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Entitlement reform key to U.S. future

By Jon Cowan and Jim Kessler

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As the sequester blame game hits fever pitch this week, Republicans’ stance on taxes is simply indefensible, falling hundreds of billions short of even their own prior positions. But as Democrats, we also share a large portion of responsibility for the coming cuts to domestic discretionary spending, as the party has decided in both action and rhetoric that meaningful fixes to the major entitlement programs of Medicare, Medicaid and Social Security are off-limits.

Think about it. Over the past three years, from debt ceiling deals to the supercommittee and the fiscal cliff, social insurance programs have escaped virtually unscathed while every other category of spending took some hit and revenue grew. And because of the sheer enormousness of the Big 3 entitlements, Democrats face a serious new crisis that is closer to home and will linger long past the sequester: There is now barely a farthing left in the budget for any new investments.

Over the past century, Democrats can boast two major economic legacies. The first is the safety net programs of the New Deal and the Great Society — successful programs that lifted the elderly and vulnerable out of poverty. The second is the New Frontier investment programs defined and expanded under President John F. Kennedy. These investments in science, space, defense, education, as well as highways, rails, ports and medical breakthroughs helped power the U.S. economy during the latter half of the 20th century.

For the past 50 years, these two Democratic legacies have been on a collision course. In the mid-1960s, federal spending on investments outpaced those of entitlements by 3-to-1. By the mid-1970s, we spent one dollar on investments for every dollar that went to Medicare, Medicaid and Social Security. Last year, it was one dollar for investments for every three in entitlements. In 10 years, the ratio will be 1-to-5.

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Sequestration: Expecting a tax refund? It may be delayed

A woman looks over her tax forms. | Reuters

Law-abiding taxpayers could shoulder the brunt of the blow when the sequester hits the Internal Revenue Service Friday — and tax cheats might find it easier to rig the system.

It’s a little-discussed risk of the automatic budget cuts — and yet, another smack to the already battered 2012 tax filing season.

Absent a last-minute deal, the 8.2 percent funding cut facing the cash-strapped IRS will most likely translate to fewer specialists on hand to help taxpayers with their returns and to root out fraud — two tasks that watchdog groups say need more, not fewer, hands.

And while the sequester isn’t great for any federal agency, it amounts to particularly bad timing for the IRS. That’s because, depending on union negotiations, furloughs could come just as millions of Americans are trying to pay their income taxes.

“At a minimum, it’s probably going to take longer for people to get through on the phone; it’s going to take longer for refunds to be processed,” said Floyd Williams, a senior tax counsel at Public Strategies Washington.

Williams, who worked for the IRS for nearly two decades and directed the agency’s legislative affairs office for 16 years, says the sequester could also be a boon to those who purposely commit fraud or accidentally fill out returns incorrectly.

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Can GOP blame Obama for the sequester?

By Bill Schneider

More than 25 years ago, Representative Jack Kemp told me, “In the past, the left had a thesis: spending, redistribution of wealth and deficits. Republicans were the antithesis: spending is bad.”

He went on to explain, “Ronald Reagan represented a breakthrough for our party. We could talk about lower taxes and more growth. We didn’t have to spend all our time preaching austerity and spending cuts. The question now is: Do we take our thesis and move it further, or do we revert to an anti-spending party?”

We now have the answer. Republicans have reverted to an anti-spending party. Their latest cause? Austerity. Their argument? A shrinking economy is better than big government.

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Iceberg Ahead: The Looming Deficit Threat

Some in Washington greeted the CBO’s first big report of 2013 with applause. Citing a budget deficit that has dipped below $1 trillion, they say Congress is done controlling the debt.

But a sober look leads to different conclusions. Even if the sequester remains, debt-to-GDP will reach 82% in 2023. Most alarming is what’s just beyond the CBO’s ten-year forecast. As the baby boomers enter their seventies, rising social insurance costs drive debt-to-GDP past 130% in 2033.

To avert a fiscal crisis, Congress must produce savings roughly twice the size of the sequester, and it must do so in large part by making the major social insurance programs solvent—something we all know needs to be done.

Here’s how we would do it:

  • Replace the sequester with better cuts. The non-defense sequester should be replaced at least one-to-one with mandatory program savings, primarily from fixes to Medicare. Defense cuts should continue but without the sequester’s restrictions.
  • Lock in new revenue from tax reform. Congress must establish an expedited process for tax reform that simplifies the individual tax code and raises $500 billion in revenue.  We suggest phasing in a cap on deductions for those with more than $250,000 in income (the cap would exclude charitable deductions). We would also apply chain-weighted CPI to the tax brackets.
  • Authorize a Social Security commission. A select panel should propose a plan for 75-year solvency, and Congress should be required to vote on its recommendations with a simple majority by 2015. As a start, chain-weighted CPI that protects long-term beneficiaries should be done immediately.
  • Defuse future debt limit battles by linking to deficit targets. Congress should both raise the debt limit for two years and reform it, so that the debt limit automatically rises if the debt meets specified annual targets.

For more details check out: Iceberg Ahead: The Looming Deficit Threat in the Latest CBO Report

Iceberg Ahead: The Looming Deficit Threat in Latest CBO Report

Some in Washington greeted the CBO’s first big report of 2013 with applause. Citing a budget deficit that has dipped below $1 trillion, they say Congress is done controlling the debt.

But a sober look leads to different conclusions. 

Despite a recovering economy, debt will rise over the next decade, from 73% to 87% of GDP. Even if the sequester remains, debt-to-GDP will reach 82% in 2023. Most alarming is what’s just beyond the CBO’s ten-year forecast. As the baby boomers enter their seventies, rising social insurance costs drive debt-to-GDP past 130% in 2033.

Too many in both parties propose only to repeal or replace the sequester. In our new memo, we outline a different approach, one that saves twice as much as sequestration this decade and better prepares for the larger budget challenge coming in the next decade.

Sequester hovers like a guillotine

by Mieke Eoyang & Matt Bennett via Politico.

A sword of Damocles is dangling over the Defense Department. Congress and President Barack Obama hung it up intentionally, in a good-faith effort to hasten deal-making on the budget deficit. But the threat has not had its intended effect of pushing lawmakers toward a grand bargain. So the time has come to ratchet up the pressure.

Late last year, as the debate over lifting the debt ceiling threatened to derail the U.S. economy, Congress created sequestration — more than $500 billion in deep and indiscriminate future defense cuts and another half trillion in domestic cuts all designed to be harmful. The idea was that the specter of these cuts would force Congress to reach a grand bargain, solving the long-term fiscal shortfalls.

But that’s as far as it went. Congressional Republicans have remained loyal to tea party dogma and squarely oppose a balanced deal. But with sequestration looming, that obstructionism is not only irresponsible, it could be dangerous.

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