fiscal commission

Kicking the Can on Solving the Debt Crisis

I have a new column up at Kaiser Health News about the president's failure to seriously address the debt crisis in the newly-released 2012 budget proposal:

It's like the president and his team woke up after the November 2010 mid-term election with a bad case of political amnesia. What deficit? What debt commission?

This isn't what the president promised when he ran in 2008, nor is it what he told voters as recently as one year ago. Over and over, he has promised not to "kick the can" down the road, as he says his predecessors did before him. Instead, he would provide real leadership to tackle the looming threat posed by out-of-control borrowing and debt accumulation. That was supposedly the reason for appointing the Bowles-Simpson National Commission On Fiscal Responsibility and Reform in the first place, to lay the predicate for engaging in a bipartisan effort to narrow medium and long-term budget deficits and reduce the risk of a debt-induced crisis.

But now, all of that kind of thinking is out the window. If the president won't show leadership on the budget, there's zero chance congressional Democrats will. Some moderate Democrats in the Senate may make some noise about going farther than the president. But when push comes to shove, the rank and file Democrats in both chambers are far more likely to take a pass, too. Why would they take on large political risks when the president of their own party won't and is likely to pull the rug out from under them if they do?

So, realistically, the Obama "punt," as House Budget Committee Chairman Rep. Paul Ryan, R-Wis., has aptly described it, means the odds of a serious deficit reduction effort before the next presidential election are now low and falling.

Read the full column here.

posted by James C. Capretta | 1:12 pm
Tags: federal budget, fiscal commission, Congress
File As: Health Care

A Bipartisan Budget Will Require Bipartisan Health Care

The November election has certainly shaken things up in Washington, even before most of the newly elected members to the House and Senate arrive in town and take their seats in Congress. That's because all parties havebegun recalibrating their positions in anticipation of the shifting balance of power that is coming in January.

Most notable, of course, is the president's recent deal with congressional Republicans on taxes. Once the voters had spoken, the president pivoted quickly and began direct negotiations with his adversaries on one of the campaign trail's most contested items: What should happen to the Bush-era tax rates scheduled to expire at the end of December. Democrats have spent the better part of the past decade decrying those rates as fiscally irresponsible. And yet the main result of the bipartisan tax deal is that those Bush-era rates on personal income, dividends and capital gains will all be left in place through the duration of the president's current term in office. Who would have expected such an outcome after the 2008 Democratic landslide? Moreover, the deal calls for a temporary reduction in the payroll tax, which is a far more acceptable approach to short-term stimulus for many Republicans than the spending programs adopted in early 2009.

Now all attention is beginning to shift to the nation's daunting short- and long-term budgetary challenges. Here, there is also a whiff of bipartisanship in the air.

The president's fiscal commission, chaired by former Clinton White House chief of staff Erskine Bowles and former Sen. Alan Simpson, R-Wyo., issued its recommendations earlier this month, with the support of 11 of the 18 commissioners. Among the supporters were all of the current Republican senators serving on the panel (Tom Coburn of Oklahoma, Judd Gregg of New Hampshire and Mike Crapo of Idaho). The budget framework they endorsed is based on the approach of the commission's co-chairs and thus commonly known as the Bowles-Simpson plan. It is far more ambitious in scope than was expected just two months ago, when many thought the commission wouldn't produce anything of consequence.

Bowles-Simpson starts with a plan to radically reform the nation's income tax laws by eliminating or scaling back many current tax expenditures while simultaneously instituting two much lower rates. The plan also calls for cutting the corporate income tax rate, capping discretionary spending, and reforming Social Security by raising retirement ages and limiting benefits for higher wage earners.

That's certainly a bold agenda, and it very definitely points in the right direction with its inclusion of some important entitlement and tax reforms.

