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115th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 115-240
_______________________________________________________________________
CONCURRENT RESOLUTION
ON THE BUDGET--
FISCAL YEAR 2018
__________
R E P O R T
of the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
to accompany
H. Con. Res. 71
ESTABLISHING THE BUDGET FOR THE UNITED STATES GOVERNMENT FOR FISCAL
YEAR 2018 AND SETTING FORTH APPROPRIATE BUDGETARY LEVELS FOR FISCAL
YEARS 2019 THROUGH 2027
together with
MINORITY AND ADDITIONAL VIEWS
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
July 21, 2017.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
______
U.S. GOVERNMENT PUBLISHING OFFICE
26-315 WASHINGTON : 2017
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
COMMITTEE ON THE BUDGET
DIANE BLACK, Tennessee, Chairman
TODD ROKITA, Indiana, Vice Chairman JOHN A. YARMUTH, Kentucky,
MARIO DIAZ-BALART, Florida Ranking Minority Member
TOM COLE, Oklahoma BARBARA LEE, California
TOM McCLINTOCK, California MICHELLE LUJAN GRISHAM, New Mexico
ROB WOODALL, Georgia SETH MOULTON, Massachusetts
MARK SANFORD, South Carolina HAKEEM S. JEFFRIES, New York
STEVE WOMACK, Arkansas BRIAN HIGGINS, New York
DAVE BRAT, Virginia SUZAN K. DelBENE, Washington
GLENN GROTHMAN, Wisconsin DEBBIE WASSERMAN SCHULTZ, Florida
GARY J. PALMER, Alabama BRENDAN F. BOYLE, Pennsylvania
BRUCE WESTERMAN, Arkansas RO KHANNA, California
JAMES B. RENACCI, Ohio PRAMILA JAYAPAL, Washington,
BILL JOHNSON, Ohio Vice Ranking Minority Member
JASON SMITH, Missouri SALUD CARBAJAL, California
JASON LEWIS, Minnesota SHEILA JACKSON LEE, Texas
JACK BERGMAN, Michigan JANICE D. SCHAKOWSKY, Illinois
JOHN J. FASO, New York
LLOYD SMUCKER, Pennsylvania
MATT GAETZ, Florida
JODEY C. ARRINGTON, Texas
A. DREW FERGUSON IV, Georgia
Professional Staff
Richard E. May, Staff Director
Ellen Balis, Minority Staff Director
C O N T E N T S
Page
Introduction..................................................... 3
Summary Tables--Spending and Revenue:
Table 1. Fiscal Year 2018 Budget Resolution Total Spending
and Revenue................................................ 17
Table 2. Fiscal Year 2018 Budget Resolution Discretionary
Spending................................................... 20
Table 3. Fiscal Year 2018 Budget Resolution Mandatory
Spending................................................... 23
The Long-Term Budget Outlook..................................... 27
Direct Spending Trends and Reforms............................... 31
Table 4. Historical Means-Tested and Non Means-Tested Direct
Spending................................................... 34
Table 5. Projected Means-Tested and Non Means-Tested Direct
Spending................................................... 35
The Economy and Economic Assumptions............................. 39
Table 6. Economic Projections: Administration, CBO, and
Private Forecasters........................................ 45
Table 7. Economic Assumptions of the Fiscal Year 2018 Budget
Resolution................................................. 46
Macroeconomic Feedback Effects of Pro-Growth Policies............ 47
Functional Presentation.......................................... 51
Principal Federal Responsibilities........................... 55
National Defense......................................... 55
International Affairs.................................... 59
Overseas Contingency Operations/Global War on Terrorism.. 63
Veterans Benefits and Services........................... 64
Administration of Justice................................ 76
General Government....................................... 81
Government-Wide Policy................................... 84
Domestic Priorities.......................................... 89
General Science, Space, and Technology................... 90
Energy................................................... 92
Natural Resources and Environment........................ 98
Agriculture.............................................. 102
Commerce and Housing Credit.............................. 103
Transportation........................................... 107
Community and Regional Development....................... 117
Education, Training, Employment, and Social Services..... 119
Health................................................... 126
Income Security.......................................... 131
Other Discretionary Spending............................. 133
Direct Spending.............................................. 135
Social Security.......................................... 135
Medicare................................................. 141
Medicaid, the American Health Care Act, and Related
Programs............................................... 153
Income Support, Nutrition, and Related Programs.......... 168
Farm Support and Related Programs........................ 180
Banking, Commerce, Postal Service, and Related Programs.. 181
Student Loans, Social Services, and Related Programs..... 187
Federal Lands and Other Resources........................ 194
Other Direct Spending.................................... 196
Financial Management......................................... 199
Net Interest............................................. 199
Allowances............................................... 200
Undistributed Offsetting Receipts........................ 200
Revenue and Tax Reform........................................... 203
Table 8. Tax Expenditure Estimates by Budget Function, Fiscal
Years 2016-2020............................................ 207
Addressing Improper Payments..................................... 217
Unauthorized Spending Programs................................... 221
Table 9. Summary of Authorizations of Appropriations Expiring
on or Before 30 September 2017, by Appropriations
Subcommittee............................................... 222
Table 10. Summary of Authorizations of Appropriations
Expiring on or Before 30 September 2017, by House
Authorizing Committee...................................... 222
`High-Risk' Federal Programs and Activities...................... 225
Government Waste, Fraud, and Abuse............................... 231
Budget Process Reform............................................ 239
Reclaiming Constitutional Authority Through the `Power of the
Purse'..................................................... 241
The Importance of Fiscal Goals............................... 253
The Need to Control Direct Spending.......................... 265
Making Budget Enforcement More Effective..................... 277
Alternative Approaches to the Federal Budget................. 287
Proposals for a Rewrite of the Congressional Budget Process.. 303
Regulatory Budgeting............................................. 309
The President's Budget: A Brief Summary.......................... 313
Table 11. Summary of Fiscal Year 2018 Budget Resolution...... 316
Table 12. Fiscal Year 2018 House Budget Resolution vs. the
President's Budget......................................... 316
Section-by-Section Description................................... 319
The Congressional Budget Process................................. 337
Table 13. Allocation of Spending Authority to House Committee
on Appropriations.......................................... 339
Table 14. Resolution by Authorizing Committee (On-budget
Amounts)................................................... 339
Reconciliation................................................... 343
Enforcing Budgetary Levels....................................... 347
Statutory Controls Over the Budget............................... 351
Accounts Identified for Advance Appropriations................... 357
Votes of the Committee........................................... 359
Other Matters Under the Rules of the House....................... 393
Minority Views................................................... 395
Additional Views................................................. 399
Supplemental Material............................................ 401
Concurrent Resolution on the Budget--Fiscal Year 2018
(legislative text)............................................. 409
T A B L E S
Page
Summary Tables--Spending and Revenue:
Table 1. Fiscal Year 2018 Budget Resolution Total Spending
and Revenue................................................ 17
Table 2. Fiscal Year 2018 Budget Resolution Discretionary
Spending................................................... 20
Table 3. Fiscal Year 2018 Budget Resolution Mandatory
Spending................................................... 23
Direct Spending Trends and Reforms:
Table 4. Historical Means-Tested and Non Means-Tested Direct
Spending................................................... 34
Table 5. Projected Means-Tested and Non Means-Tested Direct
Spending................................................... 35
The Economy and Economic Assumptions:
Table 6. Economic Projections: Administration, CBO, and
Private Forecasters........................................ 45
Table 7. Economic Assumptions of the Fiscal Year 2018 Budget
Resolution................................................. 46
Revenue and Tax Reform:
Table 8. Tax Expenditure Estimates by Budget Function, Fiscal
Years 2016-2020............................................ 207
Unauthorized Spending Programs:
Table 9. Summary of Authorizations of Appropriations Expiring
on or Before 30 September 2017, by Appropriations
Submmittee................................................. 222
Table 10. Summary of Authorizations of Appropriations
Expiring on or Before 30 September 2017, by House
Authorizing Committee...................................... 222
The President's Budget: A Brief Summary:
Table 11. Summary of Fiscal Year 2018 Budget Resolution...... 316
Table 12. Fiscal Year 2018 House Budget Resolution vs. the
President's Budget......................................... 316
The Congressional Budget Process:
Table 13. Allocation of Spending Authority to House Committee
on Appropriations.......................................... 339
Table 14. Resolution by Authorizing Committee (On-budget
Amounts)................................................... 339
115th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 115-240
======================================================================
CONCURRENT RESOLUTION ON THE BUDGET--
FISCAL YEAR 2018
_______
ESTABLISHING THE BUDGET FOR THE UNITED STATES GOVERNMENT FOR FISCAL
YEAR 2018 AND SETTING FORTH APPROPRIATE BUDGETARY LEVELS FOR FISCAL
YEARS 2019 THROUGH 2027
_______
July 21, 2017.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mrs. Black, from the Committee on the Budget, submitted the following
R E P O R T
together with
MINORITY AND ADDITIONAL VIEWS
[To accompany H. Con. Res. 71]
INTRODUCTION
----------
Anyone paying attention these days, anyone willing to face
reality, knows the Federal Government's fiscal health is
reaching critical condition. Spending is rising at plainly
unsustainable rates. Deficits are about to begin swelling
again, exceeding $1 trillion annually within the next 10 years.
The government's publicly held debt, already at historically
high levels, is on course to exceed the size of the entire
economy in slightly more than a decade. The trust funds of the
two major social insurance programs--Social Security and
Medicare--are approaching depletion, which will force deep and
automatic cuts in benefits, as required by law. Meanwhile, last
year Washington paid out nearly $150 billion in benefits to the
wrong people, in the wrong amounts, or for the wrong reasons--
and that is very likely an underestimate.
The term ``unsustainable'' is used so often to describe the
government's fiscal path that it has almost lost its impact.
What it means is this: The increases in spending, deficits, and
debt cannot continue--and will not. Perhaps major programs will
collapse under their own weight. Perhaps investors in Treasury
bonds will begin demanding higher returns, further increasing
the cost of debt service. Alternatively, investors may begin
losing confidence in Washington's ability to correct its fiscal
course and take their money elsewhere, leaving the Federal
Government unable to finance its programs--an effect that could
cascade unexpectedly. Or perhaps the debt will so burden the
economy that growth stagnates altogether. In short, if
policymakers do not start making changes, and soon, the changes
will be imposed on the entire country--and they will be
unforgiving.
Some will doggedly oppose reform, branding it ``mindless
austerity.'' The government's deficit troubles can be fixed,
they will say, simply by raising taxes on the wealthy or
controlling health care costs with more government-imposed
regulation and price-fixing. They will claim to be protecting
government programs intended to serve the elderly or
vulnerable. Instead, they will only ensure the demise of those
very programs as they become unaffordable not only for the
government, but for the economy itself.
All that said, it is neither naive nor fanciful to see in
these challenges a once-in-a-generation opportunity--an
opportunity not only to correct the disastrous course of fiscal
policy, but to transform government itself. Anti-poverty
programs can cease trapping beneficiaries in dependency and
instead boost them toward self-sufficiency. Health care can be
freed from Washington's dictates to provide more choices and
better care at lowers costs. The Byzantine Federal tax code can
be revised and simplified to encourage work, saving, and
investment. Burdensome regulations can be discarded and bloated
bureaucracies trimmed. These changes should happen anyway, but
if the pressure of budgetary constraints drives them, so be it.
Indeed, budget and policy reforms go hand in hand. The right
kinds of reforms can significantly reduce costs, easing
government's constant pressure on taxpayers and helping
Congress toward the most sound and reliable of fiscal goals: a
balanced budget.
Meeting the government's fiscal challenges will be a
daunting task, requiring conviction and resolve. Governing is
hard. Then again, Members of Congress are elected not to do
what is easy, but to do what is right. This budget resolution
starts the process. It retains longstanding beliefs about
budgeting and governing. It reverses the drift toward excessive
spending and larger government; it reinforces the innovation
and creativity stirring in the myriad institutions and
communities across the country; and it revitalizes the
prosperity that creates ever-expanding opportunities for all
Americans to pursue their destinies. Like any good budget
resolution, this one expresses a vision of governing, and of
America itself. As described further in this report, this
fiscal blueprint follows these guidelines:
LBalancing the Budget. The resolution draws a path
toward a balanced budget within 10 years, without raising
taxes, and places the government on a fiscal course sustainable
for the long term. The national debt is already an impediment
to greater prosperity and a threat to the security of future
generations. This committee's budget significantly reduces
spending and reforms programs to put the government on a
sustainable spending path.
LPromoting Economic Growth. For the past eight
years, government has been a hindrance to economic growth. This
budget urges reversing this trend with a combination of pro-
growth policies, including deficit reduction, spending
restraint, comprehensive tax reform, welfare reform, Obamacare
repeal-and-replace legislation, and regulatory reform. All can
promote more robust growth over the longer term.
LEnsuring a Strong National Defense. Defending
America's security is the highest priority of the Federal
Government. To that end, this budget supports robust funding of
troop training, equipment, compensation, and improved
readiness.
LImproving the Sustainability of Medicare.
Notwithstanding Medicare's popularity, there are far better
ways to achieve the program's worthy goals. Retirees should be
able to choose the coverage plan best suited to their
particular needs, rather than accept a set of benefits dictated
by Washington. The program should ensure doctors and patients
make health care decisions for themselves, and promote
competition among insurers to expand choices of coverage and
restrain costs. Reforms such as these will have the added
benefit of improving Medicare's long-term financial condition,
ensuring it will be there for future generations.
LRestoring the Proper Role of State and Local
Governments. The resolution encourages the innovation and
creativity outside Washington. Under this budget, States and
localities would reclaim their rightful authority to tailor
programs in areas such as education, transportation, welfare,
and environmental stewardship. They possess not only the
ability but also the will to reform and modernize programs that
serve their citizens. The laboratories of democracy, not the
Federal Government, are where these reforms should happen.
LReforming Government Programs While Improving
Accountability. Every tax dollar collected by the Federal
Government was generated by private-sector economic activity.
Responsible stewardship of taxpayer dollars is a fundamental
component of the budget resolution. At every opportunity
possible, the budget reforms government programs and improves
accountability to while generating better outcomes for
Americans.
This resolution is more, however, than a symbolic,
philosophical statement. It is an instrument for governing. The
majorities in Congress are in a position to make their policy
goals a reality. The budget assumes Congress will support its
limits on spending growth by enforcing its allocations to
authorizing and appropriations committees. The resolution also
employs budget reconciliation to drive policy reforms and
achieve specified fiscal outcomes. By adhering to the
guidelines of the resolution, Congress can enact, not just
envision, a range of major policy reforms. Lawmakers could, for
example, begin the establishment of truly patient-centered
health care to replace Obamacare; reform the tax code; lighten
the yoke of the regulatory state; transform public assistance
programs so they promote self-sufficiency rather than expanding
dependency. The budget calls for action to reduce the
government's billions of dollars in improper payments, and to
slice away vast sums of unnecessary, obsolete, duplicative, and
nonsensical grants and spending programs. The budget aims to
make these policies real, and provides the means of doing so.
The policy changes to meet the budget's parameters will be
determined by the respective committees of jurisdiction. They
retain maximum flexibility in determining those specific
policies. The discussions in this report, while developed in
consultation with the authorizing and appropriations
committees, reflect purely illustrative options committees may
want to consider. Nothing in the report, or in the budget
resolution's reconciliation instructions, predetermines,
promotes, or assumes any specific policy change to be made.
Nevertheless, they may wish to consider these discussions I
constructing their proposals.
The guiding principles of the resolution follow in this
introduction.
Balancing the Budget
Since Republicans reclaimed the House Majority in 2011,
every House budget resolution has drawn a path to balance. As
Congress now turns to the fiscal year 2018 budget, the fiscal
outlook suffers from a weak economy, mounting pressure on
spending, and deeper projected deficits. Hence the task of
balancing the budget has become more difficult.
A Lackluster Economic Outlook. An expanding economy, which
boosts Federal revenue without tax increases, is essential for
deficit reduction. Just five years ago, the Congressional
Budget Office [CBO] projected real (inflation-adjusted)
economic growth would average 3 percent per year--roughly equal
to the historical trend rate. Every year since then, however,
CBO has ratcheted down its forecast, and now projects a
sluggish 1.9-percent average annual growth rate for the next 10
years--partly due to the Obama Administration's health care
plan, high spending, and heavy regulation. (See further
discussion in the section of this report titled ``The Economy
and Economic Assumptions.'')
Larger Projected Deficits. As recently as February 2013,
CBO projected deficits would total roughly $7.0 trillion for
the 10-year period of 2014 through 2023. In CBO's January 2017
budget outlook, the 10-year deficit projections had surged by
nearly $2.5 trillion, totaling $9.4 trillion for 2018 through
2027.\1\ (See Figure 1.)
---------------------------------------------------------------------------
\1\In CBO's updated budget outlook, published in June, the deficit
figure had worsened further, to $10.1 trillion over the next 10 years.
This budget, however, was constructed from CBO's January baseline, so
the discussion here employs those figures.
Relentless Mandatory Spending Pressure. In addition to the
sluggish economy, the principal drivers of these growing
deficits are the government's health, retirement, and income
security programs. By 2029, these programs, plus net interest,
are expected to consume all Federal tax revenue, meaning the
rest of the government's activities--defense, infrastructure,
research, and myriad others--will have to be financed on
---------------------------------------------------------------------------
borrowed money.
Greater Savings Needed. The fiscal year 2016 budget
resolution conference report (S. Con. Res. 11) reached balance
by proposing $5 trillion in savings, coupled with improved
economic growth due to deficit reduction and tax reform. Now,
just two years later, this fiscal year 2018 budget requires
$6.5 trillion in net deficit reduction over 10 years to reach
balance.
In short, balancing the budget will require improved
economic growth, bold program reforms, and a sustained
commitment to fiscal discipline. That is a major task facing
the 115th Congress.
This formula proved effective in the 1990s. Over the course
of that decade, Congress actually reduced annually appropriated
``discretionary'' spending after adjusting for inflation. In
1997, following two years of confrontation, President Clinton
finally joined the Republican Congress in striving to surpass
the timid and unsuccessful pursuit of mere deficit reduction
and commit to eliminating deficits--and to do so entirely
through spending restraint. The Balanced Budget Act of 1997 was
paired with tax cuts then estimated at $95.3 billion over five
years and $275.4 billion over 10 years.\2\ Perhaps not
surprisingly, economic growth surged: Growth in real gross
domestic product [GDP] exceeded 4 percent annually in the
latter part of the decade. With this combination, the plan to
reach balance in five years actually produced surpluses in one
year--surpluses that remained until the terrorist attacks of 11
September 2001.
---------------------------------------------------------------------------
\2\See the Conference Report on the ``Taxpayer Relief Act of 1997''
(H.R. 2014), p. 807.
---------------------------------------------------------------------------
Balancing the budget is not, however, merely a matter of
making numbers add up. It is an ethical commitment. As Nobel
Laureate James M. Buchanan wrote:
Politicians prior to World War II would have
considered it to be immoral (to be a sin) to spend more
than they were willing to generate in tax revenues,
except during periods of extreme and temporary
emergency. To spend borrowed sums on ordinary items for
public consumption was, quite simply, beyond the pale
of acceptable political behavior. There were basic
moral constraints in place; there was no need for an
explicit fiscal rule in the written constitution.\3\
---------------------------------------------------------------------------
\3\James M. Buchanan, ``Clarifying Confusion About the Balanced
Budget Amendment,'' National Tax Journal, Vol. 48, No. 3, September
1995, page 347.
When the typical family borrows, for a home or a new car or
college, they themselves assume the responsibility for their
own debt. When the government borrows chronically--as it has
been doing--it imposes the costs on future generations who have
no say in the matter and will receive no benefits from it. In
fact, they will be worse off due to the higher taxes and weaker
economic growth that result. What does that say about the
character of a government that encourages and perpetuates such
a practice?
While some ``experts'' dismiss the balanced budget standard
as a kind of quaint anachronism, nothing has come to replace it
as a consensus norm for budgeting. As a result, fiscal policy
has been adrift, and increasingly unsustainable. Some have
tried to substitute intellectually sophisticated concepts, such
trying limiting deficits or debt as a share of the economy--yet
there is no agreement on what the acceptable maximum levels
might be. Others have suggested allowing ``counter-cyclical''
policies in the near term while striving for ``long-term fiscal
sustainability''--with no sound definition of what the latter
means. This formula, of course, merely rationalizes spending
now while putting off restraint until later--so the restraint
never happens.
Today, in the absence of the balanced budget principle, the
only fiscal guideline is the modern, relativistic pay-as-you-go
concept, which merely ratifies existing deficits as the measure
of budgetary rectitude--no matter how large those deficits
might be. Thus, proponents of the Affordable Care Act could
boast the health care program was fiscally ``responsible''
because it did not increase deficits--which in 2010, the year
of its enactment, already exceeded a trillion dollars a year--
while it recklessly added trillions more to government
spending.
The durability of the balanced budget principle is
demonstrated even by the non-partisan Congressional Budget
Office itself. Every time the CBO publishes its regular updates
of budget and economic conditions, the first item it reports is
the magnitude of the deficit or surplus--that is, the
relationship between total outlays and total tax revenue. It is
the very same measure that underlies the balanced budget
standard: a simple comparison of current income and outgo.\4\
CBO's clear implication is that the more spending exceeds
revenue, and the more rapidly the two diverge, the more
unstable is the government's fiscal condition. There is simply
no more straightforward measure of the government's fiscal
health and stability.
---------------------------------------------------------------------------
\4\For example, the first three sentences of the summary in the
recent The Budget and Economic Outlook: 2017 to 2027 (p. 1) read as
follows: ``In fiscal year 2016, for the first time since 2009, the
federal budget deficit increased in relation to the nation's economic
output. The Congressional Budget Office projects that over the next
decade, if current laws remained generally unchanged, budget deficits
would eventually follow an upward trajectory--the result of strong
growth in spending for retirement and health care programs targeted to
older people and rising interest payments on the government's debt,
accompanied by only modest growth in revenue collections.''
FIGURE 1
FIGURE 2
If current policies remain unchanged, deficits are about to
begin surging, nearly tripling over the next decade. CBO's
January estimates project deficits swelling from $487 billion
in fiscal year 2018 to $1.4 trillion in 2027. As a share of
economic output, deficits will grow steadily as well, reaching
5 percent of gross domestic product [GDP] in fiscal year
2027.\5\ Debt held by the public will climb to $24.9 trillion
at the end of 10 years, or 88.9 percent of GDP--its highest
level since 1947 (see Figure 2). Gross Federal debt, which
includes funds owed to the Social Security Trust Fund and other
Federal accounts, is projected to rise from $20.4 trillion at
the end of 2017 to $30.0 trillion in 2027.\6\
---------------------------------------------------------------------------
\5\Congressional Budget Office, The Budget and Economic Outlook:
2017 to 2027, January 2017, Table 1-1, p. 10.
\6\Ibid., Table 1-4. p. 29.
---------------------------------------------------------------------------
Make no mistake; this pattern is due to excessive spending,
not insufficient tax revenue. CBO's January figures show
revenue rising to 18.1 percent of GDP in 2018--well above the
17.4-percent average of the past 50 years. Revenue will remain
at that level through 2023, and then rise, reaching 18.4
percent of GDP in 2027. Nevertheless, spending will
consistently outpace these healthy tax collections. Even
excluding interest payments, programmatic government spending
will hit 19.1 percent of GDP in 2018, then rise throughout the
decade, to 20.8 percent of GDP in 2027. Because of the chronic
borrowing to finance government operations, debt service will
add to the problem: With interest payments included, spending
rises from 20.5 percent of GDP in 2018 to 23.4 percent in
2027.\7\
---------------------------------------------------------------------------
\7\Congressional Budget Office, The Budget and Economic Outlook:
2017 to 2027, Table 1-1, p. 10.
---------------------------------------------------------------------------
The trend persists for the longer term. While CBO projects
tax revenue rising to historically high levels--averaging 19.3
percent of GDP in the decade of 2038 through 2047--programmatic
spending will still outgrow revenue. Adding debt service drives
total spending to 28 percent of GDP, generating relentlessly
deepening deficits and growing debt.\8\
---------------------------------------------------------------------------
\8\Congressional Budget Office, The 2017 Long-Term Budget Outlook,
June 2017, Table 1.
