Note: This post originally appeared at the Institute to Reduce Spending.
Shortly before midnight on Monday, House Republicans unveiled the details of a two-year bipartisan budget deal. Coupled with an extension of the government’s ability to borrow by suspending the debt ceiling until March 15, 2017, this massive piece of legislation aims to avoid another government shutdown, and sets the groundwork for passing a funding bill before the short-term CR expires on December 11.
The budget deal raises discretionary spending caps by $50 billion in 2016, and by $30 billion in 2017, with the funding split evenly between defense and nondefense programs. The legislation also provides an additional $73.5 billion in Overseas Contingency funds in fiscal years 2016 and 2017. While this funding level for OCO matches that of 2015, it exceeds the funding level requested by President Obama by around $16 billion.
Legislators maintain that the increase in spending is offset by a collection of cuts to mandatory spending programs, and revenue increases, including the sale of crude oil from the Strategic Petroleum Reserve, strengthening tax compliance to increase revenue, the repeal of provisions within the Patient Protection and Affordable Care Act requiring large employers to automatically enroll their employees in health insurance plans, and a slew of reforms to Social Security.
The bulk of offset funding is expected to come from reforms to Social Security and Medicare. The deal extends the 2 percent sequester cut to Medicare mandated under the 2011 Budget Control Act. Social Security will also be subject to a host of reforms that will reduce spending by $4.3 billion, a Tuesday analysis by the CBO reports. The most significant of these changes closes a current loophole allowing individuals to draw funds from both unemployment and Social Security Disability. Other reforms aim to reduce fraud, one of which requires a second medical expert’s opinion in classifying an applicant as truly disabled. Another cost saving mechanism allows recipients who are able to work to supplement partial payments with outside income. A pilot version of the program has been implemented in several states; successfully cutting costs by reducing the number of applicants approved.
An increase in the budget caps seems to garner just enough support from both sides to pass a budget, though some fiscal conservatives feel left out. Lynn Westmoreland (R-GA) commented “I can’t vote for something where we spend the money today and save it 10 years from now. That to me is crazy.” Senator Rob Portman (R-OH) reflected his concerns of a debt limit suspension coupled with spending increases, “You hope that in a debt limit context that you can actually reduce spending. That’s the idea to – as you raise the debt limit, deal with the underlying crisis we have.”
While scoring the bill, the Congressional Budget Office identified a drafting error in the original text that would result in a funding shortfall. An amendment aimed at correcting the apparent funding shortfall will be posted Wednesday, and according to Emily Schillinger, a spokeswoman for John Boehner, it “includes a technical fix regarding OCO in response to the drafting error; and adjusts the existing offset policies to ensure the bill is fully offset.”
In addition, the amendment would raise by $1 the flat and variable rate premiums that employers who operate their own pension plans pay to the Pension Benefit Guaranty Corporation. Employers would also be allowed to defer more pension plan contributions, which would increase premiums paid to the PBGC, generating more tax revenue. Over the next 10 years, these pension changes will raise revenues by over $5 billion and reduce spending by around $6.4 billion.
Both the CBO and the Joint Committee on Taxation report that the budget deal will save roughly $75 billion over the next 10 years through cuts to mandatory programs totaling around $45 billion, and new revenues totaling about $30 billion. Unfortunately, the savings are somewhat dubious, as the same report also notes that increases in both defense and non-defense discretionary spending will total around $89 billion over the same period, a $14 billion difference.
To some, the deal is “the best we could get,” and we should not underplay the significance of the reforms to Social Security inherent, which have long-term positive ramifications for the fiscal solvency of the third rail, and set the foundation for further, much-needed reforms. That said, seeking long-term solutions for something as vital as the entire nation’s budget is a formidable task, economically and politically. Regardless of one’s predilections for growing or shrinking the federal budget, increasing funding to the Pentagon and other discretionary programs through disputed offsets justifies serious skepticism. Combined with the incredibly short time horizon on which this deal must be passed, the sheer amount of uncertainties involved make it worthy of a great deal of scrutiny, and one can only hope that as new impact estimates arrive from the CBO, our representatives in Washington address the numbers as they are.