But on the most important budget issue that the country still faces — rapidly rising health care costs — Bowles-Simpson is a major disappointment. Yes, the plan calls for long-overdue tort reform. But that's not nearly enough to overcome its downside — the plan's implicit embrace of the entirety of the health care law enacted in March. The $1 trillion entitlement expansion; the $700 billion ten-year tax increase; the complete lack of any meaningful Medicare and Medicaid reform; the heavy reliance on arbitrary Medicare payment rate reductions to cut costs on paper; the poorly structured long-term care entitlement program that almost certainly will need its own bailout in future years; and, the ceding of almost all health sector regulatory authority to the Department of Health and Human Services — all of those provisions and more would remain in place under the Bowles-Simpson framework.

Indeed, if anything, Bowles-Simpson would build upon the law by expanding the authority of the Independent Payment Advisory Board, which was established to control Medicare costs with payment rate reductions, to oversee the health spending that occurs in the new state-sponsored insurance exchanges.

The fiscal commission members appointed by House Republican Leader John Boehner – Rep. Paul Ryan, R-Wis., Rep. Dave Camp, R-Mich., and Rep. Jeb Hensarling, R-Texas — all opposed the Bowles-Simpson plan when it came up for a final vote, thus preventing it from advancing to Congress for potential near-term consideration. And, to their credit, the main reason they cited for their opposition was the failure of Bowles-Simpson to change direction on health care from what was enacted in March.

The yearlong debate over health care was contentious and polarizing because the opposing sides have strongly held and difficult to reconcile views of what needs to be done. By and large, the Democrats believe that what is needed is much heavier governmental management of the health sector. By contrast, most Republicans believe that what is needed is a functioning marketplace and consumer control of the allocation of resources.

Ordinarily, difficult legislative initiatives require some degree of support from both major political parties to pass. That's particularly true with deficit reduction efforts. There's very little to gain politically from cutting spending programs or increasing taxes. As the president looks to bring future deficits down in coming years, he is almost certain to try to enlist Republican help in the effort, as bipartisan support would shield Democrats from some of the political risks associated with fiscal consolidation.

But it will be near impossible for the president to succeed in building a strong bipartisan coalition of support for a budget plan if he takes the same approach as Bowles-Simpson and builds a wall around health care. Health care is the largest line item in the federal budget, and it will only become more important in future years. Most Republicans will not agree to any short or long-term budget framework that essentially ignores their point of view on how to address such an important component of the budget equation. Rising federal debt is now widely recognized as a serious threat to the nation's long-term prosperity. It is essential that political leaders come together in a bipartisan fashion to put our government's finances on more stable footing. But that won't be done so long as the nation's approach to health care is supported by only one of the two major political parties. No, a bipartisan budget framework is going to require a bipartisan approach to health care too.

[Cross-posted at Kaiser Health News]

posted by James C. Capretta | 2:35 pm
Tags: federal budget, fiscal commission, Bowles-Simpson plan
File As: Health Care

The Roadmap Lives

Last year, Rep. Paul Ryan's "Roadmap" -- his far-reaching plan to restore long-term budget balance through tax and entitlement reform — was the subject of relentless attacks by those favoring a larger government role in American life. New York Times columnist Paul Krugman called Ryan the "Flimflam Man" in a widely cited opinion piece in which he tried to dismiss the Roadmap as not a credible solution to the nation's budget problems. The congressional Democratic leadership followed up with an organized campaign aimed at demonizing the plan as a callous assault on Social Security and Medicare beneficiaries. Their clear intention was to use the Roadmap to damage scores of Republican candidates for House and Senate seats by association.

None of it worked. In fact, not only did the Roadmap survive the 2010 mid-term campaign, the election results — and the dominoes that have fallen since — have made it far safer politically for Roadmap proponents to advance the plan's ideas in the public square.

That the political and policy landscape has started to shift, and rather dramatically, became apparent just a week after the election when the co-chairs of a commission appointed by President Obama, on which Ryan, a Republican from Wisconsin, also serves, offered draft recommendations on how to close the short- and long-term budget deficits. President Obama had appointed former Clinton White House chief of staff Erskine Bowles and former Senator Alan Simpson (R.-Wyoming), to chair the eighteen-member group earlier this year, and he asked them to report back by December 1 — after voters were given a chance to decide the make-up of the 112th Congress.