---------------------------------------------------------------------------
Only by controlling spending can Congress alter this
catastrophic course.
In the face of this fiscal onslaught, doing nothing invites
financial disaster. A rising debt level is unsustainable
because its growth eventually begins to exceed that of the
overall economy. As a result, debt service costs absorb an
increasing share of national income and the government must
borrow an increasing amount each year--likely in the face of
rising interest rates--to both fund its ongoing services and
make good on its previous debt commitments. Ultimately, this
dynamic leads to a decline in national saving and a ``crowding
out'' of private investment, sapping economic output and
diminishing the country's standard of living. In a worst-case
scenario, this dynamic could also lead to a full-blown debt
crisis, devastating at the macroeconomic level and acutely
painful for families and businesses.
Investors and businesses look forward in making their
decisions. They recognize today's large debt levels are simply
tomorrow's tax hikes, interest rate increases, or inflation--
and they act accordingly. This debt overhang, and the
uncertainty it generates, weighs on growth, investment, and job
creation.
Interest payments on the debt (the ``legacy cost'' of
deficit spending) will total a staggering $5.2 trillion over
the next decade, according to CBO.\9\ These payments threaten
to overwhelm other spending priorities in the budget. In 2012,
Deloitte LLP--a tax, audit and consulting firm--discussed the
ways in which debt will hamper U.S. competitiveness in the
years ahead.
---------------------------------------------------------------------------
\9\Ibid., Table 1-1, p. 10.
[A] great variety of meaningful investments will
almost certainly be left undone simply because interest
payments will push them out of the budget. This is the
silent cost of prior debts that, unless explicitly
recognized, crucially leads policymakers to
underestimate the effect that prior deficits have
already had on this decades planned expenditures.\10\
---------------------------------------------------------------------------
\10\Deloitte LLP, The Untold Story of America's Debt, June 2012.
Debt service is already projected to dominate the budget.
Within a decade, the Federal Government will reach a point at
which it spends more on interest payments than it does on
national defense, Medicaid, education, or infrastructure, among
others (see Figure 3). Interest on the debt will become the
government's third largest program, following only Social
Security and Medicare.
All these factors point to the need for returning to the
balanced budget standard. It is the only clear fiscal guideline
that commands a consensus of public understanding and support.
All other formulations are merely ways of rationalizing
continued deficit spending. A balanced budget is also the
sturdiest means of limiting government. A balanced budget
commitment establishes real-time restraint on the expansion of
the public sector: The size and scope of government, as
measured by its spending, may not exceed the amount taxpayers
endorse and the economy sustains. This empowers the people, on
an ongoing basis, to hold their government in check.
FIGURE 3
The pursuit of balance has distinct economic and fiscal
benefits as well. Nearly all economists, including those at the
CBO, explain that reducing budget deficits (bending the curve
on debt levels) increases the pool of national savings and
boosts investment, thereby raising economic growth and job
creation. The greater economic output that stems from a large
deficit reduction package would have a sizeable impact on the
Federal budget. For instance, higher output would lead to
greater revenues through the increase in taxable incomes. Lower
interest rates, and a reduction in the stock of debt, would
lead to lower government spending on net interest expenses.
(See the section in this report titled ``Macroeconomic Feedback
Effects of Pro-Growth Policies.'')
For all these reasons, this budget resolution reasserts the
balanced budget standard, and then maintains it--putting the
government on a path to paying off the debt.
Mandatory Spending Programs
Just as important as pursuing balance is the way in which
lawmakers achieve it. Some experts and policymakers advocate a
mix of spending restraint and tax increases--the so-called
``balanced'' approach--as if the two were merely opposite sides
of the same coin. That sterile, policy-neutral concept,
however, masks the fundamental cause and effect of government
budgeting: Spending comes first. Spending--one of the best
measures of the size and scope of government--is how government
does what it does. Government's programs and activities exist
only if government spends money to implement them. ``In a
fundamental sense,'' writes longtime budget expert Allen
Schick, ``the federal government is what it spends.''\11\ It is
because of spending that the government taxes and borrows.
Hence, spending is the root cause of all other fiscal
consequences.
---------------------------------------------------------------------------
\11\Allen Schick, The Federal Budget: Politics, Policy, Process
(Washington DC: The Brookings Institution Press, 2007), page 2.
---------------------------------------------------------------------------
Today, gaining control of spending unquestionably requires
controlling mandatory, or direct, spending. Unlike the
government's ``discretionary'' accounts, for which Congress
sets fixed limits on total budget authority, direct spending is
open-ended and flows from effectively permanent authorizations.
Programs funded this way pay benefits directly to groups or
individuals without an intervening appropriation. They spend
without limit. Their totals are determined by numerous factors
outside the control of Congress: caseloads, the growth or
contraction of GDP, inflation, and many others. To put it
simply, the design of direct spending makes it especially
difficult to control.
The list of these programs is long and broad. It includes
the social insurance programs, Social Security and Medicare;
other health spending, such as Medicaid and the Affordable Care
Act; income support, nutrition assistance, unemployment
compensation, disability insurance, student loans, and a range
of others.
In 1965, as President Johnson's Great Society programs were
being enacted, net direct spending (including interest)
represented about 34 percent of the budget. By last year, this
form of spending had doubled as a share of the budget, reaching
69 percent. By 2040, direct spending, coupled with interest
payments, will constitute more than four-fifths of total
Federal spending (see Figure 4).
Clearly this problem with direct spending has been building
for decades, yet lawmakers have found it difficult to build an
enduring consensus for addressing it. With each year that
passes, spending control becomes more difficult, because the
necessary changes in programs become larger and more wrenching.
At some point the programs will simply collapse under their own
weight. Those who claim to ``protect'' them by resisting reform
only ensure their demise.
Controlling mandatory spending need not be seen, however,
as some daunting exercise in ``mindless austerity,'' as former
President Obama so ominously put it. As long as reform is
necessary, it can be approached as an opportunity to save and
strengthen these programs--to make them better for the people
they are intended to serve.
FIGURE 4
Consider a few examples.
This resolution assumes enactment of the American Health
Care Act [AHCA], recently passed by the House. The AHCA serves
as a fundamental transformation of health care policy--away
from the domineering, nationalized approach of Obamacare toward
a strategy that places patients at the center of health care.
To put this another way: ``In a nation of over 323 million
people, each with different needs and circumstances, it makes
no sense for one federal agency to dictate the contents of
every American's health insurance plan.''\12\ The American
Health Care Act removes a bureaucratically designed one-size-
fits-all scheme and promotes a greater range of choices, at
lower costs, for all Americans.
---------------------------------------------------------------------------
\12\The Speaker's Health Care Reform Task Force, A Better Way: Our
Vision for a Confident America--Health Care, 22 June 2016, p. 12.
---------------------------------------------------------------------------
In a similar way, the budget envisions a new Medicare
option that would transform this retirees' health coverage
program from a government-run, price-controlled bureaucracy to
a personalized system in which seniors have the option of
choosing the health coverage best suited to their needs from a
range of commercial plans. Traditional fee-for-service Medicare
would always be an option available to current seniors, those
near retirement, and future generations of beneficiaries. Fee-
for-service Medicare, along with private plans providing the
same level of health coverage, would compete for seniors'
business, just as Medicare Advantage does today. The new
program, however, would also adopt the competitive structure of
Medicare Part D, the prescription drug benefit program, to
deliver savings for seniors in the form of lower monthly
premium costs.
In short, this Medicare reform would give retired
Americans, not the government, the ultimate leverage over what
kind of coverage they will have--and the government would
provide them financial assistance in making the choices.
Another area of automatic spending, assistance for low-
income Americans, should be revised to encourage self-
sufficiency, not to trap people in dependency. Clearly, persons
with chronic disadvantages need and deserve a sturdy safety
net. Others require assistance at particular times of economic
downturns or personal misfortune. Still, the most compassionate
way to provide government assistance is to help free
individuals from the need for it. Welfare programs should
encourage recipients toward supporting themselves to the
greatest degree possible. As was proved with the successful
welfare reform of the 1990s, when struggling people are
challenged to work and earn on their own way, they rise to the
occasion--and they are better off for it.
It should be noted, too, that government is not the sole
source of the many domestic benefits Americans receive; it is
not even the primary one. Every benefit the government
ostensibly ``provides'' actually draws from the abundant
resources of the Nation's economy. The government could not
maintain Medicare, or Social Security, or its numerous safety
net programs without the funding generated by free markets.
Communities could not build schools and hospitals without local
economies sufficiently prosperous to support them. This is why
the fiscal policy of this budget--restraining spending and
reducing deficits--is crucial to the well-being of all
Americans. Those who strive to pull themselves out of
difficulties benefit most from the expanding opportunities and
rising incomes that only a prosperous economy can provide.
Finally, policymakers must embrace the recognition that
government can never substitute for nature's safety net: the
family. For generation upon generation, the family has been the
main source of comfort, security, and economic stability for
the individual. It is where moral values and a sense of
responsibility grow. The family reinforces the individual's
place in the larger community. As government seeks to support
those who lose any connection to a family, it should take care
not to contribute to the dissolution of families. Government
programs should aim to strengthen the family, the most
important and enduring institution in society.
Restoring the Role of State and Local Governments
The republic of the United States reached a turning point
in 1936: That was the first peacetime year in which the Federal
Government's total spending exceeded the combined outlays of
the State and local governments. ``It can even be argued that
one year--1936--created the modern entitlement challenge that
so bedevils both parties.''\13\
---------------------------------------------------------------------------
\13\Amity Shlaes, The Forgotten Man: A New History of the Great
Depression (New York: Harper Perennial, 2008), page 11.
---------------------------------------------------------------------------
As the 20th century unfolded, the national government's
dominance--both fiscally and as the central governing
authority--expanded. This was understandable during times of
war, especially World War II, when the entire Nation was under
threat. The notion continued to expand, however, into an ever-
growing range of domestic policies. President Roosevelt's New
Deal was a major step. Later came President Truman's pursuit of
nationalized health care, and President Johnson's Great
Society. By the late 1980s, health care once again came to the
fore, with some proposing a single-payer Canadian-style system
for the United States. The trend culminated with Obamacare.
Over time, States in some respects have been reduced to
carrying out the wishes of Washington, rather than serving as
the ``laboratories of democracy.'' This is precisely contrary
to the Founders' vision:
The powers delegated by the proposed Constitution to
the Federal Government, are few and defined. Those
which are to remain in the State governments are
numerous and indefinite. The former will be exercised
principally on external objects, as war, peace,
negotiation, and foreign commerce; with which last the
power of taxation will, for the most part, be
connected. The powers reserved to the several States
will extend to all the objects which, in the ordinary
course of affairs, concern the lives, liberties, and
properties of the people, and the internal order,
improvement, and prosperity of the State.\14\
---------------------------------------------------------------------------
\14\Federalist No. 45.
As succinctly put in the Tenth Amendment: ``The powers not
delegated to the United States by the Constitution, nor
prohibited by it to the States, are reserved to the States
respectively, or to the people.''
Indeed, Madison argued the Federal Government would depend
on the States--not the other way around: ``The State
governments may be regarded as constituent and essential parts
of the Federal Government; whilst the latter is nowise
essential to the operation or organization of the former.''\15\
This point is proved in reality by the countless activities,
essential to the lives of individuals and communities, that
predated the national government and would continue without it.
Even if the 50 States stood as separate entities, they would
still operate schools and hospitals; they would find ways to
build roads and bridges; scientific research would continue;
energy and communications companies would emerge.
---------------------------------------------------------------------------
\15\Ibid.
---------------------------------------------------------------------------
This is not to say Americans would be better off without
the Federal Government. Their security and prosperity are
vastly enhanced by the voluntary unity reflected in the bonds
of the national Constitution. The point is simply that the
Federal Government's principal role is to protect the security
of the Nation, and to maintain an environment that supports the
initiative and creativity possible only through the diversity
of the several States and the bonds of civil society.
The reversal of this concept that developed over the past
100 years or so also has fiscal consequences. Federal
Government resources cannot maintain the overreach of its
governing ambitions. That is the message of Washington's
current, catastrophic spending path. To restore fiscal
sustainability, Congress sooner or later will have to consider
realigning the roles of different levels of government. It will
have to reinstitute the practice of federalism.
This will remain a necessity even if Congress gains control
of direct spending. Yet the fiscal concerns are only part of
the reason. The increasing centralization of government
smothers the energy of State and local policymakers. Restoring
State autonomy will deliver benefits for the entire Nation in
critical areas such as education, health care, infrastructure,
energy, the environment, and employment.
The budget resolution supports these aims. It promotes
State flexibility in areas such as Medicaid and the
Supplemental Nutrition Assistance Program. It encourages State
and local initiative in education. It sheds the conceit that
Washington knows what is right for the people. The very
structure of this report reflects a distinction between those
activities required of the Federal Government from those best
suited to States and localities and the private sector (see the
explanation in the section titled ``Functional Presentation'').
Restoring Congressional Budgeting
The congressional budget process, enacted in 1974, has
rarely worked as designed. Deadlines in the Congressional
Budget Act are missed far more often than made, rules are often
skirted, loopholes in spending disciplines exploited. Since
1998, the House and Senate have failed 10 times to agree on a
budget resolution, the cornerstone of the process.
Congressional budgeting by the early 1970s was already
complicated, and the 1974 Act added new procedures onto
existing spending and tax practices. Since then, Congress has
enacted additional layers, such as the Balanced Budget and
Emergency Deficit Control Act of 1985, the Budget Enforcement
Act of 1990, and the Statutory Pay-As-You-Go Act of 2010, among
others. Given all this, it may be time to dismantle the entire
process and build a new one. The lessons of the past four
decades of congressional budgeting will certainly inform that
development. Still, in thinking about a new process, lawmakers
should step back and ask a threshold question: What is the
congressional budget process for?
The obvious first answer is fiscal control. That, however,
is part of a more fundamental act: the act of governing.
Because budgeting truly is governing, the budget process should
be seen as a principal means of exercising constitutional
government. The Constitution does not prescribe how big
government should be, but it does establish a framework for
limiting government. One of the best ways to determine that
limit is to limit spending--one of the clearest measures of the
size and scope of government.
The budget also is Congress's main instrument for
policymaking, the legislature's essential authority. ``This
power of the purse may, in fact, be regarded as the most
complete and effectual weapon with which any constitution can
arm the immediate representatives of the people, for obtaining
a redress of every grievance, and for carrying into effect
every just and salutary measure.''\16\ Any new budget process
should enhance Congress's policymaking role.
---------------------------------------------------------------------------
\16\Federalist, No. 58.
---------------------------------------------------------------------------
The process also must reinforce the balance of powers, one
of the most critical protections of liberty. For nearly a half
century after enactment of the 1921 Budget and Accounting Act--
which attempted to straddle the separation of powers by
establishing an executive-centered budget process modeled after
Great Britain's--the presidency grew increasingly powerful.
Starting in the 1950s, presidents began deliberately tying
their budgets together with their legislative programs,
increasing their ability to set the legislative agenda, and
helping sustain what Schlesinger called ``the imperial
presidency.''\17\ The 1974 Congressional Budget Act was, in
part, an attempt to restore the legislature's agenda-setting
role. Any new budget process should advance that effort.
---------------------------------------------------------------------------
\17\Arthur M. Schlesinger Jr., The Imperial Presidency, (New York:
Houghton Mifflin Company, 2004).
---------------------------------------------------------------------------
Budgeting also should be an instrument for enhancing
congressional oversight. There is no better way to get the
attention of executive agencies than by controlling their
funding. The budget process should encourage appropriations
subcommittees and authorizing committees to use the tool of the
budget aggressively, and to control the ever-expanding
administrative state.
Finally, just as the restoration of sound budgeting for how
the Federal Government spends is critical to the promotion of
economic growth, debt-reduction, federalism, and ordered
liberty, so too is the introduction of budgeting for how the
Federal Government directs others to spend: regulatory
budgeting.
When regulation is needed, it can be done in more cost-
effective ways. Before it is imposed, Congress can budget for
how much new regulation, if any, can sustainably be imposed on
America's economy year by year. It makes eminent sense to do
that using the kinds of budgeting tools Congress applies to put
the brakes on runaway Federal spending. To date, Congress has
not adopted regulatory budgeting tools to manage the Federal
regulatory footprint. Neither has it imposed robust statutory
controls against Federal regulators' abilities to burden
America's workers and economy with excessively expensive and
insufficiently effective Federal regulations. The time has come
to do both.
Conclusion
As described at the outset, this budget resolution
expresses a vision; its contours are detailed throughout the
text of this report. It is also an instrument for realizing
that vision. Its allocations of spending authority implement
the budget's priorities; its fiscal path--achieving balance
within 10 years--restores the sound fiscal norm that long kept
spending, and the size of government itself, in check. It is an
instrument for true fiscal sustainability, and for maintaining
America's unique and exceptional brand of constitutional
government.
TABLE 1.--FISCAL YEAR 2018 BUDGET RESOLUTION TOTAL SPENDING AND REVENUE
[In millions of dollars]
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2018-2022 2018-2027
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SUMMARY
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total spending:
BA...................................................... 4,096,933 4,210,736 4,286,076 4,344,146 4,567,485 4,685,904 4,810,056 5,019,533 5,198,404 5,370,264 21,505,376 46,589,537
OT...................................................... 4,024,170 4,184,625 4,263,701 4,371,392 4,560,681 4,662,535 4,771,559 4,976,995 5,172,531 5,344,567 21,404,569 46,332,757
On-budget:
BA...................................................... 3,232,597 3,286,018 3,299,573 3,290,186 3,441,975 3,483,686 3,528,872 3,655,413 3,746,208 3,824,652 16,550,350 34,789,180
OT...................................................... 3,164,885 3,265,306 3,283,026 3,323,464 3,441,603 3,467,047 3,497,308 3,620,210 3,727,971 3,806,792 16,478,284 34,597,612
Off-budget:
BA...................................................... 864,336 924,717 986,503 1,053,959 1,125,510 1,202,219 1,281,184 1,364,120 1,452,197 1,545,612 4,955,026 11,800,357
OT...................................................... 859,285 919,319 980,675 1,047,928 1,119,078 1,195,488 1,274,251 1,356,785 1,444,561 1,537,776 4,926,286 11,735,146
Revenues:
Total................................................... 3,542,479 3,668,467 3,796,957 3,920,337 4,066,811 4,219,233 4,386,477 4,574,285 4,784,571 4,993,388 18,995,051 41,953,005
On-budget............................................... 2,670,356 2,767,357 2,870,414 2,963,953 3,077,586 3,195,139 3,325,690 3,475,784 3,642,629 3,811,687 14,349,666 31,800,595
Off-budget.............................................. 872,123 901,110 926,543 956,384 989,225 1,024,094 1,060,787 1,098,501 1,141,942 1,181,701 4,645,385 10,152,410
Recommended Change in Revenues (vs. CBO Baseline):
Total................................................... -61,209 -64,517 -81,260 -98,684 -109,109 -126,636 -140,283 -150,125 -146,865 -146,800 -414,779 -1,125,488
On-budget............................................... -63,213 -66,151 -80,162 -95,958 -105,330 -122,777 -136,738 -146,394 -146,749 -146,700 -410,814 -1,110,172
Off-budget.............................................. +2,004 +1,634 -1,098 -2,726 -3,779 -3,859 -3,545 -3,731 -116 -100 -3,965 -15,316
Surplus/Deficit(-):
Total................................................... -471,691 -496,158 -436,744 -381,055 -393,870 -293,302 -175,082 -152,710 -87,960 8,821 -2,179,518 -2,879,752
Macroeconomic Impact on the Deficit..................... 10,000 20,000 30,000 70,000 100,000 150,000 210,000 250,000 300,000 360,000 230,000 1,500,000
On-budget............................................... -494,529 -497,949 -412,612 -359,511 -364,017 -271,908 -171,618 -144,426 -85,342 4,895 -2,128,618 -2,797,017
Off-budget.............................................. 12,838 -18,209 -54,132 -91,544 -129,853 -171,394 -213,464 -258,284 -302,619 -356,075 -280,901 -1,582,736
Debt Held by the Public (end of year)..................... 15,399,966 15,971,804 16,477,150 16,920,847 17,371,706 17,720,326 17,949,306 18,156,356 18,299,466 18,345,826
Debt Subject to Limit (end of year)....................... 21,059,756 21,720,619 22,263,387 22,717,657 23,120,068 23,414,924 23,577,205 23,665,687 23,701,446 23,484,672
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
BY FUNCTION
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
National Defense (050):
BA...................................................... 629,595 660,832 693,646 728,125 731,818 735,468 739,157 742,886 747,414 751,098 3,444,016 7,160,038
OT...................................................... 607,810 636,795 666,519 698,761 717,568 720,401 720,755 729,581 734,037 737,798 3,327,453 6,970,025
International Affairs (150):
BA...................................................... 41,521 40,210 39,428 38,654 37,623 38,445 39,285 40,174 41,121 42,025 197,436 398,486
OT...................................................... 43,643 41,207 39,965 38,585 38,021 37,795 38,102 38,643 39,365 40,175 201,421 395,501
General Science, Space and Technology (250):
BA...................................................... 28,524 29,107 29,702 30,346 31,018 31,694 32,378 33,112 33,854 34,602 148,697 314,337
OT...................................................... 30,072 29,365 29,360 29,718 30,259 30,797 31,325 31,928 32,550 33,162 148,774 308,536
Energy (270):
BA...................................................... -3,088 1,704 -11,179 1,871 1,705 754 437 -4 2,233 2,324 -8,987 -3,243
OT...................................................... 2,559 1,714 -11,813 786 445 -491 -727 -1,052 1,207 1,370 -6,309 -6,002
Natural Resources & Environment (300):
BA...................................................... 31,720 31,856 33,255 32,704 34,295 34,684 34,598 35,520 36,186 36,742 163,830 341,560
OT...................................................... 35,641 33,751 33,581 32,652 33,909 34,186 34,081 34,921 35,526 36,078 169,534 344,326
Agriculture (350):
BA...................................................... 24,223 21,091 19,786 18,217 17,835 18,153 18,880 19,863 20,214 20,422 101,152 198,684
OT...................................................... 22,913 20,200 19,293 17,660 17,339 17,713 18,331 19,225 19,593 19,817 97,405 192,084
Commerce & Housing Credit (370):
On-budget:
BA.................................................... -7,287 -7,517 -10,358 -13,446 -12,880 -12,330 -10,989 -10,255 -11,141 -11,933 -51,488 -108,136
OT.................................................... -19,601 -15,753 -18,126 -22,106 -22,470 -22,598 -22,362 -22,849 -23,569 -24,521 -98,056 -213,955
Off-budget:
BA.................................................... -2,816 -2,850 -5,083 -5,375 -5,646 -5,813 -5,979 -6,153 -6,358 -6,669 -21,770 -52,742
OT.................................................... -2,815 -2,848 -5,081 -5,374 -5,645 -5,811 -5,977 -6,152 -6,357 -6,667 -21,763 -52,727
Transportation (400):
BA...................................................... 88,095 88,892 82,748 37,190 66,950 66,895 67,483 68,481 69,714 70,948 363,875 707,396
OT...................................................... 91,796 90,602 90,508 77,995 65,076 68,694 69,617 69,074 69,044 69,741 415,977 762,147
Community & Regional Development (450):
BA...................................................... 4,365 4,170 4,240 4,353 4,487 4,556 4,673 4,857 5,077 4,953 21,615 45,731
OT...................................................... 18,626 16,983 11,842 9,558 6,386 5,090 4,745 4,767 4,805 4,809 63,395 87,611
Education,Training,Employment,and Social Services (500):
BA...................................................... 69,920 79,090 80,305 81,922 82,350 86,279 86,641 86,977 87,459 88,216 393,587 829,159
OT...................................................... 89,295 81,404 81,129 82,479 83,539 85,843 87,897 88,522 89,186 90,080 417,846 859,374
Health (550):
BA...................................................... 579,328 564,387 552,405 512,289 528,560 547,998 571,335 594,923 618,119 623,810 2,736,969 5,693,154
OT...................................................... 551,277 570,419 541,949 518,445 533,688 549,687 569,207 591,171 613,682 626,774 2,715,778 5,666,299
Medicare (570):
BA...................................................... 593,830 652,984 692,126 739,367 826,276 845,800 850,393 916,244 988,183 1,053,671 3,504,583 8,158,874
OT...................................................... 593,567 652,740 691,917 739,161 826,057 845,593 850,177 916,009 987,942 1,053,435 3,503,442 8,156,598
Income Security (600):
BA...................................................... 491,789 464,425 475,015 484,414 492,453 475,767 484,425 493,048 502,057 511,675 2,408,096 4,875,068
OT...................................................... 477,428 454,786 464,925 475,140 489,299 468,217 471,370 480,920 496,505 505,382 2,361,578 4,783,972
Social Security (650):
On-budget:
BA.................................................... 39,475 43,016 46,287 49,748 53,392 57,378 61,764 66,388 70,871 75,473 231,918 563,792
OT.................................................... 39,475 43,016 46,287 49,748 53,392 57,378 61,764 66,388 70,871 75,473 231,918 563,792
Off-budget:
BA.................................................... 966,037 1,024,166 1,086,433 1,152,744 1,222,514 1,295,244 1,371,263 1,450,496 1,533,384 1,619,909 5,451,894 12,722,190
OT.................................................... 960,983 1,018,765 1,080,602 1,146,712 1,216,081 1,288,510 1,364,328 1,443,160 1,525,746 1,612,071 5,423,143 12,656,958
Veterans Benefits and Services (700):
BA...................................................... 176,704 191,507 194,930 199,751 215,442 212,567 209,943 227,991 234,947 243,718 978,334 2,107,500
OT...................................................... 178,038 190,235 193,931 197,856 213,337 210,444 207,908 225,820 232,660 241,501 973,397 2,091,730
Administration of Justice (750):
BA...................................................... 51,367 58,245 59,720 61,054 62,092 63,671 65,285 66,947 69,907 70,270 292,478 628,558
OT...................................................... 61,079 58,867 60,036 60,946 61,925 63,462 65,043 66,498 70,200 69,722 302,853 637,778
General Government (800):
BA...................................................... 23,564 23,948 23,557 23,386 23,127 26,420 26,351 26,246 26,083 25,855 117,582 248,537
OT...................................................... 23,091 23,314 23,303 23,190 23,013 26,057 26,168 26,060 25,917 25,722 115,911 245,835
Net Interest (900):
On-budget:
BA.................................................... 376,842 409,185 450,859 493,778 531,929 565,282 589,292 607,012 620,536 623,786 2,262,594 5,268,502
OT.................................................... 376,842 409,185 450,859 493,778 531,929 565,282 589,292 607,012 620,536 623,911 2,262,594 5,268,627
Off-budget:
BA.................................................... -81,548 -78,697 -76,363 -74,350 -71,711 -66,958 -63,222 -58,701 -52,643 -44,758 -382,668 -668,951
OT.................................................... -81,548 -78,697 -76,363 -74,350 -71,711 -66,958 -63,222 -58,701 -52,643 -44,758 -382,668 -668,951
Allowances (920):
BA...................................................... -44,505 -42,219 -45,246 -48,056 -50,544 -52,326 -53,659 -55,439 -51,908 -55,254 -230,570 -499,156
OT...................................................... -23,272 -34,499 -40,640 -44,164 -47,877 -49,819 -51,411 -53,060 -52,127 -53,919 -190,452 -450,788
Government-Wide Savings (930):
BA...................................................... 34,145 -1,555 -67,381 -120,155 -153,376 -174,438 -194,373 -193,336 -246,573 -258,801 -308,322 -1,375,843
OT...................................................... 2,778 -2,528 -47,665 -97,069 -137,459 -159,489 -179,541 -187,355 -223,016 -240,977 -281,943 -1,272,321
Undistributed Offsetting Receipts (950):
On-budget:
BA.................................................... -83,212 -86,409 -86,316 -90,347 -93,573 -100,001 -105,371 -115,139 -117,033 -127,808 -439,857 -1,005,209
OT.................................................... -83,212 -86,409 -86,316 -90,347 -93,573 -100,001 -105,371 -115,139 -117,033 -127,808 -439,857 -1,005,209
Off-budget:
BA.................................................... -17,326 -17,890 -18,472 -19,048 -19,635 -20,241 -20,865 -21,509 -22,172 -22,856 -92,371 -200,014
OT.................................................... -17,326 -17,890 -18,472 -19,048 -19,635 -20,241 -20,865 -21,509 -22,172 -22,856 -92,371 -200,014
Overseas Contingency Operations/Global War on Terrorism (970):
BA...................................................... 86,591 60,000 43,000 26,000 12,000 12,000 12,000 0 0 0 227,591 251,591
OT...................................................... 45,781 50,748 43,076 31,635 18,768 13,799 11,957 4,171 1,160 165 190,008 221,260
Across the Board Adjustment (990):
On-budget:
BA.................................................... -909 -931 -956 -979 -1,004 -1,030 -1,056 -1,083 -1,112 -1,140 -4,779 -10,200
OT.................................................... -740 -837 -895 -944 -968 -993 -1,018 -1,045 -1,070 -1,099 -4,384 -9,609
Off-budget:
BA.................................................... -11 -12 -12 -12 -12 -13 -13 -13 -14 -14 -59 -126
OT.................................................... -9 -11 -11 -12 -12 -12 -13 -13 -13 -14 -55 -120
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Notes:
1. Only on-budget amounts for fiscal years 2018-2027 are entered into the budget resolution legislative text. Off-budget amounts are shown for display purposes only.
