Like most massive budget deals, the act bundles together massive increases in spending and an increase of the debt limit, in exchange for token promises and minor changes. Here are a few of the problems with the act.
$1.5 Trillion Debt Limit Increase
Established in 1917, the U.S. debt limit is a legal cap on the total amount of national debt that can be issued by the U.S. Treasury. Intended to serve as a red flag for excessive federal spending, the non-partisan Congressional Research Service (CRS) notes that the debt ceiling “imposes a form of fiscal accountability that compels Congress and the President to take visible action to allow further federal borrowing when the federal government spends more than it collects in revenues.”
But in recent years, the debt limit has been “suspended” indiscriminately by a Congress that has abandoned responsible budget practices. The current debt limit sits at $18.1 trillion, though the U.S. Treasury hit the limit in March and has been employing “extraordinary measures” to continue payments on the national debt. The Treasury currently estimates that it will run out of extraordinary measures on November 3, 2015.
This deadline should provide an opportunity for lawmakers to reevaluate current spending levels and make needed financial reforms. GOP lawmakers should use the debt limit as leverage to extract significant spending concessions from Democrats, who constantly push for a “clean” debt limit raise, if not an outright abolition of a cap they call “archaic.”
But instead of pressing the fight for conservative spending reforms, this bill will further suspend the debt limit until March 2017 equal to $1.5 trillion in new debt. According to Congressional Quarterly, this was bundled with other budget provisions so Republicans could “sell the package as raising the debt limit in exchange for constraints on spending,” while Democrats tout a clean debt limit increase to their constituents.
Budget Cap Busting
Established by the Budget Control Act of 2011, the budget caps are a limit on the federal government’s discretionary spending. These caps ostensibly force fiscal responsibility by mandating sequestration cuts if Congress continues out-of-control spending and fails to accomplish its stated aims of deficit reduction. But instead, this bill raises the caps, authorizing an additional $80 billion worth of spending over the next two years. In addition to an $80 billion cap increase, the bill provides for an additional $32 billion in Overseas Contingency Operations funding which is not subject to the caps, combining for a total $112 billion spending increase over two years. The bill also allocates additional funding of $484 million over the caps for Social Security fraud enforcement over the next four years.
Social Security Disability Bailout
The SSDI program is broken and insolvent, and registered it sixth annual net deficit in 2014 – declining by $30.2 billion since 2013. Each dollar awarded was only paired with 77 cents in payroll tax contributions. Keeping the fund solvent would require either cutting benefits by 20% or increasing taxes by 17%. But the problem is worse – the $30.2 billion deficit comes despite a series of interest payments into the fund from previous loans issued to prop up other programs – payments which come out of general revenues. The deficit caused by these payments has added up to $213 billion over the past decade.
The reason for this unsustainability is a drastic increase in the number of individuals on disability. While workers are healthier and jobs are safer, the percentage of the working-age population on disability increased from 2.3% to 5.1% over the past 15 years. This increase comes as a response to perverse incentives instituted by Congress in 1978, which added non-medical, vocational factors such as age, education, and ability to speak English to the list of disability qualifications (so-called “grid factors”). Currently, about 43 percent of disability awards are based on these factors. In the 1980s, Congress further loosened standards, causing a higher portion of disability awards to be based on difficult-to-verify claims such as depression and musculoskeletal pain. These subjective standards are often arbitrary, leading to inconsistent application and an ability to game the system.
In order to keep the fund afloat, Democrats have advocated reallocating a portion of payroll taxes from Old Age and Survivor’s Insurance (OASI) – the more well-known Social Security program – to the disability fund. This raid will cause OASI to run dry sooner. This budget act embraces this policy, using OASI to bail out the disability fund for six years, in exchange for token concession that do not address the perverse incentives at the foundation of the program.
Medicare Spending Increase
Medicare is in need of serious reform at the core. The current system is built on a model of arbitrary price controls that are unresponsive to changes in the market, either causing taxpayer dollars to be wasted or payments to be set too low to justly compensate the physician. The bureaucracy that has emerged surrounding Medicare has drastically skewed the healthcare services market, causing medical costs across the board to skyrocket. The program needs to shift to a model of premium support that fosters competition in the healthcare market.
At the start of 2016, insurance premiums for 30% of seniors covered under Medicare Part B (those not living on a fixed income) are set to increase from $104.90 a month to $159.30 – a 50% increase. This increase is intended to subsidize rising costs for all seniors on Medicare (due to a provision that prevents premiums from rising for seniors who live on a fixed Social Security income). This hike should serve as a red flag and prompt reform, but Congress has instead painted it as a false choice between increasing Medicare spending or allowing medicare premiums to increase.
Predictably, this bill continues Congress’s tired old tactic of throwing money at a problem. The bill freezes premiums at $120 per month, increasing the cost of Medicare for taxpayers.
The bill uses gimmicky offsets to provide some illusion of fiscal responsibility. For instance, Congress has promised to extend sequestration time for an additional two years, from 2023 to 2025, with the idea that future cuts will support current overspending. This is a gimmick meant to provide justification for spending now.
The Bipartisan Budget Act of 2015 is precisely what one would expect in a behemoth budget conglomeration – spending hikes, increased debt, and plenty of showy gimmicks to hide the expansion of government. This bill should be rejected unequivocally, and the GOP conference should get back to work, using each point of legislative leverage individually to extract meaningful conservative reforms.