How Lawmakers Have Added to Deficits This Year
The beginning of the 114th Congress was marked by a great deal of rhetoric about fiscal responsibility and passage of a budget resolution promising a balanced budget within ten years. Now that Congress has adjourned for the August recess it is timely to examine how their actions have compared to their rhetoric. Unfortunately, almost all of the legislative actions taken so far this year directly affecting spending or revenues would increase the deficit.
After adding $100 billion to the debt last year, so far they have added $180 billion to the debt through 2025 this year, and there is a high probability that Congress will add even more to the debt by the end of the year. Here's how they've done it this year.
The centerpiece of the deficit increase is the physician payment law (HR 2) that replaced the Sustainable Growth Rate (SGR) formula with steady payment increases and incentives for using alternate payment models. The law only included offsets for about one-third of the gross costs, thus adding $141 billion to deficits through 2025. Although some defenders of the legislation replacing the SGR argue that the costs of the bill over ten years will be offset by savings over the long term, the bill would add $500 billion to debt over the next 20 years and would not result in net savings in any single year for over 30 years.
There are two other smaller deficit increases. The first came just last week when the three-month extension of highway programs (HR 3236) included two tax cuts for veterans. The tax cuts in question excluded veterans from the employer mandate if they had health coverage under Defense Department programs (like TRICARE) and expanded their eligibility for Health Savings Accounts. These provisions cost just over $1 billion and were not offset.
The second deficit increase, $4 billion in total, came from Department of Homeland Security appropriations (HR 240) passed in March. The law ended up spending $200 million more on an annual basis than the continuing resolution (CR) it had been operating under before that had; whereas the appropriations law spent right up to the spending cap, the CR had left spending $200 million short. In addition, the law contained $812 million of disaster relief that was not offset.
Two other bills have made a small dent in ten-year deficits. The first is a piece of the trade legislation (HR 1295) that extended several trade preferences and offset them with an increase in and extension of customs fees and other policies, reducing deficits by $1 billion. The second reauthorized the terrorism insurance program (HR 26) through 2020. The program itself is slightly deficit-reducing, and some of the spending from the authorization would occur beyond 2025 so the reauthorization reduces deficits through 2025 by $386 million.
The net deficit increase from these four bills amounts to about $145 billion and would generate $35 billion of interest costs on the additional debt that would be needed, bringing the total to $180 billion.
|Budgetary Effect of 2015 Enacted Legislation|
|2015-2025 Cost/Savings (-)|
|Physician Payment Law||$141 billion|
|Veterans' Tax Cuts||$1 billion|
|Homeland Security Appropriations||$4 billion|
|Trade Preference Law||-$1 billion|
|Terrorism Insurance Reauthorization||-$0.4 billion|
|Primary Cost||$145 billion|
|Interest Cost||$35 billion|
|Total Cost||$180 billion|
Source: CBO, JCT, CRFB calculations
This is just the deficit increase for bills that have been passed into law. There are also plenty of bills that would increase deficits that have passed one chamber (almost entirely in the House), which would result in the both chambers' budgets no longer balancing within ten years like they promise. The House has passed a repeal of the Affordable Care Act, which would cost between $137 billion and $353 billion over ten years (depending on whether macroeconomic effects are included) and around $3.5 trillion over 20 years. It also separately voted to repeal the ACA's medical device tax (HR 160, $25 billion cost) and Independent Payment Advisory Board (HR 1190, deficit-neutral over ten years but potentially costly over the long term) and to roll back the employer mandate (HR 30, $53 billion cost).
The House has also passed several costly tax cuts, including estate tax repeal (HR 1105, $269 billion cost), an expansion of the research credit (HR 880, $182 billion cost), an expansion and permanent extension of small business expensing (HR 636, $79 billion cost), and a permanent extension of the state and local sales tax deduction (HR 622, $42 billion cost), along with other smaller tax cuts.
These bills in total would cost between $720 billion and $940 billion over ten years, and if interest is included the range increases to between $820 billion and $1,080 billion.
|Budgetary Effect of 2015 Legislation That Has Passed One Chamber|
|ACA Repeal||$137 to $353 billion|
|Estate Tax Repeal||$269 billion|
|Research Credit Expansion||$182 billion|
|Small Business Expensing||$79 billion|
|State and Local Sales Tax Deduction||$42 billion|
|Other Legislation||$16 billion|
|Primary Cost||$720 to $940 billion|
|Interest Cost||$100 to $140 billion|
|Total Cost||$820 to $1,080 billion|
|Memorandum: Individual ACA Bills||$78 billion|
|Medical Device Tax Repeal||$24 billion|
|Employer Mandate Hours Threshold Increase||$53 billion|
|IPAB Repeal*||$0 billion|
Source: CBO, JCT, CRFB calculations
*IPAB repeal costs $7.1 billion in 2022-2025, but the costs are offset by reductions in the Prevention and Public Health Fund. The bill would likely increase deficits beyond 2025.
Lawmakers have plenty of other Fiscal Speed Bumps they will need to deal with later in the year, actions that could also add to the debt. Appropriations/sequester relief and highway spending will come up in the fall, and the tax extenders must be dealt with by the end of the year. The extenders in particular are at risk of adding to the debt since lawmakers have generally not offset them in the past. In addition to the permanent extensions the House has passed, the Senate Finance Committee also easily advanced a two-year, $95 billion extension package.
But these upcoming deadlines can also serve as an opportunity to spur smart action to reduce deficits or at least offset the changes they are making. Lawmakers still have the opportunity to make progress on deficits after the irresponsibility they have engaged in so far this year.
Update 8/28/2015: The original version of this blog post left out several bills that the House had passed, notably one to extend research tax credits, at a cost of $182 billion.