2. The Office of Management and Budget and the Congressional Budget Office do not separately track outlays for Overseas Contingency Operations/Global War on Terrorism (GWOT) once funds have been appropriated. The budget, therefore,
shows in function 970 OCO/GWOT outlays that result from new budget authority occurring in fiscal years 2018-2027 only. Outlays resulting from OCO/GWOT activity prior to fiscal year 2017 are included in budget functions 050 and
150.
TABLE 2.--FISCAL YEAR 2018 BUDGET RESOLUTION DISCRETIONARY SPENDING
[In millions of dollars]
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2018-2022 2018-2027
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SUMMARY
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total spending:
BA...................................................... 1,219,896 1,222,022 1,193,737 1,183,604 1,168,176 1,166,265 1,163,587 1,159,312 1,159,356 1,164,130 5,987,435 11,800,084
OT...................................................... 1,249,478 1,277,039 1,262,142 1,239,131 1,212,860 1,204,530 1,196,357 1,195,544 1,193,811 1,197,352 6,240,650 12,228,245
Base Defense (050):
BA...................................................... 621,500 652,575 685,204 719,464 722,964 726,464 729,964 733,464 736,964 740,464 3,401,707 7,069,026
OT...................................................... 599,410 628,198 657,708 689,706 708,294 711,055 711,338 720,002 723,493 727,057 3,283,316 6,876,261
Base Non Defense:
BA...................................................... 510,749 508,666 464,966 437,666 432,666 426,666 421,166 425,666 422,166 423,666 2,354,713 4,474,043
OT...................................................... 603,733 597,360 560,722 517,258 485,258 478,821 472,387 470,994 468,883 469,993 2,764,332 5,125,410
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
BY FUNCTION
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
National Defense (050):
BA...................................................... 621,500 652,575 685,204 719,464 722,964 726,464 729,964 733,464 736,964 740,464 3,401,707 7,069,026
OT...................................................... 599,410 628,198 657,708 689,706 708,294 711,055 711,338 720,002 723,493 727,057 3,283,316 6,876,261
International Affairs (150):
BA...................................................... 36,320 36,486 36,630 36,794 37,612 38,416 39,229 40,103 40,997 41,891 183,842 384,478
OT...................................................... 47,318 44,203 42,138 39,863 39,225 38,994 39,305 39,863 40,565 41,395 212,747 412,869
General Science, Space and Technology (250):
BA...................................................... 28,417 29,007 29,602 30,246 30,918 31,594 32,278 33,012 33,754 34,502 148,190 313,330
OT...................................................... 29,967 29,263 29,260 29,618 30,159 30,697 31,225 31,828 32,450 33,062 148,267 307,529
Energy (270):
BA...................................................... 3,438 3,204 3,165 3,175 3,203 3,322 3,617 3,385 3,468 3,547 16,185 33,524
OT...................................................... 5,701 4,803 4,010 3,492 3,199 3,169 3,482 3,264 3,364 3,470 21,205 37,954
Natural Resources & Environment (300):
BA...................................................... 31,335 32,088 32,963 33,879 34,791 35,739 36,733 37,737 38,792 39,884 165,056 353,941
OT...................................................... 34,609 33,511 33,230 33,736 34,423 35,262 36,172 37,141 38,144 39,212 169,509 355,440
Agriculture (350):
BA...................................................... 6,360 6,526 6,692 6,868 7,048 7,234 7,423 7,624 7,830 8,035 33,494 71,640
OT...................................................... 6,199 6,440 6,613 6,786 6,960 7,145 7,329 7,517 7,721 7,925 32,998 70,635
Commerce & Housing Credit (370):
On-budget:
BA.................................................... -16,407 -15,730 -14,773 -14,111 -13,473 -13,032 -12,062 -11,410 -11,414 -11,523 -74,494 -133,935
OT.................................................... -15,825 -15,568 -14,873 -14,217 -13,578 -13,144 -12,177 -11,529 -11,540 -11,656 -74,061 -134,107
Off-budget:
BA.................................................... 275 284 294 304 315 325 336 348 360 372 1,472 3,213
OT.................................................... 274 284 294 304 315 325 336 347 359 371 1,471 3,209
Transportation (400):
BA...................................................... 28,517 28,660 29,111 28,911 28,599 28,482 28,525 28,999 28,073 28,767 143,798 286,644
OT...................................................... 90,618 90,082 90,423 78,412 65,970 70,055 71,454 71,408 70,257 71,430 415,505 770,109
Community & Regional Development (450):
BA...................................................... 5,132 5,128 5,279 5,415 5,546 5,689 5,830 5,979 6,139 6,295 26,500 56,432
OT...................................................... 19,601 17,625 12,711 10,558 7,192 6,030 5,823 5,963 6,140 6,337 67,687 97,980
Education, Training, Employment, and Social Services
(500):
BA...................................................... 80,373 91,865 93,529 95,235 96,936 98,719 100,514 102,409 104,327 106,210 457,938 970,117
OT...................................................... 91,328 91,159 92,126 93,680 95,371 97,079 98,861 100,697 102,575 104,480 463,664 967,356
Health (550):
BA...................................................... 61,560 61,785 62,417 63,026 63,637 64,185 64,664 65,186 65,649 66,033 312,425 638,142
OT...................................................... 61,269 61,300 61,572 61,853 62,195 62,583 62,947 63,281 63,678 64,018 308,189 624,696
Medicare (570):
BA...................................................... 6,550 6,892 7,240 7,605 8,001 8,404 8,823 9,262 9,704 10,161 36,288 82,642
OT...................................................... 6,613 6,887 7,194 7,539 7,929 8,331 8,747 9,183 9,623 10,079 36,162 82,125
Income Security (600):
BA...................................................... 68,090 68,719 69,607 70,345 71,006 71,651 72,297 72,998 73,701 74,390 347,767 712,804
OT...................................................... 67,548 68,516 69,665 70,660 71,148 71,468 71,845 72,473 73,171 73,850 347,537 710,344
Social Security (650):
On-budget:
BA.................................................... 0 0 0 0 0 0 0 0 0 0 0 0
OT.................................................... 0 0 0 0 0 0 0 0 0 0 0 0
Off-budget:
BA.................................................... 5,374 5,532 5,697 5,866 6,039 6,218 6,402 6,595 6,796 6,999 28,508 61,518
OT.................................................... 5,420 5,531 5,666 5,834 6,006 6,184 6,367 6,559 6,758 6,961 28,457 61,286
Veterans Benefits and Services (700):
BA...................................................... 79,067 83,387 83,386 85,140 87,603 90,132 92,738 95,459 98,293 101,165 418,583 896,370
OT...................................................... 77,871 81,776 82,342 83,284 85,755 88,234 90,782 93,438 96,208 98,987 411,028 878,677
Administration of Justice (750):
BA...................................................... 53,984 55,335 57,067 58,816 60,625 62,485 64,413 66,417 68,514 70,655 285,827 618,311
OT...................................................... 55,217 56,326 57,464 58,734 60,206 62,060 63,974 65,958 68,029 70,156 287,947 618,124
General Government (800):
BA...................................................... 15,868 16,423 16,023 15,797 15,481 18,747 18,590 18,389 18,143 17,857 79,592 171,318
OT...................................................... 15,488 15,860 15,800 15,646 15,390 18,384 18,424 18,235 18,013 17,761 78,184 169,001
Allowances (920):
BA...................................................... -39,567 -40,476 -43,053 -46,676 -48,870 -50,554 -51,788 -53,575 -53,744 -55,254 -218,642 -483,557
OT...................................................... -20,852 -33,359 -38,713 -42,718 -46,314 -48,313 -49,864 -51,505 -52,365 -53,463 -181,956 -437,466
Government-Wide Savings (930):
BA...................................................... 58,039 35,275 -14,375 -47,504 -60,789 -78,912 -95,870 -101,973 -115,864 -125,166 -29,354 -547,139
OT...................................................... 26,672 34,302 5,341 -24,318 -44,772 -63,863 -80,938 -91,692 -102,909 -113,132 -2,775 -455,309
Overseas Contingency Operations/Global War on Terrorism (970):
BA...................................................... 86,591 60,000 43,000 26,000 12,000 12,000 12,000 0 0 0 227,591 251,591
OT...................................................... 45,781 50,748 43,076 31,635 18,768 13,799 11,957 4,171 1,160 165 190,008 221,260
Across the Board Adjustment (990):
On-budget:
BA.................................................... -909 -931 -956 -979 -1,004 -1,030 -1,056 -1,083 -1,112 -1,140 -4,779 -10,200
OT.................................................... -740 -837 -895 -944 -968 -993 -1,018 -1,045 -1,070 -1,099 -4,384 -9,609
Off-budget:
BA.................................................... -11 -12 -12 -12 -12 -13 -13 -13 -14 -14 -59 -126
OT.................................................... -9 -11 -11 -12 -12 -12 -13 -13 -13 -14 -55 -120
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
TABLE 3.--FISCAL YEAR 2018 BUDGET RESOLUTION MANDATORY SPENDING
[In millions of dollars]
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2018-2022 2018-2027
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SUMMARY
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total spending:
BA........................................................ 2,877,037 2,988,714 3,092,339 3,160,542 3,399,309 3,519,639 3,646,469 3,860,221 4,039,048 4,206,134 15,517,941 34,789,453
OT........................................................ 2,774,693 2,907,586 3,001,559 3,132,261 3,347,820 3,458,005 3,575,202 3,781,451 3,978,720 4,147,215 15,163,919 34,104,513
On-budget:
BA...................................................... 2,018,339 2,069,800 2,111,815 2,112,740 2,280,141 2,323,951 2,372,010 2,503,031 2,593,994 2,667,879 10,592,836 23,053,701
OT...................................................... 1,921,093 1,994,070 2,026,833 2,090,458 2,235,051 2,269,015 2,307,641 2,431,559 2,541,264 2,616,757 10,267,506 22,433,742
Off-budget:
BA...................................................... 858,698 918,913 980,524 1,047,801 1,119,168 1,195,689 1,274,459 1,357,190 1,445,055 1,538,255 4,925,105 11,735,752
OT...................................................... 853,600 913,515 974,726 1,041,802 1,112,769 1,188,991 1,267,561 1,349,892 1,437,457 1,530,458 4,896,413 11,670,771
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
BY FUNCTION
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
National Defense (050):
BA........................................................ 8,095 8,257 8,442 8,661 8,854 9,004 9,193 9,422 10,450 10,634 42,309 91,012
OT........................................................ 8,400 8,597 8,811 9,055 9,274 9,346 9,417 9,579 10,544 10,741 44,137 93,764
International Affairs (150):
BA........................................................ 5,201 3,724 2,798 1,860 11 29 56 71 124 134 13,594 14,008
OT........................................................ -3,675 -2,996 -2,173 -1,278 -1,204 -1,199 -1,203 -1,220 -1,200 -1,220 -11,326 -17,368
General Science, Space and Technology (250):
BA........................................................ 107 100 100 100 100 100 100 100 100 100 507 1,007
OT........................................................ 105 102 100 100 100 100 100 100 100 100 507 1,007
Energy (270):
BA........................................................ -6,526 -1,500 -14,344 -1,304 -1,498 -2,568 -3,180 -3,389 -1,235 -1,223 -25,172 -36,767
OT........................................................ -3,142 -3,089 -15,823 -2,706 -2,754 -3,660 -4,209 -4,316 -2,157 -2,100 -27,514 -43,956
Natural Resources & Environment (300):
BA........................................................ 385 -232 292 -1,175 -496 -1,055 -2,135 -2,217 -2,606 -3,142 -1,226 -12,381
OT........................................................ 1,032 240 351 -1,084 -514 -1,076 -2,091 -2,220 -2,618 -3,134 25 -11,114
Agriculture (350):
BA........................................................ 17,863 14,565 13,094 11,349 10,787 10,919 11,457 12,239 12,384 12,387 67,658 127,044
OT........................................................ 16,714 13,760 12,680 10,874 10,379 10,568 11,002 11,708 11,872 11,892 64,407 121,449
Commerce & Housing Credit (370):
On-budget:
BA...................................................... 9,120 8,213 4,415 665 593 702 1,073 1,155 273 -410 23,006 25,799
OT...................................................... -3,776 -185 -3,253 -7,889 -8,892 -9,454 -10,185 -11,320 -12,029 -12,865 -23,995 -79,848
Off-budget:
BA...................................................... -3,091 -3,134 -5,377 -5,679 -5,961 -6,138 -6,315 -6,501 -6,718 -7,041 -23,242 -55,955
OT...................................................... -3,089 -3,132 -5,375 -5,678 -5,960 -6,136 -6,313 -6,499 -6,716 -7,038 -23,234 -55,936
Transportation (400):
BA........................................................ 59,578 60,232 53,637 8,279 38,351 38,413 38,958 39,482 41,641 42,181 220,077 420,752
OT........................................................ 1,178 520 85 -417 -894 -1,361 -1,837 -2,334 -1,213 -1,689 472 -7,962
Community & Regional Development (450):
BA........................................................ -767 -958 -1,039 -1,062 -1,059 -1,133 -1,157 -1,122 -1,062 -1,342 -4,885 -10,701
OT........................................................ -975 -642 -869 -1,000 -806 -940 -1,078 -1,196 -1,335 -1,528 -4,292 -10,369
Education, Training, Employment, and Social Services (500):
BA........................................................ -10,453 -12,775 -13,224 -13,313 -14,586 -12,440 -13,873 -15,432 -16,868 -17,994 -64,351 -140,958
OT........................................................ -2,033 -9,755 -10,997 -11,201 -11,832 -11,236 -10,964 -12,175 -13,389 -14,400 -45,818 -107,982
Health (550):
BA........................................................ 517,768 502,602 489,988 449,263 464,923 483,813 506,671 529,737 552,470 557,777 2,424,544 5,055,012
OT........................................................ 490,008 509,119 480,377 456,592 471,493 487,104 506,260 527,890 550,004 562,756 2,407,589 5,041,603
Medicare (570):
BA........................................................ 587,280 646,092 684,886 731,762 818,275 837,396 841,570 906,982 978,479 1,043,510 3,468,295 8,076,232
OT........................................................ 586,954 645,853 684,723 731,622 818,128 837,262 841,430 906,826 978,319 1,043,356 3,467,280 8,074,473
Income Security (600):
BA........................................................ 423,699 395,706 405,408 414,069 421,447 404,116 412,128 420,050 428,356 437,285 2,060,329 4,162,264
OT........................................................ 409,880 386,270 395,260 404,480 418,151 396,749 399,525 408,447 423,334 431,532 2,014,041 4,073,628
Social Security (650):
On-budget:
BA...................................................... 39,475 43,016 46,287 49,748 53,392 57,378 61,764 66,388 70,871 75,473 231,918 563,792
OT...................................................... 39,475 43,016 46,287 49,748 53,392 57,378 61,764 66,388 70,871 75,473 231,918 563,792
Off-budget:
BA...................................................... 960,663 1,018,634 1,080,736 1,146,878 1,216,475 1,289,026 1,364,861 1,443,901 1,526,588 1,612,910 5,423,386 12,660,672
OT...................................................... 955,563 1,013,234 1,074,936 1,140,878 1,210,075 1,282,326 1,357,961 1,436,601 1,518,988 1,605,110 5,394,686 12,595,672
Veterans Benefits and Services (700):
BA........................................................ 97,637 108,120 111,544 114,611 127,839 122,435 117,205 132,532 136,654 142,553 559,751 1,211,130
OT........................................................ 100,167 108,459 111,589 114,572 127,582 122,210 117,126 132,382 136,452 142,514 562,369 1,213,053
Administration of Justice (750):
BA........................................................ -2,617 2,910 2,653 2,238 1,467 1,186 872 530 1,393 -385 6,651 10,247
OT........................................................ 5,862 2,541 2,572 2,212 1,719 1,402 1,069 540 2,171 -434 14,906 19,654
General Government (800):
BA........................................................ 7,696 7,525 7,534 7,589 7,646 7,673 7,761 7,857 7,940 7,998 37,990 77,219
OT........................................................ 7,603 7,454 7,503 7,544 7,623 7,673 7,744 7,825 7,904 7,961 37,727 76,834
Net Interest (900):
On-budget:
BA...................................................... 376,842 409,185 450,859 493,778 531,929 565,282 589,292 607,012 620,536 623,786 2,262,594 5,268,502
OT...................................................... 376,842 409,185 450,859 493,778 531,929 565,282 589,292 607,012 620,536 623,911 2,262,594 5,268,627
Off-budget:
BA...................................................... -81,548 -78,697 -76,363 -74,350 -71,711 -66,958 -63,222 -58,701 -52,643 -44,758 -382,668 -668,951
OT...................................................... -81,548 -78,697 -76,363 -74,350 -71,711 -66,958 -63,222 -58,701 -52,643 -44,758 -382,668 -668,951
Allowances (920):
BA........................................................ -4,938 -1,743 -2,193 -1,380 -1,674 -1,772 -1,871 -1,864 1,836 0 -11,928 -15,599
OT........................................................ -2,420 -1,140 -1,927 -1,446 -1,563 -1,506 -1,547 -1,555 238 -456 -8,496 -13,322
Government-Wide Savings (930):
BA........................................................ -23,894 -36,830 -53,006 -72,651 -92,587 -95,526 -98,503 -91,363 -130,709 -133,635 -278,968 -828,704
OT........................................................ -23,894 -36,830 -53,006 -72,751 -92,687 -95,626 -98,603 -95,663 -120,107 -127,845 -279,168 -817,012
Undistributed Offsetting Receipts (950):
On-budget:
BA...................................................... -83,212 -86,409 -86,316 -90,347 -93,573 -100,001 -105,371 -115,139 -117,033 -127,808 -439,857 -1,005,209
OT...................................................... -83,212 -86,409 -86,316 -90,347 -93,573 -100,001 -105,371 -115,139 -117,033 -127,808 -439,857 -1,005,209
Off-budget:
BA...................................................... -17,326 -17,890 -18,472 -19,048 -19,635 -20,241 -20,865 -21,509 -22,172 -22,856 -92,371 -200,014
OT...................................................... -17,326 -17,890 -18,472 -19,048 -19,635 -20,241 -20,865 -21,509 -22,172 -22,856 -92,371 -200,014
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
THE LONG-TERM BUDGET OUTLOOK
----------
The growing probability of a sovereign debt crisis is an
urgent challenge facing the United States today. The source of
the crisis is the drift toward ever-expanding government. The
Congressional Budget Office [CBO] has repeatedly warned current
laws and policies are fiscally unsustainable. That means they
will not, in fact, be sustained. CBO cautions that high and
rising Federal debt would have serious negative consequences
for the budget and the Nation. Under current law policies
Federal spending on interest payments will increase rapidly and
mounting Federal debt will negatively affect the economy in the
years ahead. ``Because Federal borrowing reduces total saving
in the economy over time, the nation's capital stock would
ultimately be smaller, and productivity and total wages would
be lower.''\18\ CBO also cautions: ``The likelihood of a fiscal
crisis in the United States would increase. There would be a
greater risk that investors would become unwilling to finance
the government's borrowing unless they were compensated with
very high interest rates; if that happened, interest rates on
Federal debt would rise suddenly and sharply.''\19\ To avert
such consequences, Congress must stop government's relentless
encroachment on Americans' lives and prosperity, and let
American civil society flourish.
