Obama’s Budget Leads to Calls for a Vigorous Debate

By The Concord Coalition, Special for  USDR.

With the release of President Obama’s proposed budget today, The Concord Coalition again urged Washington to focus on policies that would put the federal government on a sustainable  track.

“The President’s budget sets the stage for a vigorous debate on the right mix of spending and tax policies needed to put the nation’s finances on a sustainable path,” said Concord Coalition Executive Director Robert L. Bixby. “Its heavy reliance on higher revenues to pay for new spending demonstrates one way to keep the debt from rising as a share of the economy, but it is certain to be rejected by the new Republican Congress. Moreover, the budget, even if fully enacted, would do little more than hold the debt near its currently high level because policies that could be used for sustained deficit reduction, particularly in the out years, are used to pay for new initiatives  instead.”

Under the President’s budget, spending would rise from 21.3 percent of GDP in 2016 to 22.2 percent in 2025. Revenues would rise from 18.7 percent of GDP in 2016 to 19.7 percent in 2025. Debt held by the public would slightly decline from 75 percent of GDP in 2016 to 73.3 percent of GDP in  2025.

“A good case can be made for moving away from the current spending caps on defense and domestic appropriations, as the President suggests and as many Republicans would also like to do,” Bixby said. “These caps were never intended to go into effect and their wisdom is increasingly suspect. However, they were put in place as a substitute for a more rational plan to reduce projected deficits through mandatory spending cuts and tax reform. The President and lawmakers should only move away from these caps if they can agree on a way to make up for the new spending elsewhere. That could be done through cuts in other spending, increases in government revenue, or both. President Obama is offering some suggestions, and Republicans will have a chance to offer their own. What should not happen is a deal to simply approve higher spending in one party’s favorite programs in exchange for higher spending in the other party’s  favorite.”

The key factors driving the growth of the federal debt over the coming decade are more beneficiaries for the large entitlement programs (due primarily from the aging population), an inefficient tax system, and snowballing interest  payments.

Washington must not spend all its time haggling over discretionary defense and domestic spending in the coming year,” Bixby said. “We are facing larger, longer-term fiscal challenges that will only worsen if they continue to be  ignored.”

One immediate concern is Social Security’s Disability Insurance (DI) program. The program’s trustees project the DI trust fund to be exhausted before the end of Obama’s administration; absent a legislative solution, beneficiaries would face a 19 percent across-the-board  cut.

Unfortunately, the President’s budget fails to offer any specific proposals for strengthening either the retirement or disability programs in Social Security. It simply calls for Congress to reallocate some payroll tax revenue to the disability program, leaving the larger financial and demographic challenges to be addressed at a later  date.

The budget also lacks a responsible plan to shore up the Highway Trust Fund, which should have a reliable stream of dedicated revenue consistent with the country’s transportation needs and the trust fund’s historical “user pays” principle.

Instead, the President proposes using a one-time surge of revenue from a new tax on overseas earnings of businesses to fund transportation spending for the next six years. This is hardly an appropriate long-term  solution.

The President’s budget proposal is largely a marker, meant to contrast with what congressional Republicans have suggested or are likely to put forth. But there may be some areas where significant agreement could be  reached.

For example, the budget proposes a number of health care reform policies designed to build on the already changing system of payments for doctors, hospitals and other  providers.

In just a few months, Congress will have an opportunity to act on some of them as it turns to its annual “fix” of doctor payments in Medicare. The administration supports the permanent reform of the flawed Sustainable Growth Rate (SGR) formula — a reform already written by a bipartisan coalition of members of Congress. The reason that bill hasn’t passed yet is that lawmakers have been unwilling to discuss paying for the $157 billion cost of the  fix.

In its proposed budget, the administration offers a menu of health care savings proposals totaling about $500 billion, of which Congress would only need to choose some to pay for the  fix.

Furthermore, the fix, when combined with its pay-fors, would help move Medicare towards the new goals the administration has set for adoption of “alternative payment models,” moving such payments from 20 percent of all payments today to 50 percent by  2018.

“The administration’s goal-setting is important because with health inflation currently low, many policy-makers ignore the need for further reforms. We should actually be doubling down on payment reform now, before providers see it in their financial interest to lobby for a return to fee-for-service — as they might if inflation and service demand start picking up again,” said Joshua Gordon, Concord’s policy  director.

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