In response to the White House Council on Aging, a once-a-decade conference hosted to discuss issues specifically affecting seniors, Bernie Sanders (I-VT) and 71 Democrats wrote a letter to President Obama calling for the expansion of Social Security. He cites the shift from a defined benefits retirement savings model – which bases benefits on a recipient’s salary and service – to a defined contributions model – which pulls from contributions to a mutual fund – as the fundamental cause of the growing gap the President must fill with increased benefits to seniors. He argues that over 50% of Americans do not have the means to maintain their standard of living upon retirement, and that the President’s budget plan, which ties future benefits increases to the CPI will only lead to reduced benefits over time.
Seniors benefits are indeed shrinking, but this change comes not from a shift in the benefits models, but rather, a significant amount of fiscal bloodletting. Federal programs are transferring funds from places like Social Security to pay for the insurance subsidies in the Affordable Care Act. What may seem like a simple practice of federal reallocation is forcing the burden on citizens. An example of this is the funds the government reallocated from Medicare to pay for ACA subsidies, which directly affects seniors.
A fiscally responsible alternative to expanding Social Security benefits may be to halt this trend of diverting funds from other mandatory programs. Instead of throwing more into Social Security, taking a budget neutral approach would return benefits to the proper recipients, and simultaneously ensure a more hopeful path to accountable and transparent federal spending, while reformers seek longer-term reforms to the programs themselves. If a federal program is worthwhile, it should be worth stopping use of budget gimmicks and seeking long-term solvency.
Originally published at Institute to Reduce Spending.
In case you missed it, Congress is considering a bill that could potentially add even more spending to the nation’s struggling entitlement infrastructure. We know that mandatory spending tends to be almost impossible to reform or cut — and that America’s entitlements are on track to make debt skyrocket within just a few years.
But a majority in Congress seem to want to add even more money to this third rail with the 21st Century Cures Act. The Institute to Reduce Spending notes that while the bill saves money in the short term, there’s reason to be concerned:
It would bust the budget caps and require a 3% increase in the NIH budget every year, as well as the creation of the “Innovation Fund” of $2 billion annually for 5 years.
The news isn’t all bad. While the bill itself adds billions in new spending, the CBO estimates that despite a total implementation cost upwards of $106 billion between 2016 and 2020, the legislation “would reduce on-budget direct spending, on net, by about $11.9 billion over the 2016-2025 period,” for a total net savings of about $470 million.
Interestingly, most of the savings would come from the sale of 8 million barrels of oil per year from the Strategic Petroleum Reserve between fiscal years 2018 and 2025 yielding about $5.4 billion. The bill also extracts billions in savings from federal healthcare programs, with one provision limiting state Medicaid durable medical equipment payments eligible for federal reimbursement to the rate Medicare pays, saving about $2.5 billion. The legislation nets another $5 billion in savings in the 10-year period with an accounting gimmick in Medicare Part D. It is important to note that while the CBO’s estimates do indicate a net savings of some millions of dollars through FY 2025, the bill’s classification as mandatory spending adds yet more strain to the “third rail” of untouchable federal spending, and makes any future reform to the program potentially very difficult.
In a disappointing turn, Congress last week — including 100 Republicans — rejected a chance to move this funding from the mandatory side. Representative Dave Brat’s amendment would have moved the NIH funding to the discretionary side, potentially making reforms and cuts in the future much easier to accomplish.
The amendment failed 141-281.
This post originally appeared at the Institute to Reduce Spending.
When forming a budget, it’s best to categorize areas of spending and keep funding separate. In Congress, this process is called a firewall. Currently such a firewall exists between defense and nondefense discretionary spending, meaning taxpayers’ money budgeted to defend the nation cannot be spent to care for low-income families, and vice versa.
However, the lines between categories in the mandatory side of spending seem to blur. Last Thursday, President Obama nominated Andy Slavitt to be the head of the Centers for Medicare and Medicaid, even though he already is a key administrator of the Affordable Care Act. Senate Majority Leader McConnell along with other Republican senators expressed their concerns about this dual focus, where Slavitt is responsible for fixing problems in Medicare and also dealing with the Affordable Care Act. Of course, there will always be partisan squabbling related to the ACA, but such skepticism might have a point, considering how the law has been financed up to this point.
According to critics, in order to help pay for all of the subsidies, Obamacare funnels the money out of Medicare. The ACA will cut Medicare spending by $153 billion. This practice, however, is unsustainable, because those adjustments will cover only 24% of ObamaCare’s subsidy costs in 2016. According to critics, between 2012 and 2017, seniors’ standard Medicare Part B monthly premiums will have jumped from $99.90 to $128.20, while their Part B deductibles will have gone from $140 to $180.
In order to fund the ever increasing cost of the ACA, spending in other areas of the health budget has shifted over. All areas of the budget need serious reforms, but with such clearly competing interests at stake, it’s worth asking whether this new leadership is the most effective for either program – or for our pocketbooks.
Today, the Government Accountability Office released a report detailing alternatives to the debt limit process.
Recently, Congress has temporarily suspended the debt limit. At the end of past debt limit suspensions, Treasury sharply reduced its cash balance to match the cash that it had on hand just prior to each suspension to ensure that it complied with legal limitations. Treasury reduced its cash balance in part by reducing the amount of Treasury bills outstanding, which can be disruptive to markets that transact in Treasury bills. Further, maintaining low levels of cash, even temporarily, conflicts with Treasury’s new policy to hold more cash to mitigate the risk that Treasury will be unable to access funding markets due to unforeseen events—such as natural disasters—as recommended by the Treasury Borrowing Advisory Committee. Managing cash balances at a prudent level is consistent with standards for internal control on responding to risk.
Through interviews of budget and policy experts and an interactive web forum, GAO identified three potential approaches to delegating borrowing authority. Each option met the criteria of (1) minimizing disruptions to the market and (2) linking decisions about debt to decisions about spending and revenue at the time that those decisions are made. All of the options also maintain congressional control and oversight over federal borrowing.
The options the GAO lays out include (1) linking action on the debt limit to the budget resolution, (2) providing the President with authority to increase the debt limit subject to a Congressional motion of disapproval, and (3) giving the administration broad discretion to borrow as necessary to fund enacted laws.
The Institute to Reduce Spending has been studying this issue for the past year and has released a short paper series examining alternatives to the debt limit. A full-length paper and book will be released soon, as the debt limit fight comes up again in Washington.
It’s past time for politicians to reconsider the flawed and ineffective debt limit mechanism. We’re thrilled to see a prominent agency taking up this cause, too.
Post originally appeared on the Institute to Reduce Spending.
Appropriations for fiscal year 2016 are in full swing, most recently those for the Department of Education. Even in the face of a veto threat from President Obama, both chambers of Congress are moving forward with legislation that could cut billions from the department’s budget. The House Appropriations Committee passed a bill allocating $64.4 billion to the Department of Education, which represents a spending reduction of over $2.8 billion from fiscal year 2015, and adheres to congressionally mandated spending caps.
On the other side, the Senate Appropriations Committee passed its plan, providing $65.5 billion for the department, still representing a spending reduction of over $1.7 billion. The House’s proposal would streamline the department, eliminating 20 various programs, while the Senate’s eliminates only 10. Both plans provide allocations increases for several department initiatives, increasing individual spending by over $100 million on the Individuals with Disabilities Education Act and Head Start.
The Senate’s plan also includes an additional $150 million in Title I grants, as well as some smaller allocations for grants for starting new charter schools. While these proposals represent a step in the right direction by streamlining and consolidating programs in the Education budget, there remains strong opposition from both the democrats and the President, and the ultimate deal remains to be seen.