---------------------------------------------------------------------------
\18\Congressional Budget Office, The Budget and Economic Outlook:
2017 to 2027 January, 2017, pp 3-4.
\19\Ibid.
---------------------------------------------------------------------------
This is more than a financial problem. As noted previously,
the government's mounting debt reflects a moral failing. In the
past, policymakers would have considered it nothing less than
``a sin'' to routinely spend borrowed money on ordinary
present-day uses--forcing future generations to finance today's
consumption. A government that promotes such practices through
its profligacy corrodes the Nation's underlying values--an even
more pervasive threat to America's future.\20\
---------------------------------------------------------------------------
\20\James M. Buchanan, ``Clarifying Confusion About the Balanced
Budget Amendment,'' National Tax Journal, Vol. 48, No. 3, September
1995, page 347.
---------------------------------------------------------------------------
In its latest long-term analysis, CBO projects Federal debt
held by the public--which stands at roughly 77.5 percent of
gross domestic product [GDP] today--will surge to 113 percent
of GDP in the next 20 years, and 150 percent by 2047.\21\ Even
today's debt levels are well beyond the debt target of no more
than 60-percent of GDP adopted in the European Union's
Maastricht Treaty; in the future they will be far worse.
---------------------------------------------------------------------------
\21\Congressional Budget Office, The 2017 Long-Term Budget Outlook,
March 2017, Data and Supplemental Information.
---------------------------------------------------------------------------
The projected increase in debt is driven by spending
growing well above historic levels of revenues. Revenues today
stand at 17.8 percent of GDP--greater than the 50-year
historical annual average of 17.4 percent. Revenues are
projected to average 18.2 percent of GDP over the next 10
years, then reach 19.0 percent in 2037 and 19.6 percent in
2047. Spending, however, will persistently outpace revenue
growth, averaging 22.1 percent of GDP over the next 10 years,
then surging to 26.3 percent in 2037 and 29.4 percent in
2047.\22\
---------------------------------------------------------------------------
\22\Ibid..
---------------------------------------------------------------------------
The automatic spending for Federal entitlement programs,
plus interest payments, will continue to dominate the budget.
By 2029, entitlement spending plus net interest is expected to
consume all Federal revenue, meaning all other government
activities--such as national defense, education,
infrastructure, research, and myriad others--will have to be
financed on borrowed money. By 2039, the situation will worsen,
as a mere handful of programs--Social Security and health care
entitlement spending--plus net interest are expected to consume
all Federal revenue; at that point, all other direct spending
and all discretionary spending will have to be debt-financed.
It is important to note these trends result not from temporary
surges in spending or economic downturns, but from permanent
government spending programs. This is an entrenched, structural
excess of spending over revenues.
CBO notes it is impossible to predict how long the Nation
could sustain such growth in Federal debt, but at some point
investors would be begin to doubt the government's willingness
or ability to pay its obligations. This would require the
government to pay much higher interest costs to borrow money,
resulting in significant negative consequences for the economy
and the Federal budget. This large and growing amount of debt
would restrict policymakers' ability to use tax and spending
policies for responding to unexpected challenges, such as
recessions, financial crises, or national security emergencies,
and would pose substantial risks to the Nation.\23\
---------------------------------------------------------------------------
\23\Ibid., pp. 3-7.
---------------------------------------------------------------------------
This budget would turn the tide. If the policies
incorporated in the budget were enacted, they would yield $6.5
trillion in deficit reduction (compared with current
projections) over the next 10 years. The budget calls for
responsible reforms of government spending programs. It
protects key priorities while eliminating waste. It avoids
sudden and arbitrary cuts to current services, such as those
the country would experience in a debt crisis.
The reductions from projected spending are hardly
draconian. Over the years, Congress has put two-thirds of the
budget on auto-pilot, and spending in those areas grows each
year. Yet any effort to restrain this growth in spending is
cast, in Orwellian fashion, as a ``cut.'' This is because the
Federal Government describes its fiscal plans relative to
estimates of future spending, not to the reality of actual
current spending. This is a fundamental contributor to the
government's bias toward higher spending.
This budget does not make sudden ``cuts.'' Instead, it
holds spending growth to a manageable rate. Under the CBO
current law baseline, the Federal Government will spend $52.5
trillion over the next 10 years.\24\ Under this budget
proposal, it will spend roughly $46.3 trillion. Put another
way, on its current path, Federal spending will rise by an
unmanageable annual average of 5.1 percent, significantly
greater than the projected growth in nominal GDP. This budget
slows that rate of spending growth to 3.0 percent, less than
the economy's nominal rate of expansion.
---------------------------------------------------------------------------
\24\Congressional Budget Office, The Budget and Economic Outlook:
2017 to 2027, January 2017.
---------------------------------------------------------------------------
Nor is this an ``austerity'' plan. When policymakers
restrain the growth of government, they allow more room for
private enterprise of all kinds. With its measured spending
restraints, this budget ensures the American economy will
outgrow the government. Thus, the budget achieves balance in
2027 by gradually reducing the size of government relative to
the economy from 20.7 percent this year\25\ to 17.8 percent in
2027. To achieve this outcome, the budget encourages a range of
fundamental program reforms, described elsewhere in this
report, that will improve and strengthen Federal programs and
put the government on a sound financial footing.
---------------------------------------------------------------------------
\25\Ibid.
---------------------------------------------------------------------------
The spending path assumed in this budget will result in a
balanced budget within 10 years and a growing surplus that will
lead to a sharp reduction in the national debt. The Budget
Committee estimates a small budget surplus in 2027 will
steadily grow larger in years beyond the window. At the same
time, debt held by the public will decline from 77 percent of
GDP today\26\ to 61 percent of GDP in 2027, and will fall
steadily as a percent of GDP in the subsequent 20 years--a
glide path to fully paying off the national debt.
---------------------------------------------------------------------------
\26\Ibid.
---------------------------------------------------------------------------
Over the long term, the budget assumes revenue generally
follows CBO's extended baseline adjusted for tax relief
provided by the American Health Care Act. The Budget Committee
estimates revenues under this budget will rise in nominal terms
over the next 10 years, but will hold steady as a share of the
economy, at about 17.8 percent of GDP. The Committee further
assumes revenues will gradually rise over the subsequent 20
years until eventually reaching and stabilizing at 19.0 percent
of GDP, including the macroeconomic effects of the budget's
pro-growth policies and the Trump Administration's regulatory
relief.
The United States has dealt with financial problems in the
past. In 1997, a Democratic president and a Republican Congress
passed the Balanced Budget Act of 1997, which resulted in four
years of budget surpluses. It was the last period of sustained
balanced budgets the Nation has seen. This budget follows that
model. It incorporates ideas from both parties to address one
of the most pressing issues of the day: America's ever-rising
national debt.
DIRECT SPENDING TRENDS AND REFORMS
----------
Background
Direct spending remains the fastest growing part of the
spending-driven sovereign debt crisis the Nation faces.
The Congressional Budget Office [CBO] reports that total
non-interest direct (or ``mandatory'') spending in fiscal year
2016 was $2.429 trillion, and will surge to $4.305 trillion by
2027. This reflects an average annual growth rate of 5.3
percent--faster than both CBO's projection of 2016 nominal
economic growth of 2.9 percent and CBO's longer-term projection
of 3.9-percent economic growth. Within overall non-interest
mandatory spending, the two major social insurance programs are
projected to continue growing faster than the economy as a
whole, with Social Security (both Old-Age and Survivors
Insurance and Disability Insurance) expected to increase from
$910 billion in 2016 to $1.7 trillion in 2027 and Medicare from
$692 billion in 2016 to $1.4 trillion in 2027.\27\
---------------------------------------------------------------------------
\27\Congressional Budget Office, The Budget and Economic Outlook,
2017 to 2027, January 2017.
---------------------------------------------------------------------------
Over the past 10 years, major means-tested automatic
spending programs have grown from $385 billion in 2007 to $720
billion in 2016. In the next decade, these programs are
expected to grow by 4.3 percent per year--from $745 billion in
2017 to $1.1 trillion in 2027.\28\
---------------------------------------------------------------------------
\28\Ibid.
---------------------------------------------------------------------------
A number of factors contribute to these increases. The 2008
recession caused significant increases in spending on low-
income programs. Spending is projected to remain at elevated
levels for several programs--most notably, the Supplemental
Nutrition Assistance Program, or SNAP (formerly known as food
stamps). Over the past 10 years, SNAP grew at 7.3 percent
annually, ballooning from $35 billion in 2007 to $73 billion in
2016. While this amount is projected to decline slightly over
the next 10 years, it remains elevated compared to prerecession
levels.\29\
---------------------------------------------------------------------------
\29\Ibid.
---------------------------------------------------------------------------
Other programs have also seen large increases. Supplemental
Security Income [SSI] was created as a needs-based program that
provides cash benefits to aged, blind, or disabled persons with
limited income and assets. When the program began, the majority
of payments went toward the aged. As it matured, however, a
much greater percentage of beneficiaries were under age 18 or
between the ages of 18 to 64. Over the past decade, spending on
SSI has grown by 4.4 percent per year.\30\
---------------------------------------------------------------------------
\30\Ibid.
---------------------------------------------------------------------------
The largest means-tested program in the Federal budget is
Medicaid, the Federal-State low-income health program. Medicaid
spending, and its related State Children's Health Insurance
Program [SCHIP], doubled from $197 billion in 2007 to $382
billion in 2016. Going forward, CBO projects Federal Medicaid
and SCHIP spending, on its current path, will reach $656
billion in fiscal year 2027. Absent structural reform, Medicaid
will not be able to deliver on its promise to provide a sturdy
health care safety net for society's most vulnerable. Because
of the flawed incentives in this program, Medicaid grew at 7.4
percent a year over the past 10 years, and it is projected to
grow 5.3 percent a year over the next 10 years. This level of
growth is clearly unsustainable.\31\
---------------------------------------------------------------------------
\31\Ibid.
---------------------------------------------------------------------------
The Fiscal Year 2018 Budget
The fiscal year 2018 budget addresses both non-means-tested
and means-tested direct spending. Most important, it tackles
the primary drivers of debt and deficits: the government's
health programs. For Medicare, this budget advances policies to
put seniors, not the Federal Government, in control of their
health care decisions. This resolution provides future retirees
with the freedom to choose a health plan best suited for them,
and guarantees health security throughout their retirement
years. Under this program, traditional Medicare and private
plans--providing the same level of health coverage--compete for
seniors' choices, just as Medicare Advantage does today. This
improved Medicare program would also adopt the competitive
structure of Part D, the prescription drug benefit program,
providing beneficiaries with a defined contribution to purchase
coverage and, through competition, deliver savings for seniors
in the form of lower monthly premium costs. Allowing seniors to
choose the best plan for themselves promotes competition among
health insurers on price and quality. This means the program
works better for patients and can be sustained for future
generations of seniors. The improved program also includes
additional protections for the most vulnerable. The Federal
contribution would be adjusted based on the health of the
beneficiary so those with illnesses would receive higher
payments if their condition worsened; lower-income seniors
would receive additional assistance to help cover out-of-pocket
costs; and wealthier seniors would assume responsibility for a
greater share of their premiums.
For Medicaid, this budget converts the Federal share of
Medicaid spending into per capita allotments, as advanced in
the House-passed ``American Health Care Act''. This structure
gives States the flexibility to tailor their programs in ways
that meet their fiscal needs as well as serving the most
vulnerable in their populations. The strategy would end the
misguided one-size-fits-all approach that ties the hands of
State governments trying to make their Medicaid programs as
effective as possible. In addition, the budget proposes to
advance a work requirement for all able-bodied adults without
dependents who are enrolled in Medicaid. Work not only provides
a source of income and self-sufficiency, but also has been
demonstrated as a valuable source of self-worth and dignity for
individuals.
Additionally, in keeping with a recommendation from the
National Commission on Fiscal Responsibility and Reform, the
budget recommends Federal employees--including Members of
Congress and their staffs--make greater contributions toward
their own retirement.
This budget is premised on the belief that the prospect of
upward mobility should be in the reach of every American, and
that priority must be given to maximizing the effectiveness of
anti-poverty programs across Federal, State, and local
governments. Congress should remove the barriers and obstacles
preventing the most vulnerable Americans from taking advantage
of economic and educational opportunities. Wherever possible,
government programs should help these individuals climb the
ladder of self-sufficiency and join the middle class. By
balancing the budget, implementing comprehensive tax reform,
and reforming means-tested entitlement programs, this
resolution is designed to accomplish exactly these goals.
TABLE 4.--HISTORICAL MEANS-TESTED AND NON MEANS-TESTED DIRECT SPENDING
[Outlays by fiscal year, billions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Average
----------- annual
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 growth
2017 ----------
2008-2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
Means-Tested Programs:
Health Care Programs:
Medicaid............................ 191 201 251 273 275 251 265 301 350 368 389 7.4
Health insurance subsidies\a,b\..... 0 0 0 0 0 0 0 13 27 31 42 n.a.
Medicare Part D low-income subsidies 17 17 19 21 24 20 22 22 24 29 29 5.9
Children's Health Insurance Program. 6 7 8 8 9 9 9 9 9 14 15 9.2
-----------------------------------------------------------------------------------------------------
Subtotal.......................... 213 225 277 302 308 279 297 346 411 443 474 8.3
Income security programs:
Earned income and child tax 54 75 67 77 78 77 79 82 81 81 80 3.9
credits\b,c\.......................
SNAP................................ 35 39 56 70 77 80 83 76 76 73 71 7.3
Supplemental Security Income........ 36 41 45 47 53 47 53 54 55 59 55 4.4
Family support and foster care\d\... 31 32 33 35 33 30 32 31 31 31 31 0.2
Child nutrition\e\.................. 13 14 15 16 17 18 19 19 21 22 23 5.8
-----------------------------------------------------------------------------------------------------
Subtotal.......................... 169 201 216 246 259 253 265 262 263 266 260 4.4
Veterans' pensions...................... 3 4 4 4 5 5 5 6 5 6 6 5.1
Pell grants\f\.......................... 0 1 2 4 14 12 16 8 10 6 6 n.a.
-----------------------------------------------------------------------------------------------------
Subtotal, Means-Tested Programs... 385 430 500 556 586 549 583 622 689 720 745 6.8
Non-Means-Tested Programs\g,h\.......... 1,243 1,350 1,788 1,554 1,649 1,710 1,753 1,754 1,865 1,946 1,989 4.8
-----------------------------------------------------------------------------------------------------
Total Mandatory Outlays\h\........ 1,628 1,780 2,288 2,110 2,235 2,259 2,336 2,376 2,554 2,666 2,734 5.3
=====================================================================================================
Memorandum:
Pell Grants (Discretionary)............. 13 15 13 20 21 21 17 23 20 22 22 5.3
Means-Tested Programs:
Adjusted for Timing Shifts............ 389 430 500 556 580 555 583 622 689 713 745 6.7
Non-Means-Tested Programs:
Adjusted for Timing Shifts............ 1,242 1,350 1,788 1,554 1,627 1,731 1,753 1,754 1,865 1,916 1,985 4.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; staff of the Joint Committee on Taxation.
The average annual growth rate over the 2008-2017 period encompasses growth in outlays from the amount recorded in 2007 through the amount projected for
2017.
Data on spending for benefit programs in this table exclude administrative costs that are classified as discretionary but generally include
administrative costs that are classified as mandatory.
SNAP = Supplemental Nutrition Assistance Program; n.a. = not applicable.
Because October 1 fell on a weekend in 2007, 2012, and 2016, certain federal payments that were due on those dates were instead made at the end of the
preceding September and thus recorded in the previous fiscal year. October 1, 2017, also will fall on a weekend, causing payments due to be made in
fiscal year 2018 to be recorded in fiscal year 2017. Those shifts primarily affect outlays for Supplemental Security Income, veterans' compensation
benefits and pensions, and Medicare.
a. Differs from the amounts reported for 2016 through 2027 in the line ``Health insurance subsidies and related spending'' in Table 1-2 in The Budget
and Economic Outlook: Fiscal Years 2017 to 2027 in that it does not include payments to health insurance plans for risk adjustment (amounts paid to
plans that attract less healthy enrollees) and reinsurance (amounts paid to plans that enroll people with high health care costs). Spending for grants
to states to establish health insurance marketplaces also is excluded.
b. Does not include amounts that reduce tax receipts.
c. Differs from the amounts reported for 2016 through 2027 in the line ``Earned income, child, and other tax credits'' in Table 1-2 in The Budget and
Economic Outlook: Fiscal Years 2017 to 2027 in that it does not include other tax credits that were included in that table.
d. Includes the Temporary Assistance for Needy Families program, the Child Support Enforcement program, the Child Care Entitlement program, and other
programs that benefit children.
e. Differs from the amounts reported for 2016 through 2027 in the line ``Child nutrition'' in Table 1-2 in The Budget and Economic Outlook: Fiscal Years
2017 to 2027 in that it does not include outlays related to the Funds for Strengthening Markets program (also known as Section 32) or the Commodity
Assistance Program.
f. Includes mandatory spending designed to reduce the discretionary budget authority needed to support the maximum award amount set in the appropriation
act plus mandatory spending that, by formula, increases the total maximum award above the amount set in the appropriation act.
g. Does not include offsetting receipts.
h. Does not include outlays associated with federal interest payments.
TABLE 5.--PROJECTED MEANS-TESTED AND NON MEANS-TESTED DIRECT SPENDING
[Outlays by fiscal year, billions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average
annual
growth
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 (percent)
----------
2018-2027
--------------------------------------------------------------------------------------------------------------------------------------------------------
Means-Tested Programs:
Health Care Programs:
Medicaid.............................. 389 408 428 450 474 499 525 554 584 616 650 5.3
Health insurance subsidies\a,b\....... 42 55 64 73 78 82 85 89 92 94 97 8.8
Medicare Part D low-income subsidies.. 29 29 33 35 38 44 45 45 53 58 62 7.9
Children's Health Insurance Program... 15 11 6 6 6 6 6 6 6 6 6 -8.9
---------------------------------------------------------------------------------------------------
Subtotal............................ 474 503 530 564 596 631 661 694 735 774 815 5.6
Income security programs:
Earned income and child tax 80 79 81 83 84 86 88 89 91 93 94 1.7
credits\b,c\.........................
SNAP.................................. 71 69 67 67 67 66 66 66 67 68 69 -0.2
Supplemental Security Income.......... 55 52 58 60 62 68 66 62 70 72 74 3.1
Family support and foster care\d\..... 31 32 33 33 33 33 34 34 34 35 35 1.1
Child nutrition\e\.................... 23 24 25 26 27 28 30 31 32 34 35 4.4
---------------------------------------------------------------------------------------------------
Subtotal............................ 260 255 263 268 273 283 283 283 295 301 308 1.7
Veterans' pensions...................... 6 5 6 6 6 7 6 6 7 8 8 3.5
Pell grants\f\.......................... 6 7 7 7 7 7 8 8 8 8 8 3.0
---------------------------------------------------------------------------------------------------
Subtotal, Means-Tested Programs..... 745 771 807 845 882 928 958 991 1,045 1,090 1,139 4.3
Non-Means-Tested Programs\g,h\............ 1,989 2,064 2,221 2,356 2,503 2,703 2,811 2,921 3,137 3,347 3,546 6.0
---------------------------------------------------------------------------------------------------
Total Mandatory Outlays\h\.......... 2,734 2,834 3,028 3,201 3,384 3,631 3,769 3,912 4,182 4,437 4,685 5.5
===================================================================================================
Memorandum:
Pell Grants (Discretionary)\i\............ 22 24 31 24 24 24 25 25 26 26 27 2.3
Means-Tested Programs:
Adjusted for Timing Shifts.............. 745 778 807 845 882 919 958 1,000 1,045 1,090 1,139 4.3
Non-Means-Tested Programs:
Adjusted for Timing Shifts.............. 1,985 2,097 2,221 2,356 2,503 2,654 2,807 2,974 3,137 3,347 3,546 6.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; staff of the Joint Committee on Taxation.
The projections shown here, which exclude the effects of offsetting receipts, are the same as those reported in Congressional Budget Office, The Budget
and Economic Outlook: Fiscal Years 2017 to 2027 (January 2017), www.cbo.gov/publication/52370
The average annual growth rate over the 2018-2027 period encompasses growth in outlays from the amount projected for 2017 through the amount projected
for 2027.
Projections of spending for benefit programs in this table exclude administrative costs that are classified as discretionary but generally include
administrative costs that are classified as mandatory.
SNAP = Supplemental Nutrition Assistance Program.
Because October 1 fell on a weekend in 2016, certain federal payments that were due on that date were instead made at the end of the preceding September
and thus recorded in the previous fiscal year. October 1 will fall on a weekend again in 2017, 2022, and 2023, and the same shift in certain federal
payments will occur. The payment shifts primarily affect outlays for Supplemental Security Income, veterans' compensation benefits and pensions, and
Medicare.
a. Differs from the amounts reported for 2016 through 2027 in the line ``Health insurance subsidies and related spending'' in Table 1-2 in The Budget
and Economic Outlook: Fiscal Years 2017 to 2027 in that it does not include payments to health insurance plans for risk adjustment (amounts paid to
plans that attract less healthy enrollees) and reinsurance (amounts paid to plans that enroll people with high health care costs). Spending for grants
to states to establish health insurance marketplaces also is excluded.
b. Does not include amounts that reduce tax receipts.
c. Differs from the amounts reported for 2016 through 2027 in the line ``Earned income, child, and other tax credits'' in Table 1-2 in The Budget and
Economic Outlook: Fiscal Years 2017 to 2027 in that it does not include other tax credits that were included in that table.
d. Includes the Temporary Assistance for Needy Families program, the Child Support Enforcement program, the Child Care Entitlement program, and other
programs that benefit children.
e. Differs from the amounts reported for 2016 through 2027 in the line ``Child nutrition'' in Table 1-2 in The Budget and Economic Outlook: Fiscal Years
2017 to 2027 in that it does not include outlays related to the Funds for Strengthening Markets program (also known as Section 32) or the Commodity
Assistance Program.
f. Includes mandatory spending designed to reduce the discretionary budget authority needed to support the maximum award amount set in the appropriation
act plus mandatory spending that, by formula, increases the total maximum award above the amount set in the appropriation act.
g. Does not include offsetting receipts.
h. Does not include outlays associated with federal interest payments.
i. The discretionary baseline does not represent a projection of expected costs for the discretionary portion of the Federal Pell Grant Program. As with
all other discretionary programs, the budget authority is calculated by inflating the budget authority appropriated for fiscal year 2017. Outlays for
future years are based on those amounts of budget authority and also reflect a temporary surplus of budget authority provided in 2017.
THE ECONOMY AND ECONOMIC ASSUMPTIONS
----------
A Subpar Recovery
U.S. economic performance has generally been mixed in the
first half of 2017, and much needs to be done to return the
economy to its previous growth potential. Since 2010, real
growth in gross domestic product [GDP] has averaged only
slightly better than 2.0 percent annually, well below the 3.0
percent historical trend rate of growth in the U.S.
This trend of prolonged subpar economic performance has
surprised most economic forecasters. Back in 2012, the
Congressional Budget Office [CBO] expected real GDP to grow by
a relatively brisk 3.0-percent annual average over the 10-year
budget window. By 2014, that projected average slipped to 2.5
percent. In CBO's latest economic forecast, expected average
real GDP growth fell to just 1.9 percent (see Figure 5).
