Line Items: Winter Games Edition

Cold Reality – The Winter Olympics are in full swing in Sochi, Russia, but Washington saw its own share of winter games before Congress adjourned for yet another break. Lawmakers played with the debt limit and considered virtually every idea under the sun before agreeing to put it off for another year. Legislators also fooled around with various budget gimmicks as they seek to game the system. There are a lot of issues that Americans want their representatives to tackle, but there isn’t much hope of that happening in this political climate. Avoiding debt ceiling disaster may end up being one of the biggest achievements out of Washington this year. Not really the stuff of Olympic glory.

Tough Sledding on the Debt Limit – Congress managed to avert going to the brink of a national default by agreeing to suspend the debt limit once again. The suspension lasts until March 15, 2015. House leaders had floated a wide range of proposals to pair with raising the debt ceiling, but in the end gave the president the clean increase he wanted. The Senate quickly followed suit and it was signed by President Obama on Saturday. The suspension means there will be no more major fiscal fights until at least October 1, when government funding expires. However, it does nothing to improve the debt outlook, which the latest projections from the Congressional Budget Office (CBO) show is now even worse than previously forecast. A statement from the Campaign to Fix the Debt urges, “It’s critical that lawmakers not take steps backwards or undermine this progress by considering legislation that has the ability to add to the deficit or worsen the country’s already strained fiscal outlook.” The recent debt limit fights have led to increased calls to improve the mechanism so that it can more effectively be used to put the country on a sustainable fiscal path without threatening the economy.    

Gimmick Olympics Produce No Winners – Lawmakers are facing heightened pressure not to add to the deficit, but some proposals they are offering to offset the costs of new policies are not medal caliber. A host of budget gimmicks have popped up that technically pay for new policies but, in reality, add to the deficit. Republicans in the House considered the “pension smoothing” gimmick to pay for rolling back recent military retirement reforms while Democrats in the Senate offered it to offset the cost of a three-month extension of expanded unemployment insurance benefits. The Senate proposal to reverse the military retirement changes used another gimmick – “war savings” – as an offset. We urged rejecting these gimmicks in a statement, and fortunately they were not used. However, gimmicks are still an attractive avenue. We created a chartbook identifying gimmicks to watch out for using helpful charts that illustrate how they work and why they add to the deficit.     

Skating Around Reform – On Saturday, the president also signed into law legislation rolling back the reduction in the cost-of-living adjustment (COLA) for working-age military retirees that was included in the Ryan-Murray budget deal. The House and Senate passed the change as they worked on the debt ceiling legislation separately. Now, only service members who start this year and afterwards will be impacted. The original version was a modest reform of a military retirement system in need of change that has now been diluted. As pressure mounts to find more savings from defense, it will be impossible to exclude military compensation, which is accounting for more and more of the Pentagon budget. The military COLA change is also a rare instance of entitlement reform that policymakers have been able to achieve. Although it is positive that lawmakers rejected blatant budget gimmicks to offset the change, it is still a step backwards because it replaces savings that would be realized far beyond the ten-year budget window with extending the cleaver of the mandatory spending sequester for an additional year. As a CNN article put it, “in reality the measure to reverse most military retirement cuts is the legislative equivalent of a cocaine hit: a feel-good high that obscures current problems, makes future issues worse (for the Pentagon and taxpayers) and sends one of the best signals yet that Congress is nowhere near making the tough decisions needed to avoid the financial storm set to crash on the federal budget in just a few years.”   

Downhill from Here for Doc Fix? – The military COLA bill also contained a provision creating a $2.3 billion "Transitional Fund for Sustainable Growth Rate Reform," which could be used to pay for a permanent repeal of the Sustainable Growth Rate (SGR). The relevant congressional committees recently jointly introduced “doc fix” legislation that didn’t include an offset.

Tax Reform an Olympian Task – The prospects for changes to the tax code remain cloudy. New Senate Finance Committee Chair Ron Wyden (D-OR) says that major reform won’t happen this year because of the partisan divide in Congress. Wyden hopes to take action on the “tax extenders” this year as a "bridge" to broader reform. Meanwhile, Wyden’s House counterpart, Ways and Means Committee Chair Dave Camp (R-MI), may go ahead with introducing comprehensive tax reform legislation. Also, the economic plan proposed by House Republicans has a tax reform component. However, the Olympic spirit has indeed gripped legislators as a bipartisan push has gained steam to exclude the value of Olympic winnings from income.  

A Golden Opportunity for Budget Reform? – The budget dysfunction of recent years is bolstering calls to reform the budget process. Last week the House Budget Committee approved of two budget process reform bills. One would introduce fair value accounting for federal credit programs and the other would institute biennial budgeting, which would move from yearly budgets to a two-year process. Advocates say two-year budgeting would allow more time for oversight of government spending and cut down on annual budget battles. For more budget reform ideas, visit budgetreform.org. Meanwhile, the Office of Management and Budget (OMB) confirmed that the White House Fiscal Year 2015 budget request will be released in two parts, with the topline numbers released March 4 and more detailed information following the next week.

Key Upcoming Dates (all times are ET)

February 20

• Bureau of Labor Statistics releases January 2014 Consumer Price Index data.

February 28

• Bureau of Economic Analysis releases second estimate of 4th quarter GDP growth.

March 4

• White House releases topline numbers for Fiscal Year 2015 budget request.

March 7

• Bureau of Labor Statistics releases February 2014 employment data.

March 18

• Bureau of Labor Statistics releases February 2014 Consumer Price Index data.

March 27

• Bureau of Economic Analysis releases third estimate of 4th quarter GDP growth.

March 31

• "Doc fix" expires.