other measures such as infrastructure investments, job training, or targeted tax breaks aimed at promoting job growth or investment.
One option to pay for this, would be to switch to chained CPI—a more accurate way of measuring inflation—and use $150 billion of the non-Social Security portion of the savings to pay for the growth package and some deficit reduction. (The additional savings that would come from the Social Security program should be used to help shore up the program and provide enhancements to low income beneficiaries.) Such a deal would have the multiple benefits of helping the economy, the fiscal situation, and, separately, Social Security.
A second $150 billion package could pay for fixing the impending 25 percent cut in doctors’ payments, or the unsustainable “Sustainable Growth Rate” (SGR). The Congressional health committees have put forward packages which would replace the SGR with a formula that promotes quality over quantity of care and encourages participation in coordinated care models. What they have not done? Proposed how to pay for it.
Congress could pay for these reforms with a $150 billion package of structural health reforms that help slow its cost growth. Such a package could include expanding new forms of cost-controls like bundled payments and readmission penalties; restricting supplemental health plans which lead to the overconsumption of health care; reforming overly-complicated cost-sharing rules; increasing the use of generic drugs; and expanding the means testing of Medicare premiums.
Finally, a third $150 billion package could pay for a one-year extension of the “tax extenders” which expired at the end of 2013, along with a permanent extension of the low-income support from the child tax credit and earned income tax credit scheduled to expire in 2017. One payfor option would be a plan developed by myself, Dan Feenberg and Martin Feldstein of Harvard University, where the amount of tax breaks any one individual can claim are limited to a certain dollar amount, or share of one’s income. It’s not comprehensive tax reform which we need, but it’s a step in the right direction.
These packages won’t be nearly enough to solve our debt problem – much more would need to be done. Still, enacting this series of incremental $150 billion packages would be consistent with the simple principle our lawmakers need to re-learn—if something is worth doing, it’s worth paying for.
Each of these three packages would save more money than they cost, particularly over the long-term. But none would be about simply making numbers add up, they’d be about improving the way we tax and spend to better promote growth, offer certainty, improve the health system, and moving us toward more responsible budgeting.
Ed Lorenzen Testimony Before the House Ways and Means Committee's Subcommittee on Social Security: Chained CPI
The Hill | April 10, 2013
When it comes to the federal budget standoff, those looking for a breakthrough are caught between a rock and a hard place. One side offers all cuts and no revenues to reach a balanced budget. The other offers tax increases with some spending cuts to appear even handed, but never actually moves the nation’s finances from red to black.
Uncertainty over the ultimate solution has businesses keeping capital on the sidelines, waiting to see what the playing field will look like in the months ahead. It is time to get a big deal to fix the nation’s debt and deficit problems and get everyone back in the game.
Dante once wrote, “The hottest places in hell are reserved for those who, in times of great moral crisis, maintain their neutrality.” It is time to turn up the heat on those who remain in their corners without a passable solution.
Washington leaders have gotten quite good at taking the easy way out. The time to say goodbye to short-term fixes is long overdue. President Obama’s outreach efforts on Capitol Hill are a good start, but he has remained aloof for far too long. House Speaker John Boehner must lead his conference, rather than settling for lockstep opposition.
Every kick sends an opportunity to get serious about the nation’s debt and deficit a few months into the future, to the detriment of the economy’s long-term prosperity. Market forecasters Macroeconomic Advisors predict that the threat of a default on the nation’s credit card could reduce GDP by one half of a percentage point. That sort of self-inflicted wound could be fatal to a sluggish economy, and it is incumbent upon everyone to make sure it doesn’t happen. It will require the hard work and will of the White House, both chambers in Congress, and most importantly the collective voice of the American people.
Since almost everyone acknowledges that there is a problem, the next step is to evaluate the potential solutions. Rather than applying yet another half-trillion dollar Band Aid as Washington has done since 2011, legislators should make the next attempt mean something and make a sizeable dent in the nation’s deficit.
So far, participants in the discussion have fallen into three general groups: snake oil peddlers, wafflers, and true patriots.
The peddlers try to convince the public that this problem can be solved without revenues or changes to entitlement programs. It’s certainly possible to do that on a spreadsheet, but the approach is politically untenable. People who insist on a plan that has no hope of passage are not a contributing to the discussion. They need to pipe down or be shunned into silence.
Wafflers agree that something must be done, but steer clear of presenting or advocating an honest solution. These members should be encouraged to go all the way and embrace a plan. If they are unwilling or unable to do that, they should move on and give someone else the chance.
Finally, our true patriots should be commended for getting out on the front lines and proposing a solution. The answer doesn’t have to be loved by everyone. Given that it will require hard choices and shared sacrifice from all, it may not be popular. That’s why groups like Fix the Debt stand ready to support those that are willing to make the tough choices necessary to get the nation’s finances back on track.
This is the president’s contest to lose. Approaching fiscal matters a half a trillion dollars at a time ensures that this will be all anyone talks about, crowding out second term priorities such as immigration and gun legislation. If he wants to start ensuring his legacy, the president should kick his outreach efforts into overdrive. Speaker Boehner should use this opportunity to show that his conference can do more than say “no,” that it is open to constructive ideas that truly solve common problems.
The best part about the deal will be the dawn. As the cloud of uncertainty surrounding the nation’s fiscal future dissipates, Americans will once again be able to see the bright lights of our nation’s economic strengths. America can continue to be a beacon of hope and opportunity, but only if we act.