The draft proposal put forward by Bowles and Simpson caught just about everyone in Washington off guard. It's not a business-as-usual plan. Very few sacred cows were spared. It calls for radical tax reform to lower rates and broaden the base, a reduction in the corporate tax rate, long-term entitlement spending cuts, and elimination of programs that have been around for decades. Among the most controversial items now on the table for consideration by the presidentially appointed commission is the full elimination of mortgage interest and state and local tax deductions, dramatically lower future Social Security benefits for higher-wage workers, and real cuts in pay for federal workers.

On November 17, just a week later, another bipartisan commission looking at the nation's deteriorating budget situation took its turn. This one is headed by former Senator Pete Domenici (R.-New Mexico), and former Clinton budget director Alice Rivlin, and is sponsored by the Bipartisan Policy Center. They and their commission colleagues — many of whom are Democrats — released their own version of a deficit- reduction plan, which received unanimous support from the 19 commission members.

Among other recommendations, the Domenici-Rivlin plan would cap the tax preference for employer-paid health insurance and then phase it out entirely over a number of years. It would also convert the Medicare program for future enrollees into a "premium support" program in which the beneficiaries get a fixed level of financial support from the government for the purchase of insurance. Enrollees selecting options more expensive than the average plan would have to pay the difference out of their own pockets.

Rivlin — who is also serving on the Bowles-Simpson presidential commission — followed up her work with Senator Domenici by announcing her public support for a "Ryan-Rivlin" health entitlement reform program, which the two then proceeded to offer to the presidential commission for its consideration. The Ryan-Rivlin proposal includes many of the same features in the health sector as the Ryan Roadmap. Future Medicare enrollees would receive their entitlement in the form of a fixed level of federal support for health insurance. The eligibility age would be increased gradually to age 67, up from 65 today. And the cost-sharing for current program enrollees would be modified to require most beneficiaries to pay something toward the cost of the services they receive before Medicare and secondary insurance kicked in. Medicaid would be converted into a block grant program to the states, with the states freed up to run the program as they see fit. The new long-term care program created in the health law — called the "CLASS Act" — would be repealed. And noneconomic and punitive damages in medical malpractice cases would be capped.

The Congressional Budget Office, in a preliminary analysis, estimates the Ryan-Rivlin plan would reduce the federal budget deficit by $280 billion over the next decade and 1.75 percent of GDP in 2030 (with reasonable baseline assumptions). That kind of savings is going to be needed to prevent the federal budget from going entirely off the rails in the next two decades.

Still, there's no expectation that any of these proposals are going to sail through Congress anytime soon. Indeed, what's most likely to happen in the short term is absolutely nothing. The Bowles-Simpson commission may not find common ground, at which point Congress is under no obligation to take up draft recommendations from a subset of its membership. Moreover, both the Domenici-Rivlin plan and the Ryan-Rivlin health entitlement program have already set in motion frantic efforts to mount counter-offensives among the protectors of the status quo to prevent these ideas from gaining any political traction.

But what's really important about the last month is not that any reform plan is about to pass. It's that the terms of the budget, entitlement and health care debates have shifted dramatically, and very likely on a permanent basis. The fundamental elements of the Ryan Roadmap are sweeping tax reform; changes in health care which emphasize a marketplace and consumer choice; and modifications to retirement programs that reflect demographic reality. All of these elements can now be found in budget plans endorsed by prominent Democrats, including Democrats the president himself turned to find solutions to the nation’s budget problems. Consequently, it will be much harder in the future for Democrats to demonize these ideas as they have tried to do in the past.

Paul Ryan took the courageous step of going first with a bold plan to fundamentally restructure the tax and entitlement policies that threaten to push the federal budget past the breaking point. Now others, even some from the other side of the aisle, are joining him in sponsoring similar plans. The Roadmap does indeed live on.

[Cross-posted at Kaiser Health News]

posted by James C. Capretta | 5:04 pm
Tags: Paul Ryan, Alice Rivlin, Pete Domenici, Alan Simpson, Erskine Bowles, fiscal commission
File As: Health Care