FIGURE 5
CBO has significantly lowered its expectation of long-term
growth in potential GDP as well, due mainly to negative
developments in the labor market and expected sluggish
productivity growth. CBO expects slower growth in the potential
labor force later this decade, which is linked to the aging of
the population and the retirement of the baby-boom generation.
With a smaller labor force, there will also be less business
investment and slower growth in the country's capital stock.
This ``new normal''--if that is what it is--is especially
troubling because without more robust growth the economy will
struggle to support the 80 million retirees expected over the
next couple decades, as well as the working age population.
Standards of living will suffer, especially for middle-income
earners.
Government policies also play a role in this trend. The
heavy spending of recent years drains economic resources that
otherwise would be available for growth-producing activities.
In addition, the sharp increase in government debt--which now
stands at near-record post-World War II levels--will crowd out
additional capital investment in the long term. Meanwhile, CBO
projects the Affordable Care Act will create incentives for
people to work fewer hours over the medium and longer term. The
overall picture that CBO's latest economic forecast paints is
that sluggish economic growth has evolved from mainly a
cyclical issue to a longer-term structural problem. The clear
downward trend in the economic forecast in recent years has
raised the hurdle significantly for those trying to correct the
fiscal imbalance over the next decade. As discussed below,
however, a meaningful change in fiscal policy can repay in
stronger economic growth and budgetary dividends.
The Benefits of a Stronger Economy
A stronger economy would provide a number of tangible
benefits for the average American. Back in the latter part of
the 1990s, real GDP was growing at a rate of about 4.5
percent--roughly twice the rate of growth today. From 1995 to
1999, real median household income grew by $5,000, nearly 10
percent. Not coincidentally, this was a time when the Federal
budget achieved a string of surpluses. In contrast, fiscal
policy today features large deficits combined with a
historically large stock of government debt.
A robust labor market also fosters more opportunity and
upward mobility. Currently about 5.3 million Americans are
working part-time due to poor business conditions or because
that was the only employment option available. In the latter
part of the 1990s, 30 percent fewer Americans faced this
problem. A stronger economy also naturally alleviates poverty.
By the year 2000, after multiple years of robust economic
growth, the rate of poverty in the U.S. had declined to a 25-
year low. A more robust economy also provides more resources to
the government to maintain a strong safety net.
Achieving a stronger rate of growth requires the right
economic policies. Key policies needed to bolster growth
include fundamental tax reform to lower tax rates on
individuals and businesses and thus reduce disincentives to
work and invest; regulatory reforms to scale back and prevent
regulations, such as Dodd-Frank, that fail cost-benefit tests
and hamper economic growth; and direct spending reforms to
prevent a debt explosion and improve incentives.
The Current Economic Situation
Economic output remained sluggish in the first quarter of
2017, growing by just 1.4 percent on a seasonally adjusted,
annualized basis. This was better than an earlier estimate of
0.7 percent, but still weaker than all but two quarters of the
past two years.\32\ The tepid performance was highlighted by a
slowdown in consumer spending, which typically accounts for
two-thirds of overall GDP growth. Business investment, however,
advanced in the first quarter at its strongest clip since late
2013 and most economists expect overall GDP growth to rebound
in subsequent quarters. Looking back, real GDP increased by
just 1.6 percent (measured on a year-over-year basis) in 2016,
the lowest annual growth rate in five years. Since 2010, real
GDP growth has averaged just over 2.0 percent annually, well
below the roughly 3.0-percent historical trend rate of growth
in the U.S. Sluggish economic growth has contributed to the
government's fiscal problems. It leads to lower revenue levels
than would otherwise occur while government spending (on
welfare programs, for example) is higher. According to CBO, if
productivity growth, which is closely correlated with overall
GDP growth, is just 0.1 percentage point lower per year, the
budget deficit will be higher by $273 billion over 10 years.
Conversely, stronger productivity and GDP growth would greatly
improve the fiscal outlook.
---------------------------------------------------------------------------
\32\Bureau of Economic Analysis release, 29 June 2017: https://
www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm.
---------------------------------------------------------------------------
Monthly job growth has been choppy in 2017, but the pace of
employment gains steadied heading into mid-year. So far this
year, monthly job increases are averaging 180,000, down
slightly from 187,000 per month last year. In the latest month
of June, job growth was 222,000, above market expectations. The
unemployment rate rose slightly to 4.4 percent in June, but
remains near the lowest rate in 16 years. When discouraged
workers and marginally employed persons are counted, the
broader under-employment rate is 8.6 percent, nearly double the
headline rate.\33\ Still, this under-employment rate has now
fallen to its lowest level since late 2007.
---------------------------------------------------------------------------
\33\Bureau of Labor Statistics, U-6 Index, Table A-15, July 2017.
---------------------------------------------------------------------------
Although the overall trend of job gains has still been
solid this year, and the headline unemployment rate has dropped
to a low level, other aspects of the labor market are not as
robust. The labor force participation rate stands at 62.8
percent, down a full 3 percentage points since early 2009, and
remains near its lowest level since the late 1970s (see Figure
6). Long-term unemployment also remains a problem. Of the 7.0
million people who are currently unemployed, 1.7 million (24
percent) have been unemployed for more than six months. Long-
term unemployment has genuinely corrosive consequences. For
individuals, it erodes their job skills, further detaching them
from employment opportunities. At the same time, it undermines
the long-term productive capacity of the economy.
In previous episodes when the unemployment rate was at or
below 5.0 percent, the overall labor market was healthier than
it is today. For instance, about a decade ago, in 2005, the
unemployment rate was trending lower and even dipped below 5.0
percent. Yet the labor force participation rate was 66 percent,
more than 3 percentage points above the rate today. The number
of people not in the labor force (or ``on the sidelines'') is
currently about 95 million, or 24 percent higher than the
figure back in 2005. Also, more people today are working part-
time because of poor business conditions or they can only find
part-time work. Currently, 5.3 million Americans face this
problem, whereas that figure was slightly more than 4 million
in 2005.
Wage gains have been moderate over the past year. Average
hourly earnings of private-sector workers increased by 2.5
percent in June from the year-earlier level. Still, prior to
the recession, average hourly earnings were tracking closer to
3.5 percent. Real median household income is finally on the
upswing, but at $56,500 it is still $900, or 1.6 percent, below
its pre-recession peak in 2007.
FIGURE 6
Crude oil prices had plunged from mid-2014 to early 2016,
dropping from over $100 per barrel to just $30 per barrel.
Since that time, however, prices have been trending higher. So
far in 2017, crude oil prices are averaging just over $50 per
barrel, about 50 percent higher than the level in early 2016.
The gradual increase in the price of oil has led to a
relative firming in headline inflation rates. For instance, the
price index for personal consumption expenditures [PCE] has
increased by 1.4 percent over the latest 12 months, up from
annual growth below 1.0 percent in 2015. The so-called ``core''
PCE index (which excludes energy and food prices), the Federal
Reserve's preferred inflation gauge, has also increased 1.4
percent over the past year. These levels of inflation are still
somewhat below the Federal Open Market Committee's 2-percent
objective for inflation over the longer run.
The Federal Reserve increased interest rates for the second
time this year in June. That marked the fourth rate hike since
late 2015. Prior to that time, the Fed had been holding
interest rates near zero since the depths of the financial
crisis in 2008. Looking ahead, the Fed has signaled that it
will continue to increase interest rates at a measured pace,
thereby normalizing monetary policy.
The yield on the 10-year Treasury note has increased since
last fall. The 10-year Treasury has been hovering around 2.2
percent as of June 2017, up about 40 basis points from last
October.
Many global central banks have signaled their intention to
keep interest rates low and their overall monetary policy
loose--in contrast to the Federal Reserve's current policy
stance. This divergence in central bank policy stances on
interest rates, as well as the differing economic outlook
between the U.S. and the rest of the world, has caused the U.S.
dollar to appreciate vis-a-vis other foreign currencies.
The value of the U.S. dollar has been increasing gradually
over the past 3 years. Since mid-2014, the U.S. dollar has
appreciated by 20 percent on a trade-weighted basis.
U.S. stock markets have increased sharply in the wake of
the November 2016 election and the promise of pro-growth
economic policies from Washington. Since early November, the
S&P; 500 has increased by roughly 15 percent.
The Economic Outlook
The Trump Administration's economic forecast is more
hopeful than the Obama Administration's forecast last year, and
it is more upbeat than either CBO or the Blue Chip consensus of
private-sector forecasters--who also are less optimistic than
last year. Assuming full implementation of its proposed
policies--which include reforming the tax code and health care,
cutting regulation, slowing the growth of spending, and
reducing deficits--the administration projects real GDP,
measured on a year to year basis, will grow 2.3 percent in
calendar year 2017, 2.4 percent in 2018. It will then rise to
3.0 percent in 2021 and remain at that level in later years of
the budget window. Assuming a continuation of current law, CBO
projects real GDP will grow 2.3 percent in calendar year 2017,
decline to 2.0 percent in 2018, 1.7 percent in 2019 and will
then stabilize at 1.9 percent in 2022 and later years. CBO
writes that its projections are generally similar to other
forecasters: ``The economic projections in this report do not
differ significantly from those of most other forecasters. They
are generally similar to the Blue Chip consensus forecast that
was published this month (January 2017) and to the latest
forecasts by Federal Reserve officials (December 2016).''\34\
---------------------------------------------------------------------------
\34\Congressional Budget Office, The Budget and Economic Outlook:
2017 to 2027, January 2017, p.41.
---------------------------------------------------------------------------
The Blue Chip consensus projects real GDP growth of 2.1
percent in 2017, 2.4 percent in 2018, and about 2.0 percent in
later years. Over the 10-year window of the budget resolution,
the administration's Office of Management and Budget [OMB]
expects real GDP growth to average 2.9 percent, significantly
higher than the Blue Chip's 2.1 percent and a full percentage
point higher than CBO, which projects a 1.9 percent growth rate
average over this period.
Like other forecasters, the administration expects the
unemployment rate to decline gradually in the coming years.
According to OMB, the unemployment rate will average 4.6
percent in 2017, decline to 4.4 percent in 2018, and rise to
4.6 percent in 2019. The administration sees the unemployment
rate stabilizing at 4.8 percent in 2021. That path is similar
in the near term but is more optimistic in the latter part of
the window than the CBO forecast. CBO expects the unemployment
rate to average 4.6 percent in 2017, 4.4 percent in 2018, 4.5
percent in 2019, rising to 5.0 percent in 2021 through 2023 and
stabilizing at 4.9 thereafter. The Blue Chip consensus sees a
near-term decline in the unemployment rate similar to both CBO
and the administration, but is closer to the administration's
forecast in the latter part of the window. According to Blue
Chip, the unemployment rate will average 4.5 percent in 2017,
4.3 percent in 2018, and 4.5 percent in 2019 and will rise
gradually in later years before leveling off at 4.7 percent in
2022.
The administration expects consumer price inflation,
measured by the year-to-year percent change in the consumer
price index, to rise to 2.6 percent in 2017 from 1.3 percent in
2016. The administration expects price inflation of 2.3 percent
in 2018 and later years. CBO expects price inflation of 2.4
percent in 2017, 2.3 percent in 2018 and 2019 and 2.4 percent
in 2020 and later years. The Blue Chip consensus expects
inflation over the next two years that is similar to the
administration's and CBO's forecasts. According to Blue Chip,
price inflation will rise to 2.4 percent in 2017, range between
2.2 percent and 2.4 percent in subsequent years and stabilize
at 2.4 percent in 2024.
As economic growth strengthens, OMB expects interest rates
will rise to more normal levels in the coming years. The 10-
year Treasury note, which was 1.8 percent in 2016, is projected
to rise to 2.7 percent in 2017, 3.3 percent in 2018, and 3.4
percent in 2019. OMB expects the 10-year Treasury to hit 3.8
percent in 2020 and remain there in later years. CBO expects
interest rates to rise to more normal levels as well but more
gradual increases and lower rates than the administration for
most years. CBO sees the 10-year Treasury averaging 2.3 percent
in 2017, 2.5 percent in 2018, and 2.8 percent in 2019, and
continuing to rise gradually in subsequent years until
stabilizing at 3.6 percent in 2023. The Blue Chip consensus
also expects a gradual increase in interest rates over the
budget window, but like the administration sees higher interest
rates than does CBO over the next several years. The Blue Chip
consensus forecasts the 10-year Treasury note to average 2.6
percent in 2017, 3.1 percent in 2018, 3.6 percent in 2019 and
gradually rising further until stabilizing at 3.9 percent in
2024 and later years.
Economic Assumptions of the Budget Resolution
Customarily, the House budget resolution employs CBO's
economic assumptions as its foundation, but this is not a
requirement. The Budget Committee may use a different set of
projections if it chooses. The Committee has made that choice
in this case. The budget resolution calls for significant
policy changes, including substantial reductions in deficits
and debt that are expected to lead to improved economic
outcomes. The resolution assumes the enactment of such policies
and the economic benefits they would generate. In turn, the
effects of improved economic performance are expected to ``feed
back'' into components of the budget, producing improved fiscal
outcomes. Put another way, the resolution rests on a ``post-
policy'' economic forecast that incorporates the effects of the
budget's pro-growth strategy. It is the same approach that
presidents' budgets have used for decades, and is more fully
explained in the next section, ``Macroeconomic Feedback Effects
of Pro-Growth Policies.''
As noted previously, CBO projects real (inflation-adjusted)
GDP to grow at an annual average of just 1.9 percent--more than
a full percentage point below the 3.0-percent average of the
past 50 years. One component of this projection is CBO's
``current-law'' expectation for Federal policy. CBO assumes
laws in place today will remain in place throughout the 10-year
budget window--that major program spending and tax laws, as
well as government regulation, will unfold as called for in
existing law. CBO's projection also assumes the continuation of
current regulatory regimes. This current-law framework
contributes to CBO's dismal economic forecast.
In contrast, the Budget Committee assumes the enactment of
its pro-growth policies--including comprehensive tax reform and
welfare reform, the budget's spending restraint, the
administration's regulatory reforms, and Obamacare repeal and
replace legislation--and the economic benefits they would
generate. Under the ``post-policy'' perspective of this
resolution, real GDP growth will average 2.6 percent over the
budget window. This projected level of real economic growth is
lower than the administration's but higher than CBO's or the
Blue Chip's. The Committee projects that real economic growth
rates under this year's House budget will remain near CBO's
baseline forecast in the initial years of the window with
larger differences in later years of the window.
Regarding other major macroeconomic variables, the
resolution foresees inflation, as measured by the consumer
price index, averaging 2.4 percent for the 2018-2027 period.
The unemployment rate is expected to remain at or below 5.0
percent, at an average of 4.8 percent per year. The resolution
foresees somewhat higher interest rates along with increased
economic growth, particularly in the latter part of this ten-
year period. The rates on three-month Treasury bills under the
resolution's assumptions rise gradually through the this
period, reaching 3.1 percent in 2024 and average 2.7 percent
over 2018-2027, similar to the Administration and Blue Chip but
higher than CBO's 2.5 percent. The rates on 10-year Treasury
note under the House budget rise gradually from 2.6 percent in
2018 to 4.0 percent in 2027 and average 3.6 percent over the
10-year period, similar to the administration and Blue Chip but
higher than CBO's 3.3 percent.
It is important to note that this improved growth rate
stems from the combination of policies assumed in the budget
resolution. It cannot be separated into separate legislative
initiatives considered in isolation. Further, maintaining pro-
growth fiscal policies is critical for keeping their benefits
alive.
TABLE 6.--ECONOMIC PROJECTIONS: ADMINISTRATION, CBO, AND PRIVATE FORECASTERS
[Calendar years]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
--------------------------------------------------------------------------------------------------------------------------------------------------------
Year to Year, Percent Change
--------------------------------------------------------------------------------------------------------------------------------------------------------
Real GDP:
Administration Budget.............................. 1.6 2.3 2.4 2.7 2.9 3.0 3.0 3.0 3.0 3.0 3.0 3.0
CBO (Jan. 2017).................................... 1.6 2.3 2.0 1.7 1.5 1.8 1.9 1.9 1.9 1.9 1.9 1.9
Blue Chip (March and May 2017)..................... 1.6 2.1 2.4 2.1 2.0 2.0 2.0 2.1 2.0 2.0 2.0 2.0
Consumer Price Index:
Administration Budget.............................. 1.3 2.6 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3
CBO (Jan. 2017).................................... 1.3 2.4 2.3 2.3 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4
Blue Chip (March and May 2017)..................... 1.3 2.4 2.2 2.3 2.4 2.3 2.3 2.3 2.4 2.4 2.4 2.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Average, Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
Unemployment Rate:
Administration Budget.............................. 4.9 4.6 4.4 4.6 4.7 4.8 4.8 4.8 4.8 4.8 4.8 4.8
CBO (Jan. 2017).................................... 4.9 4.6 4.4 4.5 4.9 5.0 5.0 5.0 4.9 4.9 4.9 4.9
Blue Chip (March and May 2017)..................... 4.9 4.5 4.3 4.5 4.6 4.6 4.7 4.7 4.7 4.7 4.7 4.7
3-Month Treasury Bill:
Administration Budget.............................. 0.3 0,8 1.5 2.1 2.6 2.9 3.0 3.0 3.1 3.1 3.1 3.1
CBO (Jan. 2017).................................... 0.3 0.7 1.1 1.7 2.3 2.7 2.8 2.8 2.8 2.8 2.8 2.8
Blue Chip (March and May 2017)..................... 0.3 1.0 1.8 2.4 2.7 2.8 2.8 2.8 2.9 2.9 2.9 2.9
10-Year Treasury Note:
Administration Budget.............................. 1.8 2.7 3.3 3.4 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8
CBO (Jan. 2017).................................... 1.8 2.3 2.5 2.8 3.1 3.4 3.5 3.6 3.6 3.6 3.6 3.6
Blue Chip (March and May 2017)..................... 1.8 2.6 3.1 3.6 3.7 3.8 3.8 3.8 3.9 3.9 3.9 3.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office, Office of Management and Budget, and Blue Chip Economic Indicators.
TABLE 7.--ECONOMIC ASSUMPTIONS OF THE FISCAL YEAR 2018 BUDGET RESOLUTION
[Calendar years]
--------------------------------------------------------------------------------------------------------------------------------------------------------
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2027
---------------------------------------------------------------------------------------------------------------------------------------------------- ------
Year to Year, Percent Change
--------------------------------------------------------------------------------------------------------------------------------------------------------
Real GDP:
HBC (June 2017)........................................... 2.3 2.3 2.4 2.5 2.7 2.9 2.9 2.8 2.6 2.6 2.6
Consumer Price Index:
HBC (June 2017)........................................... 2.4 2.3 2.3 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Average, Percent
--------------------------------------------------------------------------------------------------------------------------------------------------------
Unemployment Rate:
HBC (June 2017)........................................... 4.6 4.4 4.5 4.9 5.0 5.0 5.0 4.9 4.9 4.9 4.9
3-Month Treasury Bill:
HBC (June 2017)........................................... 0.7 1.2 1.9 2.6 2.9 3.0 3.0 3.1 3.1 3.1 3.2
10-Year Treasury Note:
HBC (June 2017)........................................... 2.3 2.6 3.0 3.4 3.7 3.8 3.8 3.9 3.9 3.9 4.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
MACROECONOMIC FEEDBACK EFFECTS
OF PRO-GROWTH POLICIES
----------
Economic growth is one of the major determinants of revenue
and spending levels--and therefore the size of budget
deficits--over a given period. For instance, a higher rate of
gross domestic product [GDP] growth can lead to lower projected
spending if it translates into reduced burdens on government
safety net programs. It can also generate higher revenue due to
increases in taxable incomes. Naturally, such a pattern would
cause a reduction in Federal deficits and debt relative to
current estimates. Conversely, lower rates of growth can cause
the opposite outcomes: higher rates of spending increases and
lower revenue growth.
On the other hand, Federal policies themselves--including
tax policy, regulations, and rising deficits and debt--can
affect the economy's potential to grow. They can generate
changes in economic performance that ``feed back'' into
budgetary outcomes. Consequently, fiscally responsible policies
that improve the economy's long-term growth prospects can help
reduce the size of budget deficits over a given period.
As noted in the previous section, this resolution is based
on a post-policy perspective, incorporating the macroeconomic
feedback effects of its spending and deficit reduction, as well
as its assumed tax reform and other policies. Although a
departure from normal practice, it is justified based on
analyses by a range of economists.
The Congressional Budget Office [CBO] has written
extensively on the risks to the economy of deficits and debt,
and how reducing them has economic benefits. Other policies
likely to boost economic growth include fundamental tax reform,
increasing domestic energy production, regulatory reform, and
the restoration of incentives for people to work, save, and
invest. At present, however, CBO projects real (inflation-
adjusted) [GDP] to grow at an annual average of just 1.9
percent--more than a full percentage point below the 3.0-
percent average of the past 50 years.
These outcomes are at least partly due to the policies of
the previous administration, starting with the overall fiscal
legacy after former President Obama's tenure. It is ``genuinely
unsustainable,'' according to Douglas J. Holtz-Eakin, President
of the American Action Forum and former CBO Director. Absent
reform, he says, the government's direct spending programs will
inevitably lead to a crisis or a sharp increase in taxes--both
of which would hamper growth. Holtz-Eakin also contends the
government's high-spending policies under the Obama
Administration--which he describes as a ``misguided reliance on
temporary, targeted piecemeal policymaking''--failed to
stimulate the economy as their advocates promised. ``Even if
one believed that countercyclical fiscal policy (``stimulus'')
could be executed precisely and had multiplier effects, it is
time to learn by experience that this strategy is not
working.''\35\
---------------------------------------------------------------------------
\35\Douglas J. Holtz-Eakin, testimony to the Committee on the
Budget, U.S. House of Representatives, 7 June 2017.
---------------------------------------------------------------------------
A second drag on the economy is the corporate income tax.
``It doesn't raise that much revenue, drives production in
headquarters overseas, and is incredibly costly to comply with
and administer,'' Holtz-Eakin says.
A third problem is an increasing Federal Government
regulatory burden on the private sector under Obama. Over the
past eight years, Holtz-Eakin says, ``the agencies have put in
place new major regulations with a cumulative increase in
compliance costs totaling $800 billion.'' He suggests this has
an economic impact comparable to a $100-billion tax increase
every year for eight years.\36\
---------------------------------------------------------------------------
\36\Ibid.
---------------------------------------------------------------------------
The current historically low labor force participation rate
also plays a role in the economic outlook. About half the
reduction in the labor force participation rate since 2009 is
due to people leaving the labor force voluntarily, according to
economist John W. Diamond of Rice University--and ``this is
largely because of policies such as the Affordable Care Act
that is basically a large implicit tax on work and so people
are choosing not to work as much.''\37\
---------------------------------------------------------------------------
\37\John W. Diamond, testimony to the Committee on the Budget, U.S.
House of Representatives, 7 June 2017.
---------------------------------------------------------------------------
In any event, continuing the economic pattern is
unacceptable. ``[T]he recent economic performance is
insufficient to improve standards of living at a rate to which
most Americans are accustomed. And it is at odds with a society
that promises opportunity and upward mobility for the next
generation * * *. The conduct of economic policies during the
past several years * * * has failed to address structural
impediments to more rapid growth in productivity and
wages.''\38\
---------------------------------------------------------------------------
\38\John F. Cogan, R. Glenn Hubbard, John B. Taylor, Kevin M.
Warsh, On the Prospects for Higher Economic Growth, Hoover Institution,
Stanford University, and the American Enterprise Institute, 18 July
2017.
---------------------------------------------------------------------------
All these economists agree the right set of Federal
policies could lead to stronger economic growth than CBO
projects. Among these policies are spending restraint, deficit
reduction, tax reform, and regulatory reform--the strategy of
this budget resolution. ``The policy changes of the kind
proposed by the Congress and the [Trump] Administration, if
enacted, would significantly improve the economy's growth
prospects.''\39\
---------------------------------------------------------------------------
\39\Ibid.
---------------------------------------------------------------------------
In some respects, the reasons are not difficult to
understand. For instance, every dollar the government spends is
a dollar drawn from the economy and therefore not available for
growth-producing private-sector activities. This might be an
entirely rational choice. Americans surely support devoting
economic resources, through the government, to protecting the
Nation's security and enforcing its laws. The construction and
maintenance of infrastructure may also be judged a worthwhile
government activity--one that can itself help maintain
conditions for growth. On the other hand, if government spends
on activities that readily could be managed in the private
sector, or merely transfers resources from one sector to
another, there is little benefit to the economy. Such spending
tends to create costs that actually impede growth.
Consequently, limiting government spending to the extent
possible, and focusing resources on truly essential government
activities, leaves room for the economy to expand. Spending
restraint is itself a pro-growth policy.
Similarly, deficit reduction can be an aid to growth. When
the government borrows, it draws resources from the pool of
savings--resources that otherwise would go toward investments
leading to enhanced productivity. Chronic government borrowing
dampens this potential.
Another example is tax reform. When there are many tax
brackets, and increasingly high marginal rates, workers
experience less and less benefit from working additional hours.
This is because the next dollar earned may be taxed at a higher
rate and therefore yield less growth in household incomes.
Higher marginal tax rates also encourage people to leave the
workforce earlier than would otherwise be the case.
Consequently, such a rate structure reduces incentives to work.
The complexity of the tax code aggravates its anti-growth
effects. The tax code is honeycombed with special-interest
exclusions, exemptions, deductions, credits, and so on. Nearly
all of them are aimed at encouraging some government-approved
activity. That is, however well-intentioned such provisions
might be, they are motivated by political interests, not
necessarily their potential for promoting economic growth. They
can even distort economic decisions by causing taxpayers to
divert resources to tax-advantaged options rather than
activities that could contribute to growth.
These are among the reasons for the policies of this budget
resolution--spending restraint, deficit reduction, and tax
reform, along with others.
The economists identified in this discussion believe
returning to the Nation's historical growth rate of 3.0-percent
per year, while ambitious, is conceivable under these policies.
``Could implementation of such a comprehensive economic plan
raise the economic growth rate to 3 percent? We believe it
can.''\40\ Nevertheless, the assumptions of this budget
resolution are more conservative than that, though more
positive than those of CBO.
---------------------------------------------------------------------------
\40\Ibid.
---------------------------------------------------------------------------
The Budget Committee estimates that under the pro-growth
policies in this year's House budget resolution--including
Obamacare repeal and replace legislation, comprehensive tax
reform, welfare reform, net deficit reduction of $5.0 trillion
from spending restraint, and the Trump Administration's
regulatory reforms--real economic growth can average 2.6
percent over the budget window, 0.7 percentage point higher
than the CBO baseline's 1.9 percent average. This higher growth
rate is consistent with what Holtz-Eakin, Diamond, Cogan,
Hubbard, Taylor, and Warsh all say is achievable if these pro-
growth policies are enacted and implemented.
According to the CBO, productivity growth is an important
determinant of real economic growth over time. Productivity
growth that is just 0.1 percentage point higher than expected
over the 10-year window would translate into annual rates of
real economic growth that are about 0.1 percentage point higher
than those underlying the baseline. CBO estimates that such
productivity growth increase would reduce the cumulative
deficit by $273 billion over 10 years, mostly because of higher
revenues--without tax increases.\41\ An increase in the labor
force participation rate is another important determinant of
real economic growth over time. According to CBO, if labor
force growth is just 0.1 percentage point higher than expected
cumulative deficits would fall by $185 billion over 10 years,
mostly because of higher revenues resulting from an increase in
labor compensation due to greater hours worked.\42\
---------------------------------------------------------------------------
\41\Congressional Budget Office, The Budget and Economic Outlook:
2017 to 2027, ``Appendix B, How Changes in Economic Projections Might
Affect Budget Projections,'' January 2017.
\42\Congressional Budget Office, How Economic Changes Affect CBO's
Budget Projections, 24 April 2017 post on the CBO blog.
---------------------------------------------------------------------------
Applying the CBO economic rules of thumb to 2.6 percent
average economic growth yields a macroeconomic effect on the
budget of $1.8 trillion over 10 years assuming that most of the
0.7 percentage point increase in average annual growth is due
to higher productivity and the remaining portion of higher
growth is due to higher labor force growth compared to the
January 2017 CBO baseline. The budget assumes that $1.5
trillion of this total reduces the deficit.\43\ Not taking this
$300 billion into account in the deficit calculation is based
on HBC staff's review of several estimates by non-governmental
and governmental entities of the growth potential for various
tax reform proposals.
---------------------------------------------------------------------------
\43\This estimate includes debt service effects due to higher
interest rates and also debt service effects due to non-interest
deficit reduction.
---------------------------------------------------------------------------
The Committee also projects the increased economic growth
expected under this budget will result in interest rates that
are somewhat higher than those underlying the CBO baseline. The
net effect of these macroeconomic changes on the Federal budget
will be significantly positive, primarily due to higher
revenues that result from greater growth--without tax
increases.
Maintaining pro-growth fiscal policy, however, entails a
broad and long-term commitment, not simply individual
initiatives. ``Economic growth policy is more a philosophy than
a piece of legislation. It is a commitment at every juncture in
the policy process to evaluate tradeoffs between social goals,
environmental goals, special interest goals and economic
growth--and err on the side of growth.''\44\
---------------------------------------------------------------------------
\44\Op cit., Holtz-Eakin.
FUNCTIONAL PRESENTATION
----------
The construction of reports such as this has typically
followed the sequence of functional categories in the budget
resolution itself. These categories aim to reflect major
activities of the government, and they have changed little
since enactment of the Congressional Budget Act of 1974.
This budget resolution retains these conventional
categories, as do the summary tables in the report. The
narrative discussion below, however, takes a different
approach. As with the House budget resolutions of the 114th
Congress, it arranges the functions differently to reflect two
important governing considerations. First is the distinction
between the proper roles of State and local governments and
those of the Federal Government--commonly known as
``federalism.'' The second is the growing burden of mandatory,
or direct, spending programs, which are increasingly dominating
the budget.
The standard budget resolution format presents the range of
government activities largely without distinguishing those of
principal importance to the national government from those that
may draw greater initiative from States and localities or the
private sector. While National Defense and International
Affairs appear first--as is appropriate for two of the national
government's main responsibilities--the sequencing of the
remaining functions appears to reflect no order of priorities
for the Federal Government. There is no reason, for example,
why Energy (Function 270) should appear before Health (Function
550), or Veterans Benefits and Services (Function 700) before
Administration of Justice (Function 750).
The narratives below are arranged to make such a
distinction. The presentation retains the content of each
functional category, just as in the conventional format, but
organizes the functional discussions in four broader categories
as described below. The intent is to provoke a re-evaluation of
the roles of different layers of government through the
structure of the report itself. Put another way, the format
encourages lawmakers and the public to think differently about
spending priorities by looking at the budget differently.
The groupings are as follows:
Principal Federal Responsibilities. The first group
consists of those activities clearly associated with the
national level of government. Defending the country and
conducting international diplomacy are obvious components here,
as directed by the Constitution itself. Those categories do
not, however, acknowledge several other areas for which the
Federal Government also has the central responsibility. These
include veterans' benefits (an aspect of the compensation for
military service), Federal courts and law enforcement, and
general government, the last of which mainly finances the
Legislative and Executive Branches of the Federal Government.
Also included here are Overseas Contingency Operations/Global
War on Terrorism, which provides funds for non-recurring
military and diplomatic activities in the Middle East.\45\
Finally, the section reflects government-wide policies--
policies that cut across functional categories and Executive
Branch agencies.
---------------------------------------------------------------------------
\45\The Budget Control Act of 2011 employs the term Overseas
Contingency Operations/Global War on Terrorism. This resolution uses
the original Bush Administration term, Global War on Terrorism.
---------------------------------------------------------------------------
The overall grouping, using the formal functional titles,
is as follows:
LNational Defense
LInternational Affairs
LOverseas Contingency Operations/Global War on
Terrorism
LVeterans Benefits and Services
LAdministration of Justice
LGeneral Government
LGovernment-Wide Policy
Domestic Priorities. The second set of categories consists
mainly of the discretionary spending in Functions 250 through
650 of the conventional format. These are activities that may
be best administered or initiated by State and local
governments or the private sector. In addition, most of these
activities would exist even if there were no Federal Government
(schools, hospitals, roads, and so on). This does not suggest
they are of lesser priority. The arrangement simply aims to
encourage greater recognition of States and localities in
America's governing system--that is, the principle of
federalism. Although the discussion here focuses on annually
appropriated discretionary spending, two categories--Energy and
Transportation--retain both the discretionary and direct
spending components. This is because in these areas, the two
forms of spending are intertwined in ways unlike those of other
functional categories. In Energy, for example, what appears as
``negative'' direct spending mainly reflects the incoming
repayment of loans and receipts from the sale of electricity
produced by Federal entities, as well as rescissions of
unobligated balances in green energy loan programs. These are
fundamentally different from most direct spending, which
applies to government benefit programs. Transportation has a
split treatment of its funding. Its budget authority is a kind
of mandatory spending called contract authority, while its
outlays--controlled by annual limitations on obligations set in
appropriations acts--are treated as discretionary spending; the
two cannot really be separated.
Overall, this grouping of domestic priorities consist of
the following (discretionary spending only, unless indicated
otherwise).
LGeneral Science, Space, and Technology
LEnergy (both discretionary and direct spending)
LNatural Resources and Environment
LAgriculture
LCommerce and Housing Credit
LTransportation (both discretionary and direct
spending)
LCommunity and Regional Development
LEducation, Training, Employment, and Social
Services
LHealth
LIncome Security
LOther Domestic Discretionary (mainly the
administration of the Social Security and Medicare Programs)
Direct Spending Programs. This group generally presents the
direct spending in the same functional categories as in the
Domestic Priorities group. The aim is to reflect the growing
magnitude of these programs--mostly social insurance and safety
net programs--in the overall budget. This form of spending is
largely open-ended and flows from effectively permanent
authorizations. Most of the programs funded this way pay
benefits directly to groups or individuals without an
intervening appropriation. They spend without limit, and their
totals are determined by numerous factors outside the control
of Congress: caseloads, the growth or contraction of gross
domestic product, inflation, and many others. These are the
areas driving the government's uncontrolled spending, deficits,
and debt. Addressing them is indispensable to managing fiscal
policy and balancing the budget.
LSocial Security
LMedicare
LMedicaid, the American Health Care Act, and
Related Programs
LIncome Support, Nutrition, and Related Programs
LFarm Support
LBanking, Housing, and the Postal Service
LStudent Loans, Social Services, and Related
Programs
LFederal Lands and Other Resources
LOther Direct Spending (science, natural
resources, and community and regional development)
Financial Management. This final grouping consists of those
functions that round out the budget's overall financing.
LNet Interest
LAllowances
LUndistributed Offsetting Receipts
Principal Federal Responsibilities
----------
The two most obvious responsibilities of the Federal
Government are providing for the common defense of all the
constituent States, and conducting diplomacy on behalf of the
Nation as a whole. Related to these two is the supplemental
spending for Overseas Contingency Operations/Global War on
Terrorism. Nevertheless, there are other activities intrinsic
to the national government's responsibilities. For example, as
part of the compensation for military service, the government
also offers a range of benefits specifically for veterans. The
category called Administration of Justice mainly reflects
funding for Federal law enforcement agencies--such as the
Federal Bureau of Investigation and the Drug Enforcement
Administration, among others--as well as the Federal judiciary.
The vast majority of funding for the General Government
function supports the Executive and Legislative Branches of the
Federal Government. Finally, there are activities and policies
that cut across agencies and functional categories.
NATIONAL DEFENSE
Function Summary
Eight years of the Obama Administration's feckless foreign
policy have left the global security environment more dangerous
and less stable, as the United States faces increasingly
complex and evolving threats around the world. U.S. military
forces continue to battle terrorist groups, including a
reinvigorated Al Qaeda and the Islamic State in Afghanistan,
Iraq, Syria, the Horn of Africa, and Libya. Potential
adversaries continue to exhibit aggressive behavior that needs
to be countered. These include China's efforts to expand its
military footprint in the South China Sea and Russia's unlawful
intrusion of sovereign countries in Europe. Meanwhile, Iran
aspires to be a ``regional hegemon'' and ``poses the most
significant threat'' to the United States and its allies in the
Middle East.\46\ North Korea is actively developing an
intercontinental ballistic system to carry nuclear warheads
that can strike the United States and its allies in the Korean
Peninsula.
---------------------------------------------------------------------------
\46\Statement of General Joseph L. Votel, Commander, U.S. Central
Command, Appropriations Subcommittee on Defense, House of
Representatives, hearing on ``The Posture of U.S. Central Command,'' 28
March 2017: http://docs.house.gov/meetings/AP/AP02/20170328/105771/
HHRG-115-AP02-Wstate-VotelJ-20170328.pdf.
---------------------------------------------------------------------------
On 1 February 2017, former Central Intelligence Agency
Director General David H. Petraeus testified before the House
Armed Services Committee that the United States is ``under
unprecedented threats from multiple directions'' and that
``perhaps even more pernicious * * * [the world order has been
undermined by] a loss of self-confidence, resolve, and
strategic clarity on America's part about our vital interest in
preserving and protecting the system we sacrificed so much to
bring into being and have sacrificed so much to preserve.''\47\
Even more recently, on 12 June 2017, Secretary of Defense
Mattis stated: ``[A] * * * concurrent force acting on the
Department is the worsening global security situation. Our
challenge is characterized by a decline in the long-standing
rules-based international order, bringing with it a more
volatile security environment than any I have experienced
during my four decades of military service.''\48\
---------------------------------------------------------------------------
\47\Committee on Armed Services, U.S. House of Representatives,
hearing on ``The State of World: National Security Threats and
Challenges,'' 1 February 2017.
\48\Statement of Secretary of Defense James N. Mattis, Committee on
Armed Services, House of Representatives, hearing on ``The Fiscal Year
2018 National Defense Authorization Budget Request from the Department
of Defense,'' 12 June 2017: https://armedservices.house.gov/
legislation/hearings/fiscal-year-2018-national-defense-authorization-
budget-request-department.
---------------------------------------------------------------------------
While the national security environment, both at home and
abroad, continues to grow more dangerous and unpredictable, the
U.S. military has grown smaller and less capable of deterring
and meeting these threats. ``We have the smallest Air Force
since 1947 * * * the Navy will be retiring ships faster than
they can be replaced * * *. Alarmingly, for today's defense
budget we are fielding 35% fewer combat brigades, 53% fewer
combat ships, 63% fewer combat aircraft squadrons.''\49\ The
reduction in the size and capability of U.S. armed forces has
resulted mainly from the automatic enforcement procedure of the
Budget Control Act [BCA] of 2011--a procedure known as
``sequestration.'' The national defense budget has carried the
bulk of sequestration's effects. Relative to the fiscal year
2012 defense budget request by then-Defense Secretary Gates,
defense spending has been reduced by $460 billion. By 2021,
sequestration will arbitrarily cut almost $1 trillion from
defense spending, eroding critical warfighting capabilities,
modernization, and readiness across all the services. Every
year since the BCA was enacted, budgetary prescriptions have
been shaping national defense strategy, not the other way
around. This has resulted in higher risks for service members
and the Nation.
---------------------------------------------------------------------------
\49\Statement of General John M. Keane, USA (Ret), Committee on
Armed Services, US Senate, hearing on ``Emerging US Defense Challenges
and Worldwide Threats,'' 6 December 2016: https://www.armed-
services.senate.gov/imo/media/doc/Keane_12-06-16.pdf.
---------------------------------------------------------------------------
According to the House Armed Services Committee, increased
threats to national security at home and abroad, coupled with
the concurrent military drawdown, have resulted in ``a
significant gap between what the American people expect of the
military and what it actually could do effectively if called
upon today.''\50\ The Heritage Foundation rated the U.S.
military posture, in aggregate, as ``Marginal'' and trending
toward ``Weak,'' the same rating as in 2016.\51\ This budget
calls for reversing the defense sequester and beginning the
process of rebuilding our military.
---------------------------------------------------------------------------
\50\Committee on Armed Services, U.S. House of Representatives,
Views and Estimates, 3 March 2017.
\51\Heritage Foundation, 2017 Index of U.S. Military Strength:
Assessing America's Ability to Provide for the Common Defense, 2017:
http://index.heritage.org/military/2017/assessments/.
---------------------------------------------------------------------------
For National Defense (Function 050 in the summary tables),
the budget resolution calls for $621.5 billion in discretionary
budget authority and $599.4 billion in discretionary outlays in
fiscal year 2018. When combined with military resources for the
Overseas Contingency Operations/Global War on Terrorism
(Function 970), total discretionary defense spending is
consistent with that of H.R. 2810, the ``National Defense
Authorization Act for Fiscal Year 2018''\52\ which passed the
House on 14 July 2017 by a vote of 344 to 81, and the
associated fiscal year 2018 defense-related appropriations
bills. These amounts include funding to compensate, train,
maintain, and equip the military forces of the United States.
More than 95 percent of the funding in this function goes to
Department of Defense [DOD] activities. The remainder finances
the atomic energy defense programs of the Department of Energy,
and other defense-related activities (primarily in connection
with homeland security).
---------------------------------------------------------------------------
\52\See Committee on Armed Services, U.S. House of Representatives,
Chairman's Mark Summary for H.R. 2810.
---------------------------------------------------------------------------
Direct spending in fiscal year 2018 for this category--
which includes allowances, offsetting receipts, and retirement
payments--is $8.1 billion in budget authority and $8.4 billion
in outlays in fiscal year 2018. The 10-year totals for the
entire defense category are $7.2 trillion in budget authority
and $7.0 trillion in outlays.
Illustrative Policy Options
Policy development in this area rests primarily with the
Committee on Armed Services and the Appropriations Subcommittee
on Defense. They have maximum flexibility in determining
priorities for maintaining robust national defense capabilities
while responsibly managing taxpayer resources. Some
illustrative options the committees might consider include the
following.
Budget Transparency. Like all government agencies, DOD has
a responsibility to account for and effectively manage its
taxpayer-provided resources. The 2010 National Defense
Authorization Act (Public Law 111-84) required the Department
to implement the Financial Improvement and Audit readiness
plan, and the Department expects to be fully auditable by the
end of fiscal year 2017.\53\ DOD's size and complexity make the
endeavor difficult, but ``that is not a reason to delay the
audit--it is the reason to begin.''\54\ In addition, President
Trump has called for ``conducting a full audit of the
Pentagon.''\55\ This budget expects DOD to be audit-ready by
the end of fiscal year 2017 and for it to execute a Department-
wide audit on all financial statements of fiscal year 2018. An
inability to produce an auditable financial statement by the
statutory deadline would undermine defense reform efforts.\56\
Any continued failure of the DOD to perform a complete audit
not only limits transparency and congressional oversight of
defense programs, but also erodes public confidence in the
Department's ability to effectively manage taxpayer resources.
---------------------------------------------------------------------------
\53\Public Law 111-84
\54\Statement of David L. Norquist, Committee on Armed Services,
U.S. Senate, hearing on ``Nominations--Norquist, Daigle, McCusker,'' 9
May 2017: https://www.armed-services.senate.gov/imo/media/doc/
Norquist_05-09-17.pdf.
\55\Donald J. Trump's Vision National Defense, 14 October 2016:
http://www.warrencountyvagop.com/2016/10/14/donald-j-trumps-vision-
national-defense/.
\56\Committee on Armed Services, U.S. House of Representatives,
Views and Estimates, 3 March 2017.
Defense Industrial Base and Sustainment. A robust
industrial base is vital to military readiness and, therefore,
the national security of the United States. As defense budgets
have declined, the acquisition of new weapons systems has
received much-needed focus. Little attention, however, has been
given to the fact that sustainment is 60 percent to 80 percent
of the total lifecycle cost of a weapon system, according to
the Department of Defense.\57\ Therefore, the ongoing health of
the defense industrial base, in its entirety, also must be
carefully considered.
---------------------------------------------------------------------------
\57\Government Accountability Office, Weapon Systems Management:
DOD Has Taken Steps to Implement Product Support Managers but Needs to
Evaluate Their Effects, April 2014; and, Capt. Gary Jones, USAF, Edward
White, Lt. Col Erin T. Ryan, USAF, and Lt. Col Jonathan D. Ritschel,
USAF, Investigation into the Ratio of Operation and Support Costs to
Life-Cycle Costs for DoD Weapons Systems, Defense Acquisition
University, January 2014.
---------------------------------------------------------------------------
The sustainment industrial base comprises both private
sector and military facilities, each serving a unique and vital
role in the maintenance, repair, and overhaul of weapons,
weapons systems, components, subcomponents, parts, and
equipment. As budget resources become more scarce, the military
facilities and private sectors should focus on the areas in
which each excels, entering into public-private partnerships,
as appropriate, to save taxpayer dollars and increase military
readiness. Furthermore, the Department should learn from recent
mistakes and failed policies, which include the unnecessary
furlough of working capital fund employees or managing by end
strength. Workload should be one of the key drivers when
managing depots, arsenals, and ammunition plants to ensure the
lowest cost to the taxpayer.
Military depots are the backbone of the organic industrial
base and are the Nation's insurance policy against economic
uncertainty, changes in the defense industry, and wartime
demands. Additionally, military depots serve as the appropriate
location for maintaining command and control of the majority of
warfighting systems. The B-52 bomber program, as one example,
is a reminder that sustainment of weapons systems for decades
beyond their initially projected lifecycle is feasible and
likely will be essential to meeting military readiness needs.
Military depots have proven their value to the taxpayer for
efficiently sustaining systems that are no longer profitable or
no longer cost-effective to maintain in the private sector.
During peacetime or war, military depots meet military
readiness requirements and provide critical and necessary skill
sets on time and on budget.
Acquisition reform should reaffirm the value of military
core statutes and the longstanding balance of workload between
military depots and the private sector. These key provisions in
existing law, when vigorously enforced, will ensure that the
vital security interests of the United States military are met
through the maintenance of a healthy defense industrial base,
even during a time of declining budgets. These laws were
written for just such a time.
Major Range and Test Facility Base. Major Range and Test
Facility Bases [MRTFBs] are a designated set of DOD
installations, ranges, and facilities used for Test and
Evaluation missions. In 1983, under the authority of DOD
Directive 3200.11, the Under Secretary of Defense for Research
and Engineering directed the Office of the Secretary of
Defense, the Military Service Branches, the Joint Chiefs of
Staff, and Defense Agencies, that major ranges and test
facilities constitute a ``national asset'' due to their unique
capabilities in support of DOD, other U.S. government agencies,
allied foreign governments, and private organizations.\58\
MRTFBs are DOD's core testing and evaluation facilities to
assess weapon system capabilities before being provided to the
military and the warfighter. The budget recommends MRTFBs
continue to be the tip of the spear on weapons testing and
capabilities evaluation to ensure the services are provided the
most effective weapon systems the United States can produce.
---------------------------------------------------------------------------
\58\Isham Linder, Major Range and Test Facility Base Summary of
Capabilities (DoD 3200.11-D), Department of Defense, June 1983.
Defense Acquisition Reform. Since 1990, DOD weapon systems
acquisition has been on the Government Accountability Office
[GAO] ``high-risk'' list for its continued failure to meet
cost, schedule, and performance expectations. As a result,
``DOD pays more than anticipated, can buy less than expected,
and, in some cases, delivers less capability to the
warfighter.''\59\ In May 2017, House Armed Services Chairman
Thornberry introduced H.R. 2511, the ``Defense Acquisition
Streamlining and Transparency Act,'' to address the
Department's acquisition problems. The bill, the provisions of
which are also included in the House-passed ``Fiscal Year 2018
National Defense Authorization Act'', continues the committee's
efforts to ``streamline bureaucracy, drive efficiency through
competition, and give the Pentagon the tools it needs to make
better business decisions.''\60\ Preceded by acquisition
reforms enacted in the fiscal year 2016 and 2017 National
Defense Authorization Acts, the legislation represents the
third installment of Chairman Thornberry's defense acquisition
reform effort.\61\ Over time, defense acquisition reforms will
provide a better return-on-investment for the taxpayer, while
also allowing DOD to be more agile in a changing technology
environment. The Budget Committee applauds the House Armed
Services Committee's efforts to address much-needed acquisition
reform, which will ultimately help the warfighter and result in
the most effective and efficient use taxpayer dollars.
---------------------------------------------------------------------------
\59\Government Accountability Office, DOD Weapon Systems
Acquisition, May 2017: http://www.gao.gov/highrisk/dod_weapon_systems/
why_did_study#t=0.
\60\Committee on Armed Services, House of Representatives,
``Thornberry Introduces Acquisition Reform Bill,'' 18 May 2017.
\61\Ibid.
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INTERNATIONAL AFFAIRS
Function Summary
The United States remains the world's indispensable
Nation--vital to global peace, security, stability, and the
spread of freedom.\62\ With this comes great challenges and
responsibilities. In the absence of American leadership, others
will not uphold their responsibility to advance these shared
interests and values.\63\ Therefore, to remain an effective
leader, the United States should ensure that its military
strength, diplomatic corps, and civilian agencies are aligned
in the task of protecting American interests around the globe.
---------------------------------------------------------------------------
\62\The Foreign Policy Initiative, Foreign Policy 2016, 2 May 2016,
http://www.foreignpolicyi.org/files/uploads/images/2016-05-02-
Foreign%20Policy%202016.pdf
\63\Ibid.
---------------------------------------------------------------------------
According to the Committee on Foreign Affairs, advancing a
comprehensive State Department Authorization bill in 2017 will
be important in countering America's threats, while holding
accountable the perpetrators of war crimes and human rights
atrocities. At the same time, the Department should build on
common-sense efforts to eliminate duplication and waste.\64\
Reducing poverty through economic growth remains a key
objective, but Federal agencies must remain vigilant to ensure
taxpayer funds are spent efficiently and achieve measurable
results.
---------------------------------------------------------------------------
\64\Committee on Foreign Affairs, U.S. House of Representatives,
Views and Estimates, 3 March 2017.
---------------------------------------------------------------------------
The international affairs budget is critical in advancing
U.S. strategic priorities and interests, especially those
relating to economic opportunities, national security, and
American values. Nevertheless, inefficiencies, duplicative
programs, and those unrelated to vital U.S. national interests
remain prevalent and are ripe for reform. The fiscal year 2018
budget resolution represents a thorough re-evaluation of
accounts in this category and gives priority to programs that
are both integral to the core mission and that effectively and
efficiently achieve desired outcomes.
For this budget category (Function 150 in the summary
tables), the budget resolution proposes a total of $41.5
billion in budget authority and $43.6 billion in outlays for
fiscal year 2018. This funding covers the following:
international development, food security, and humanitarian
assistance; international security assistance; the conduct of
foreign affairs; foreign-information and exchange activities;
and international financial programs. The primary agencies
responsible for executing these programs are the Departments of
State, Agriculture, and the Treasury; the U.S. Agency for
International Development [USAID]; and the Millennium Challenge
Corporation. Over 10 years the budget totals are $398.5 billion
in budget authority and $395.5 billion in outlays.
The majority of the funding is discretionary spending,
which is $36.3 billion in budget authority and $47.3 billion in
outlays for fiscal year 2018. Direct spending in this
function--totaling $5.2 billion in budget authority and -$3.7
billion in outlays for fiscal year 2018--includes loan
guarantee programs, payments to the Foreign Service Retirement
and Disability Fund, and foreign-military sales programs. The
negative figures reflect receipts from foreign-military sales
and financing programs.
As with National Defense, funding for the State Department
and USAID's incremental, non-enduring civilian activities in
the frontline states of the global war on terrorism is
reflected in the Global War on Terrorism account.
Refocusing the Strategy
The Trump Administration presents an opportunity to
fundamentally rethink the way the Federal Government's civilian
agencies approach defense, diplomacy, and development
overseas.\65\ From workforce modernization to cyber security
and embassy security--the United States ``bears special
responsibility for protecting the men and women of the United
States'' in the 285 U.S. embassies and consulates around the
world.\66\
---------------------------------------------------------------------------
\65\Ibid.
\66\Ibid.
---------------------------------------------------------------------------
Fine-tuning U.S. foreign assistance while imposing
strategic cuts to ineffective, duplicative, or wasteful
programs is no simple task. It requires planning, and is in the
interest of the United States to clearly define and articulate
its mission.\67\ For instance, systemic shortcomings in the
implementation of U.S. security assistance will remain a
problem until overall planning, coordination, and evaluation of
U.S. security assistance are more closely examined.\68\
Strengthening alliances through security assistance is a tool
the U.S. uses to mitigate threats to peace and stability around
the globe.
---------------------------------------------------------------------------
\67\Ibid.
\68\Ibid.
---------------------------------------------------------------------------
Illustrative Discretionary Spending Policy Options
The committees of jurisdiction--the Committees on Foreign
Affairs and Agriculture, as well as the Appropriations
Subcommittee on State, Foreign Operations, and Related
Programs--should continue effective oversight of international
affairs programs to ensure resources are used efficiently to
achieve desired results that ultimately support U.S. national
interests. Those committees have complete authority in
determining policies in this area. Nothing in the discussion
below binds them to any particular course. That said, some
illustrative options they might wish to consider include the
following.
Eliminate Funding for Peripheral Foreign-Affairs
Institutions. The United States funds multiple independent
agencies and quasi-private institutions through the foreign-
affairs budget. Included in this list are the Inter-American
Foundation, the African Development Foundation, and the East-
West Center. These institutions all engage in activities that
overlap the State Department and USAID activities. For
instance, the East-West Center was established in 1960 to
promote a better understanding between the U.S. and nations of
the Asia-Pacific region. Over the past 57 years, a number of
factors, including the development of the Internet, increased
trade, and cultural diversity here at home, have led to the
creation of private institutions that serve similar purposes as
the East-West Center.\69\
---------------------------------------------------------------------------
\69\Ibid.
---------------------------------------------------------------------------
Consolidating and eliminating funding for multiple
institutions that perform similar tasks will make U.S.
engagement with the world more efficient and cost-effective.
Further, some of these organizations already receive private
funding and could continue with non-government funds.
Reduce Contributions to International Organizations and
Programs. The United States makes voluntary contributions to
more than 40 multilateral organizations and programs. These
often duplicate funding provided in the Contributions to
International Organizations account, which makes payments to
organizations pursuant to treaties and conventions the United
States has signed. Programs such as the United Nations
Population Fund and United Nations Development Program [UNDP]
flow through the voluntary contributions account. The Special
Inspector General for Afghanistan Reconstruction has found
weaknesses in the UNDP's oversight and management of the Law
and Order Trust Fund for Afghanistan--to which the United
States and other donors have contributed more than $3 billion
since 2002. This makes taxpayer dollars susceptible to fraud,
waste, and abuse.\70\ This budget funds the organizations the
United States is required to by treaty, while reducing
voluntary funding made in the International Organizations and
Programs account.
---------------------------------------------------------------------------
\70\John F. Sopko, Special Inspector General for Afghanistan
Reconstruction, letter to Helen Clark, UNDP Administrator, 12 September
2014: http://www.sigar.mil/pdf/special%20projects/SIGAR-14-98-SP.pdf.
Reform Food Aid. One of the areas where the international
affairs budget fails to use taxpayer dollars efficiently and
effectively is the U.S. international food aid program,
including Food for Peace (Public Law 480, Title II). Food for
Peace provides emergency food assistance abroad and supports
development programs in developing nations. Its failings result
primarily from enduring program constraints, including the
cargo preference (which dictates at least 50 percent of food
aid must be shipped on U.S. flagged vessels). To keep pace with
rising demands and finite resources, U.S. food aid programs
must be efficient and adaptable.\71\ Several bipartisan efforts
have called for reforming food programs. According to a 2011
report by the Government Accountability Office [GAO], the
practice of monetization loses an average of 25 cents of every
dollar spent on food aid.\72\ This budget calls for food aid
reforms to get the maximum benefit out of every dollar spent on
this program.
---------------------------------------------------------------------------
\71\Committee on Foreign Affairs, U.S. House of Representatives,
Views and Estimates, 3 March 2017.
\72\Government Accountability Office, International Food
Assistance: Funding Development Projects through the Purchase,
Shipment, and Sale of U.S. Commodities Is Inefficient and Can Cause
Adverse Market Impacts, 23 June 2011.
Overhaul the Broadcasting Board of Governors. For years,
the Office of the Inspector General and GAO have noted
inefficiencies and redundant bureaucratic structures within the
Broadcasting Board of Governors [BBG]. The fiscal year 2017
National Defense Authorization Act's codification of the Global
Engagement Center created overlap with the BBG, specifically
The Voice of America. This is an area in which Congress can and
should clarify lines of responsibility and eliminate
duplications.\73\ BBG is mostly known for programs that educate
the world on American culture, society, and governance, in
addition to promoting democratic principles such as human
rights and religious freedom. In the 114th Congress, the House
Foreign Affairs Committee passed H.R. 2323, the ``United States
International Communications Reform Act of 2015'', a bipartisan
bill that addresses these problems by improving the management
and effectiveness of BBG programs. Subsequently, the ``Fiscal
Year 2017 National Defense Authorization Act'' included BBG
consolidation reforms. This budget supports a reduction in
funding for BBG until significant reforms are made to safeguard
taxpayer dollars from continued waste at the hands of
governmental mismanagement.
---------------------------------------------------------------------------
\73\Committee on Foreign Affairs, U.S. House of Representatives,
Views and Estimates, 3 March 2017.
Eliminate Contributions to the Clean Technology Fund and
the Strategic Climate Fund. The Obama Administration created
the Clean Technology and Strategic Climate Funds in 2010. They
provide foreign assistance to support energy-efficient
technologies intended to reduce energy use and mitigate climate
change. Borrowing funds abroad to provide financial assistance
in this area is not a core U.S. foreign policy function--
especially in this period of large and mounting debt. In
addition, the U.S. government should not attempt to pick
winners and losers in terms of which technologies and companies
to favor and advance abroad. This budget recommends eliminating
---------------------------------------------------------------------------
funding for both programs.
Reinstate the Mexico City Policy. The Mexico City Policy,
originally adopted by President Reagan in 1984, prohibits non-
governmental organizations receiving U.S funding from
performing or promoting abortion. In addition, on 9 May 2017,
Secretary of State Tillerson approved a plan to implement the
manner in which U.S. Government departments and agencies will
apply these provisions to grants, cooperative agreements and
contracts with foreign non-governmental organizations that
receive U.S. funding for global health assistance.\74\
---------------------------------------------------------------------------
\74\Presidential Review Memorandum, 15 May 2017.
---------------------------------------------------------------------------
OVERSEAS CONTINGENCY OPERATIONS/GLOBAL WAR ON TERRORISM
Function Summary
This category reflects non-enduring funding for the
execution of Overseas Contingency Operations/Global War on
Terrorism [OCO/GWOT] and other closely related activities. It
provides funding for Department of Defense military operations,
primarily in Iraq and Afghanistan, and civilian activities led
by the Department of State and the U.S. Agency for
International Development [USAID]. The funding is entirely
discretionary, with no direct spending components. OCO/GWOT
funding is not subject to statutory discretionary spending
limits established by the ``Budget Control Act of 2011''.
The resolution calls for $86.6 billion in total budget
authority and $45.8 billion in new outlays in fiscal year 2018
for the OCO/GWOT (shown in Function 970 in the summary tables).
This total OCO/GWOT funding level is a 16.5 percent reduction
from the enacted fiscal year 2017 level of $103.7 billion.
About $75 billion of the total OCO/GWOT budget authority is
dedicated to military activities by the Department of Defense.
When combined with defense discretionary spending in Function
050, total defense resources in the resolution are consistent
with those provided for in the House Armed Services House-
passed fiscal year 2018 ``National Defense Authorization Act''
and the associated fiscal year 2018 defense-related
appropriations bills.
Policy Considerations
The criteria DOD has been using to determine whether war-
related funding belongs in the base budget or the OCO/GWOT
funding request has not been updated since 2010. Consequently,
DOD's fiscal year 2018 OCO/GWOT request is based on dated
standards ``when military operations in Iraq and Afghanistan
were the principal contingency operations supported by
DOD.''\75\ The current criteria do not address the expanded
scope of OCO/GWOT operations including: ``new geographic areas
such as Syria and Libya, the department's deterrence and
counterterrorism initiatives, or requests for OCO amounts to
fund base budget requirements, such as readiness.''\76\
According to the GAO: ``DOD officials agree that updated
guidance is needed but note that the Office of Management and
Budget has deferred the decision to update the criteria until a
new administration is in place in 2017.''\77\ This budget calls
for the Office of Management and Budget, in conjunction with
DOD, to re-evaluate and update the OCO/GWOT criteria as soon as
possible to ensure budget transparency and accountability
regarding this cap adjustment.
---------------------------------------------------------------------------
\75\Government Accountability Office, Overseas Contingency
Operations: OMB and DOD should revise the criteria for determining
eligible costs and identify the costs likely to endure long term,
January 2017.
\76\Ibid.
\77\Ibid.
---------------------------------------------------------------------------
For the longer term, this budget supports gradually phasing
out the separate Overseas Contingency Operations/Global War on
Terrorism designation for both military and civilian
activities, and assumes a transition to base budget funds in
the future. While this budget fully supports OCO/GWOT efforts
and sufficient funding to execute contingency missions, funding
provided in the OCO/GWOT budget will take place 18 years after
the 9/11 terrorist attacks on the United States, which
triggered wars in Afghanistan and Iraq. If these are to be
ongoing activities--which may well be the case in the 21st
Century security environment--Congress should assume them as
part of the Nation's overall defense strategy, and budget
accordingly. This would be consistent with past Republican
budgets.1
VETERANS BENEFITS AND SERVICES
Function Summary
Americans' respect for those who serve the Nation in its
armed forces is reflected partly through bipartisan support for
service veterans. This support follows a long tradition that
can be traced as far back as 1636, when the Pilgrims of
Plymouth Colony were fighting the Pequot Indians. ``The
Pilgrims passed a law that stated that disabled soldiers would
be supported by the colony. Later, the Continental Congress of
1776 encouraged enlistments during the Revolutionary War,
providing pensions to disabled soldiers. In the early days of
the Republic, individual states and communities provided direct
medical and hospital care to veterans. In 1811, the federal
government authorized the first domiciliary and medical
facility for veterans. Also in the 19th century, the Nation's
veterans assistance program was expanded to include benefits
and pensions not only for veterans, but for their widows and
dependents.'' Many States created veterans' homes after the
Civil War. When the U.S. entered World War I, Congress
broadened the system of veterans' benefits to include
disability compensation and educational rehabilitation.\78\
---------------------------------------------------------------------------
\78\Department of Veterans Affairs, ``History--Department of
Veterans Affairs'': https://www.va.gov/about_va/vahistory.asp.
---------------------------------------------------------------------------
On 9 August 1921, veterans' benefits were consolidated into
a Veterans Bureau, which launched a wave of hospital
construction. In July 1930, President Hoover elevated the
bureau to a full administrative agency called the Veterans
Administration.\79\
---------------------------------------------------------------------------
\79\Ibid.
---------------------------------------------------------------------------
After World War II, with an immense wave of veterans
returning home, Congress vastly expanded benefits, most
significantly with the World War II GI Bill. ``It is said the
GI Bill had more impact on the American way of life than any
law since the Homestead Act of 1862.''\80\ Veterans benefits
continued expanding in the subsequent decades until, in 1989,
President Reagan raised the Veterans Administration to Cabinet
status as the Department of Veterans Affairs [VA].
---------------------------------------------------------------------------
\80\Ibid.
---------------------------------------------------------------------------
Today the Department offers an array of assistance to
veterans and their families, and provides its range of benefits
through three agencies: the Veterans Health Administration
[VHA], the Veterans Benefits Administration [VBA], and the
National Cemetery Administration [NCA]. Congress remains
committed to ensuring the VA's roles are carried out
effectively, and this budget maintains that commitment, giving
priority to veterans' benefits and services. Part of that
commitment entails effective and efficient management of VA
services. In this regard, the Department is long overdue for
many program and management reforms to health care,
readjustment benefits, disability compensation rating schedule
and disability compensation benefit program.
The VA budget includes both discretionary and direct
spending. Discretionary accounts fund medical care, medical
research, construction programs, information technology, and
general operating expenses, among other activities. Direct
spending accounts fund disability compensation, pensions,
vocational rehabilitation and employment, education, life
insurance, housing, and burial benefits, among other benefits
and services. In 2014, Congress enacted the Veterans Access,
Choice and Accountability Act of 2014\81\ and established a new
fund, classified as direct spending, to provide care under the
Veterans Choice Program [VCP]. Recently, the VA notified
Congress that additional funding would be needed to continue
VCP past August 2017.
---------------------------------------------------------------------------
\81\Public Law 113-146.
---------------------------------------------------------------------------
For fiscal year 2018, the budget resolution calls for
discretionary spending of $79.1 billion in budget authority--
about 6 percent higher than the fiscal year 2017 enacted
level--and $77.9 billion in outlays. These figures match
President Trump's budget request. Direct spending in fiscal
year 2018 is $97.6 billion in budget authority and $100.2
billion in outlays. The 10-year direct spending totals for
budget authority and outlays are $1.2 trillion and $1.2
trillion, respectively. This resolution accommodates up to
$70.7 billion for fiscal year 2019 in discretionary advance
appropriations for medical care.\82\
---------------------------------------------------------------------------
\82\Public Law 111-81.
---------------------------------------------------------------------------
The Challenge of Veterans' Health Care
and Benefits Programs
The Federal Government's obligation to veterans is to
assist in their readjustment into society and to help them
overcome any significant barriers that may have arisen as a
consequence of their military service.\83\ After many decades
of trial and error, the government has developed a reasonably
successful VA health care system and set of benefit programs to
meet the needs of veterans with service-connected conditions or
disabilities. Nevertheless, both need improvement.\84\ The
leading problems are decades of traditional philosophy and a
failure to adjust to current service-connected veterans'
needs.\85\ According to the Government Accountability Office
[GAO]: ``VA faces challenges regarding the reliability,
transparency, and consistency of its budget estimates for
medical services, as well as weakness in tracking obligations
for medical services and estimating budgetary needs for future
years.''\86\
---------------------------------------------------------------------------
\83\Clarence Adamy, William Donovan, Paul Hawley, Martin Jenkins,
Theodore Petersen, John Thompson, Veterans' Benefits in the United
States, April 1956.
\84\Ibid.
\85\Ibid.
\86\Government Accountability Office, VA's Health Care Budget, June
2016.
---------------------------------------------------------------------------
The Veterans Access, Choice and Accountability Act set in
motion an examination of the underlying causes of failures of
the VA health care system. Both the Independent Assessment and
the Commission on Care established as a result of the statute
made a series of recommendations to reform the VA health care
delivery system. The Independent Assessment found that ``the
organization is plagued by many problems: growing bureaucracy,
leadership and staffing challenges, and an unsustainable
trajectory of capital costs.''\87\ The Independent Assessment
also made numerous recommendations including a systematic
approach to aligning demand, resources, and eligibility for
care; developing a patient-centered operation that balances
local autonomy with appropriate standardization across the VA
health care system; developing data and tools; and improving
leadership.\88\
---------------------------------------------------------------------------
\87\The CMS Alliance to Modernize Healthcare, Centers for Medicare
and Medicaid Services, Veterans Choice Act Independent Assessment
(Section 201)-
Integrated Report, prepared for the U.S. Department of Veterans
Affairs, 1 September 2015, p. xii.
\88\Committee on Veterans Affairs, U.S. House of Representatives,
hearing on ``Independent Assessment of the Health Care Delivery Systems
and Management Processes of the Department of Veterans Affairs,'' 7
October 2015.
---------------------------------------------------------------------------
Health care delivery and financing have evolved
significantly since the Federal Government began providing care
to veterans after World War I and it continues to evolve. As
stated by the Commission on Care eligibility for VA health care
has not been examined since 1996. ``[A]dditionally, the
enrollment system the department established is not being used
today to calibrate supply and demand as envisioned.''\89\ As
recommended by the Commission, Congress should emphasize
reforming an inadequate health care priority system and
``identify who VHA will serve, and what services it will
provide.''\90\ The growth of VA's health care and benefit
programs are straining budgetary resources in a tight fiscal
climate due to an unprecedented expansion in their scope,
liberalization of eligibility conditions, and broad
interpretation of laws.\91\
---------------------------------------------------------------------------
\89\Commission on Care, Commission on Care Final Report, 30 June
2016: https://s3.amazonaws.com/sitesusa/wp-content/uploads/sites/912/
2016/07/Commission-on-Care_Final-Report_063016_FOR-WEB.pdf.
\90\Ibid.
\91\Op. cit., Adamy; Nina Owcharenko, Proceed with Caution: The
Unintended Consequences of Expanding VA Access, 17 March 2006.
---------------------------------------------------------------------------
VA's program structure is largely based on precedents built
up over decades of piecemeal laws.\92\ The health care and
benefits provided to recent veterans ``were built upon those
provided for their predecessors.''\93\ While, the majority of
these services are well-intentioned, they are long overdue for
revision and modernization to ensure they address today's
overall needs.\94\ The VA needs a clear philosophy or guiding
principle governing its health care and benefits programs.
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\92\Op. cit., Adamy.
\93\Ibid.
\94\United States Code: Title 38--Veterans' Benefits.
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If traditional patterns continue, the magnitude and scope
of VA programs will continue to grow so large in future years
that the ``moral and economic stability of our whole society
can be adversely affected.''\95\ Yet any discussion on the
future of the VA health care system and benefit programs should
be based solely on facts that can lead to a more equitable and
rational system.\96\ If the ``goal is not to get veterans off
disability and to become active, contributing members of
society then what is the goal?''\97\
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\95\Op. cit., Adamy.
\96\James D. Ridgway, The Splendid Isolation Revisited: Lessons
from the History of Veterans' Benefits Before Judicial Review, Veterans
Law Review [Vol 3. 2011], 10 February 2011.
\97\Committee on Veterans' Affairs, U.S. House of Representatives,
hearing on ``Overcoming PTSD: Assessing VA's Efforts to Promote
Wellness and Healing,'' 7 June 2017: http://docs.house.gov/meetings/VR/
VR00/20170607/106073/HHRG-115-VR00-Wstate-OByrneB-20170607.pdf.
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Congress needs to thoroughly reassess the structure, scope,
philosophy, and administration of the VA health care system and
benefit programs that veterans and their families use.\98\
---------------------------------------------------------------------------
\98\Op. cit., Adamy; John S. O'Shea, Reforming Veterans Health
Care: Now and for the Future, Heritage Foundation, 24 June 2016; and,
James D. Ridgway, The Splendid Isolation Revisited: Lessons from the
History of Veterans' Benefits Before Judicial Review, Veterans Law
Review [Vol 3. 2011], 10 February 2011.
---------------------------------------------------------------------------
The Way Forward
VA needs to adopt a new way of thinking to address its most
challenging problems, such as access to health care, the
quality and delivery of programs, and cost management. All
programs should maximize net benefits for the veterans, and be
cost and target efficient.
Reducing moral hazard on the part of government agencies
and program beneficiaries is one of many ways to improve VA
programs.\99\ All VA programs vulnerable to significant moral
hazard should require adequate cost-sharing to assure that
beneficiaries commit enough of their own resources to act
responsibly, with amounts scaled to what they can afford.
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\99\Ibid.
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Additionally, as large number of veterans age, they become
entitled to Medicare. Some veterans also qualify for Medicaid
based on income. Based on the 2014 survey results, VHA reported
that 78 percent of veterans enrolled in the VA health care
system had another form of health care coverage as well. If
veterans are provided greater access to care in the community,
imposing health insurance elements such as premiums,
deductibles, or coinsurance to control costs and to restrain
spending may be considered.\100\
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\100\Congressional Research Service, Do Veterans Have Choices in
How They Access Health Care? 13 June 2016: http://www.crs.gov/reports/
pdf/IF10418.
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Since 2015, GAO has included the VA's Information
Technology [IT] systems and VA and DOD interoperability on its
``high-risk'' list.\101\ In 2017, Acting Assistant Secretary
for Information Technology and CIO for the Office of
Information and Technology at the VA, acknowledged VA's
previous failures to modernize their IT system and build them
from the ground up.\102\ In 2013, VA and DOD decided to abandon
an initiative to create a joint medical health sharing record
system, citing ``different system needs and a projected total
price tag of $28 billion.''\103\ On 5 June 2017, VA Secretary
Shulkin announced VA would adopt DOD's MHS Genesis Electronic
Health Record IT platform at an estimated cost of at least $4
billion and abandon VA's VistA platform after spending billions
of taxpayer dollars on upgrading a failed VistA EHR
interoperable IT system.\104\ After IT, construction, and
health care modernization attempts, failures, and billions of
taxpayer dollars wasted, Congress should require any VA rule or
regulation with an annual economic impact of $100 million or
more to come before Congress for an up-or-down vote before
implementation.\105\
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\101\Government Accountability Office, Improving the Management of
IT Acquisitions and Operations, January 2017: http://www.gao.gov/
highrisk/improving_management_it_acquisitions_operations/
why_did_study#t=0
\102\Committee on Veterans' Affairs, U.S. House of Representatives,
hearing on ``Assessing the VA IT Landscape: Progress and Challenges,''
7 February 2017.
\103\Patricia Kime, ``Pentagon, VA health records systems still far
from interoperable,'' Military Times, 28 October 2015.
\104\Leo Shane, ``VA to use DOD's electronic medical records
system,'' Military Times, 5 June 2017.
\105\There is a precedent with VA major construction projects over
$100 million. VA needs Congressional certification to move forward with
construction projects over $100 million threshold. Neil Siefring, ``The
REINS Act will keep regulations and their costs in check,'' The Hill.
16 February 2016: http://thehill.com/blogs/pundits-blog/economy-budget/
250178-the-reins-act-will-keep-regulations-and-their-costs-in; and
Passage of H.R. 427 (H. Rept. 114-214), the Regulations from the
Executive in Need of Scrutiny Act of 2015 (REINS Act), (H.R. 427, H.
Rept. 114-214): https://www.congress.gov/bill/114th-congress/house-
bill/427.
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Congress and the Executive Branch should conduct a thorough
analysis of VA and reassess its missions based on their
importance, difficulty, and past success. One area of likely
consensus lies in personnel reforms. VA's workforce is in
serious crisis, experiencing a long-term decline in quality,
accountability, vision, energy, and professional commitment. No
organization or Federal agency can function properly without
maintaining an effective workforce--and that includes
disciplining employees when necessary.
Since its creation in 1946, the VA's personnel system has
been based on the urgent need to recruit physicians, dentists,
and nurses. That has come to be a problem in itself. A
personnel system built to expedite VA hiring has led to a
``lengthy disciplinary board process that prevents timely--and
thus, effective--imposition of discipline, particularly of the
more minor corrective actions.''\106\ The personnel system
desperately needs an overhaul to address its failures and
deficiencies. Additionally, Congress and the Executive Branch
can achieve greater reform if the VA begins to thin out its
bureaucracy, consolidating the number of VA layers between top
and bottom employees, reducing the number of managers,
accelerating the hiring and appointment processes (working
alongside the Congress where appropriate), streamlining the
disciplinary process, refining performance measure metrics, and
strengthening oversight and contract administration of private
employee contracts.\107\
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\106\Keith Bell, A Special Study: The Title 38 Personnel System in
the Department of Veterans Affairs: An Alternate Approach, April 1991:
www.dtic.mil/get-tr-doc/pdf?AD=ADA234756.
\107\Ibid.
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Without these steps, the consequences will be an
increasingly demoralized, poorly equipped, and undisciplined VA
workforce. These employees are, after all, the implementers and
ultimate instruments of the VA's policies, and if they are not
up to the job, then neither is the VA.
Illustrative Policy Options
The committees of jurisdiction--the Committee on Veterans'
Affairs and the Appropriations Subcommittee on Military
Construction, Veterans Affairs, and Related Agencies--should
continue effective oversight of the Department of Veterans
Affairs and Department of Labor Veterans' Employment and
Training Service programs to ensure resources are used
efficiently to achieve desired results. The Budget Committee's
authority applies solely to the budgetary parameters for each
committee of jurisdiction. The final policy choices will lie
with the committees, some options worthy of consideration to
achieve the budgetary goals of the resolution are described
below.
DISCRETIONARY SPENDING
Address the `High-Risk' Status of VA Health Care. Every two
years, at the start of a new Congress, the Government
Accountability Office [GAO] releases a ``high-risk'' list that
calls attention to Federal programs vulnerable to fraud, waste,
abuse, mismanagement, or needing transformation. In 2015, VA
health care was placed on the list for its inability to ensure
allocated resources are being used ``cost-effectively and
efficiently to improve veterans''' health care access, safety,
and quality.\108\ VA health care remains on the list today.
``[W]e continue to be concerned about VA's ability to ensure
its resources are being used cost-effectively and efficiently
to improve veterans' timely access to health care, and to
ensure the quality and safety of that care.''\109\ GAO notes
that although VA medical caseloads increased significantly over
the past decade, VA facilities often failed to keep up. ``In
some cases, the delays in care or VA's failure to provide care
at all reportedly have resulted in harm to veterans.''\110\ The
``Veterans Access, Choice, and Accountability Act of 2014''
(Public Law 113-146) provided $10 billion in additional
spending authority--to last through August 2017--to help
alleviate the problem, and led to the creation of the Veterans
Choice Program in November 2014. This has been only partly
successful. According to GAO: ``With the increased utilization
of community providers that has occurred as a result of the
``Veterans Access, Choice, and Accountability Act'', veterans
are required to navigate multiple complex health care systems--
the VA health care system and those of community providers--to
obtain needed health care services.''\111\ VA also suffers
problems ``regarding the reliability, transparency, and
consistency of its budget estimates for medical services, as
well as weaknesses in tracking obligations for medical services
and estimating budgetary needs for future years.''\112\
---------------------------------------------------------------------------
\108\Government Accountability Office, Managing Risks and Improving
VA Health Care, March 2017: http://www.gao.gov/highrisk/
managing_risks_improving_va_health_care/why_did_study
\109\Government Accountability Office, High Risk List, 1 March
2017: http://www.gao.gov/highrisk/overview.
\110\Ibid.
\111\Ibid.
\112\Ibid.
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Additionally, as the Commission on Care highlighted in its
report:
``Choice involves tradeoffs. Reducing drive times to see a
doctor may lead to longer wait times, for example, if it
induces substantially more veterans to seek more care. VHA
reliance on contracting could also have unintended consequences
for already underserved communities. Providers in such
communities who join the local VHA network may decide to limit
the number of Medicare and Medicaid patients they accept into
their practices. In other, highly concentrated health care
markets, which are increasingly common throughout the United
States, VHA may not be able to contract for care in the
community except at higher prices. Such circumstances
underscore the importance of VHA retaining the option of
building its own capacity.''\113\
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\113\Commission on Care, Commission on Care Final Report, 30 June
2016.
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This budget option calls for the VA to review and implement
GAO's recommendations to update and improve VA's disability
compensation benefit program and health care system to remove
these items from GAO's ``high-risk'' list.
Reduce Improper Payments. Improper payments--payments made
in the wrong amounts, to the wrong people, or for the wrong
reasons--have consistently been a government-wide problem (see
discussion in separate section of this report). For fiscal year
2016, the VA reported $5.5 billion in improper payments,
principally in its Community Care and Purchased Long-Term
Services and Support programs.\114\
---------------------------------------------------------------------------
\114\Government Accountability Office, ``Veterans Affairs: Improper
Payment Estimates on Ongoing Efforts for Reduction,'' testimony to the
House Veterans Affairs Subcommittee on Oversight and Investigation, 24
May 2017.
---------------------------------------------------------------------------
Agencies with program(s) reported as noncompliant with the
``Improper Payments Elimination and Recovery Act of 2010''
[IPERA] for three consecutive years are required to propose to
their committees of jurisdiction statutory changes to bring the
program into compliance.\115\ IPERA compliance review serves as
a critical tool to ensure taxpayer dollars are not misspent and
to guarantee Federal agencies are proactive in addressing
program(s) with high improper payment error rates.\116\ This
budget option recommends the VA adhere to the requirement,
striving to mitigate, reduce, or eliminate future improper
payments.\117\
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\115\Public Law 111-204
\116\Nicholas Pacifico, Federal Improper Payments Are Significant,
Costing Taxpayers Billions, Project on Government Oversight, 12 July
2016.
\117\Public Law 111-204.
Sunset Advisory Committees. Federal advisory committees are
defined as ``any committee, board, commission, council,
conference, panel, task force, or other similar group'' that
dispenses ``advice or recommendations'' to the President and/or
Cabinet Secretaries.\118\ VA currently has 15 advisory
committees established by statute, and 10 non-statutory
panels.\119\ In 2015, for example, VA created a new initiative
called ``MyVA'' that focused on ``customer service from a
veteran's perspective.''\120\ The Appropriations Subcommittee
on Military Construction, Veterans Affairs, and Related
Agencies raised concerns with the funding and full-time
equivalent employees [FTEs] allocation to the new
initiative.\121\ The new initiative required a budget of $76.3
million and 204 FTEs for activities to support ``planned
customer data integration and Department-wide
reorganization.''\122\ The VA has yet to submit information
about the MyVA office, its mission, action plan, and cost of
such an undertaking.
---------------------------------------------------------------------------
\118\Public Law 92-463.
\119\U.S. Department of Veterans' Affairs, Advisory Committee Names
and Objectives, 3 January 2017.
\120\Public Law 114-92.
\121\Ibid.
\122\Ibid.
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To ensure advisory committees are not inefficient or
duplicative of VA efforts, this illustrative option calls for
VA to ``review and eliminate advisory committees that are
obsolete, duplicative, low priority or serve a special, rather
than national interest,'' and sunset all committees after two
years of enactment, unless the Legislative Branch has specified
otherwise.\123\
---------------------------------------------------------------------------
\123\U.S. Office of Management and Budget, OMB Circular No. A-135
as Applied to Federal Advisory Committee Act, 28 June 1994: https://
www.whitehouse.gov/omb/circulars_a135 and Public Law 92-463.
Consolidate Transition Assistance Program Goals, Plans,
Success Program. Redundant Federal programs are leading to
millions, if not billions, in wasteful spending. At a time of
increased budget pressure, American taxpayers cannot afford to
keep buying the same service twice. The Transition Assistance
Program Goals, Plans, Success Program [TAP GPS] is designed to
facilitate service members' transition to civilian life and is
governed by a working group representing five agencies: the
Department of Defense, the Department of Education, the
Department of Labor [DOL], the Small Business Administration,
and the Office of Personnel Management. The working group
designs the curriculum composed of a five-day core class
focused on job-hunting skills and VA benefits. In addition, an
optional two-day course focuses on education, small business,
and trades training. TAP GPS is taught largely by contractors
hired by DOL and VA. Instead of combining the training
curricula requirements into one overarching contract, however,
VA and DOL have awarded separate contracts, thus doubling the
overhead costs. Veterans Benefits Administration leaders have
shifted TAP GPS funding to cover the costs of other VA non-
statutory job placement programs unrelated to the TAP GPS
program. This budget option recommends consolidating TAP
programs to achieve greater service-member and veterans'
transition results.
DIRECT SPENDING
Reform VA's Rating Schedule for Disability Compensation.
The Department of Veterans Affairs administers one of the
largest Federal disability compensation benefit programs, based
on the loss of earning potential as a result of service-
connected disability.\124\ Under sections 1110 and 1155 of
Title 38, VA is required to ``adopt and apply a schedule of
ratings of reductions in earning capacity from specific
injuries or combination of injuries'' to determine the
veteran's disability compensation amount.\125\ In fiscal year
2016 (the most recent figures available), VA provided $64.7
billion in disability compensation payments to 4.3 million
veterans with service-connected disabilities.\126\ Currently,
the VA uses the ``1945 Rating Schedule and its medical criteria
with some revisions to evaluate veterans for disability
compensation.''\127\ Over the years, VA's rating schedule
criteria to assign degree of work disability have not been
consistent with ``changes in medicine and the labor market''--
leading some experts to believe some veterans with service-
connected injuries are being overcompensated or
undercompensated.\128\ In 2003, GAO designated VA's disability
compensation rating program as ``high-risk'' due in part to
VA's relying on outdated criteria to determine whether
recipients should qualify for disability compensation benefits
in relation to advances in ``medicine, technology, or changes
in the modern work environment.''\129\ The program remains on
the high-risk list today.
---------------------------------------------------------------------------
\124\Government Accountability Office, VA Disability Compensation:
Actions Needed to Address Hurdles Facing Program Modernization,
September 2012: http://www.gao.gov/assets/650/647877.pdf.
\125\38 U.S. Code Sec. 1110 and 38 U.S. Code Sec. 1115
\126\Department of Veterans Affairs, VBA Annual Benefits Report,
2016: http://www.benefits.va.gov/REPORTS/abr/ABR-Compensation-FY16-
0613017.pdf.
\127\H.R. 5149, to govern the effective dates of ratings and awards
under the Veterans' Administration revised Schedule for Rating
Disabilities, 1945, and for other purposes, 79th Congress: 2nd Session,
4 June 1946: https://www.finance.senate.gov/imo/media/doc/Rpt79-
1417.pdf and Institute of Medicine; Board on Military and Veterans
Health; Committee on Medical Evaluation of Veterans for Disability
Compensation; Michael McGeary, Morgan A. Ford, Susan R. McCutchen, and
David K. Barnes, A 21st Century System for Evaluating Veterans for
Disability Benefits, 2007.
\128\Op. cit. Government Accountability Office, VA Disability
Compensation: Actions Needed to Address Hurdles Facing Program
Modernization, September 2012: http://www.gao.gov/assets/650/
647877.pdf.
\129\Op. cit. Government Accountability Office, Improving and
Modernizing Federal Disability Programs (also appears in the 2015 High
Risk Report), February 2015: http://www.gao.gov/highrisk/
improving_federal_disability/why_did_study#t=0.
---------------------------------------------------------------------------
The rating schedule needs a systematic overhaul to align
with present-day accepted medical principles and medical
standards, and to address whether disabilities lower than 30
percent constitute material impairment of earning
capacity.\130\ This budget option calls for reforming the
rating schedule.
---------------------------------------------------------------------------
\130\Op. cit. VA Disability Compensation: Actions Needed to Address
Hurdles Facing Program Modernization, Institute of Medicine; Board on
Military and Veterans Health; Committee on Medical Evaluation of
Veterans for Disability Compensation; Michael McGeary, Morgan A. Ford,
Susan R. McCutchen, and David K. Barnes, A 21st Century System for
Evaluating Veterans for Disability Benefits, 2007.
Reform VA's Disability Compensation Program. In 1924,
through Public Law 68-242, the ``World War Veterans Act of
1924'', Congress established veterans' benefits program and
today's VA disability compensation program.\131\ Disability
compensation provides a monthly cash benefit to veterans who
have incurred an injury or disease contracted in, or aggravated
by, active military service.\132\ The disability compensation
program does not always reflect ``recent medical and
technological advances, and their impact on medical conditions
that affect potential earnings.''\133\ VA's disability
compensation program has not kept pace with changes in the
labor workforce from a ``manufacturing-based jobs to service--
and knowledge-based'' market, and changes in skillsets has also
evolved.\134\ These labor market changes are not reflected in
VA's rating for disability compensation.\135\ This budget
option recommends Congress direct VA to evaluate ``whether the
ratings for conditions in the schedule correspond to veterans'
average loss in earnings due to these conditions and adjust
disability ratings accordingly,'' and that VA conduct a study
and report to Congress on the effects and impact medical
advancements and technology would have on VA's disability
compensation program and benefit package.\136\ VA should also
refine the current Disability Presumption Process to avoid
listing ``conditions that are associated with age and
lifestyle--as opposed to chemical exposure'' on the presumptive
list.\137\
---------------------------------------------------------------------------
\131\Department of Veterans Affairs, VA Disability Compensation
Program: Legislation History, December 2004: https://www.va.gov/op3/
docs/ProgramEvaluations/DisCompProgram/
Disability_Comp_Legislative_Histor_lit_Review.pdf.
\132\38 U.S.C. Sec. 1131.
\133\Committee on Veterans' Affairs, U.S. Senate, hearing on
``Proposals to Limit Eligibility for VA Compensation to Veterans with
Disabilities Directly Related to the Performance of Duty,'' 23
September 2003.
\134\Ibid.
\135\Ibid.
\136\Ibid.
\137\Congressional Research Service, Veterans Affairs: Presumptive
Service Connection and Disability Compensation, 18 November 2014:
www.crs.gov/Reports/R41405.
Update VA's Individual Unemployability Benefits. The VA's
Individual Unemployability [IU] program pays certain veterans
disability compensation at the 100-percent rate, even though VA
has not rated the veteran at that level.\138\ In 2003, GAO
designated VA's IU program as high-risk, and it remains on the
list today.\139\ In September 2015 (the most recent figures
available), more than 60 percent of veterans receiving VA's IU
supplemental benefit were 65 or older.\140\ From fiscal year
2009 through 2013, the VA's IU benefit program increased by 22
percent with a ``73 percent increase in the subgroup of
beneficiaries aged 65 and older.''\141\ Moreover, about 2,800
of new first time beneficiaries were 75 years of age and
older--with 400 of them 90 and older.\142\ These trends have
raised the question of what constitutes ``unemployability'' in
today's economy.\143\ This budget option recommends the
following: 1) institute an application restriction to veterans
age 70 and older from applying for the first time to the VA's
IU benefit program; 2) revise VA regulations to require all
veterans applying for IU be referred to the vocational
rehabilitation unit for work potential evaluation before being
considered for IU benefits; 3) codify the IU program into law
(it is currently regulatory, not statutory) to ensure it
functions appropriately through congressional oversight; 4)
update the IU program to reflect today's economy; and 5) means
test the program.\144\ This budget recommendation also assumes
beneficiaries who were enrolled before enactment would not be
affected by any policy change.
---------------------------------------------------------------------------
\138\Department of Veterans Affairs, Individual Unemloyability,
2017: http://www.benefits.va.gov/compensation/claims-special-
individual_unemployability.asp.
\139\Government Accountability Office, High Risk List, January
2017: http://www.gao.gov/highrisk/overview.
\140\Congressional Budget Office, Options for Reducing the Deficit:
2017 to 2026, 8 December 2016.
\141\Government Accountability Office, Veterans' Disability
Benefits: VA Can Better Ensure Unemployability Decisions Are Well
Supported, 2 June 2015: http://www.gao.gov/products/GAO-15-464.
\142\Ibid.
\143\Ibid.
\144\General Accounting Office, Veterans Benefits: Improving the
Integrity of VA's Unemployability Compensation Program, September 1987:
http://www.gao.gov/assets/150/145765.pdf; and, 38 CFR Sec. 4.16a.
Slow the Growth of Education Tuition Increases. The Post-9/
11 GI Bill covers veterans' tuition, fees, and textbook costs,
in addition to providing a monthly living stipend. Veterans'
education benefits became significantly more generous following
the 2008 passage of the Post-9/11 GI Bill. Over the past
decade, education tuition annually on average have been higher
than the average rate of inflation--increasing VA's education
payments on an annual basis.\145\ The rapidly increasing
tuition cost nationwide is causing substantial, unexpected
increases in education benefit spending, putting future
benefits at risk. In 2011, the House and Senate Veterans'
Affairs Committees' letter to the Joint Select Committee on
Deficit Reduction [JSCDR] recommended this policy proposal to
slow the rate of education growth.\146\ This budget option
would cap the increase in tuition assistance at 3 percent,
providing sustainability of the program in the out years. This
budget recommendation also assumes beneficiaries who were
enrolled before enactment would not be impacted by any policy
change.
---------------------------------------------------------------------------
\145\Saving for College, The Real Cost of Higher Education, 2016:
http://www.savingforcollege.com/tutorial101/
the_real_cost_of_higher_education.php.
\146\Chairs and Ranking Members of the Veterans' Affairs Committees
letter to the Joint Select Committee on Deficit Reduction, 14 October
2011: https://veterans.house.gov/sites/republicans.veterans.house.gov/
files/HVAC-SVAC%20Letter%20to%20JSC.pdf.
Reform VA Home Loan Guaranty Funding Fee Rates. The VA's
home loan guaranty funding fee was first established through
the ``Omnibus Budget Reconciliation Act of 1982'' (Public Law
97-253).\147\ Under current law, VA may guarantee a home loan
to eligible service members, veterans (with both service-
connected and non-service-connected injuries), reservists, and
certain unmarried surviving spouses to purchase houses,
condominiums, and manufactured homes.\148\ In addition, the VA
may not collect a funding fee from a service-connected-injured
veteran.\149\ The VA funding fee percentage varies from 0.5
percent to 3.3 percent depending on several factors. Among
these factors are whether the veteran is a first-time homebuyer
or if the veteran is making a down payment.\150\
---------------------------------------------------------------------------
\147\Public Law 97-253: https://transition.fcc.gov/Bureaus/OSEC/
library/legislative_histories/1657.pdf.
\148\Subchapter III of title 38, United States Code.
\149\Subsection (C)(1), section 3729 of title 38, United States
Code.
\150\Public Law 113-146
---------------------------------------------------------------------------
Since 1982, the VA Home Loan Guaranty funding fee rates
have been adjusted to pay for other VA programs.\151\ Current
VA funding fees are lower than other Federal housing programs,
such as the Federal Housing Administration. This budget option
calls for the VA Home Loan Guaranty funding fee rates for non-
service-connected veterans be reformed at a reasonable rate,
while ensuring the integrity and sustainability of the program
stays intact. This budget recommendation also assumes
beneficiaries who were enrolled before enactment would not be
affected by any policy change.
---------------------------------------------------------------------------
\151\The VA Home Loan Guaranty funding fee was used as an offset in
Public Law 97-253, The Omnibus Budget Reconciliation Act of 1982, and
Public Law 113-146, Veterans Access, Choice and Accountability Act of
2014.
Reform Dependent Housing Stipend. The GI Bill's primary use
is assisting a veteran's reintegration into civilian life by
providing the education and skills necessary to gain meaningful
employment after military service. To provide both a recruiting
and retention incentive, the Post-9/11 GI Bill allows each
military service to determine which service members who meet
the statutory eligibility requirements to transfer all or some
of their education benefits to their dependents. Instead of
targeting the benefit to retain service members with critical
needed skills, the services have made eligible all service
members who qualify under the time-in-service requirements.
This budget option calls for the Post-9/11 GI Bill to restore
its original intent by focusing resources on veterans
readjusting into society after their military career, and for
VA and DOD to assess the transferability's impact on
recruitment and retention. This budget recommendation also
assumes beneficiaries who were enrolled before enactment would
---------------------------------------------------------------------------
not be affected by any policy change.
Prevent VA from Providing Unlimited Amounts for Flight
Training at Public Schools. Brought to Congress' attention by
the VA, Veterans Service Organizations, and the National
Association of State Approving Agencies [NASAA], some flight
schools are exploiting an aviation training tuition loophole in
the Post-9/11 GI Bill.\152\ Some institutions of higher
learning have applied extreme costs for flight fees as there
are no caps in place for such institutions with third-party
flight contractors. According to representatives from NASAA,
some student veterans are taking flight classes as electives
with no cost cap for flight fees.\153\ In response to concerns
from stakeholders regarding this loophole, in 2016 the House
Veterans Affairs Subcommittee on Economic Opportunity
introduced H.R. 3016, the ``Veterans Employment, Education, and
Healthcare Improvement Act'', which grandfathered current
flight school students' tuition for two years and made
improvements to veterans' educational assistance. In 2016, the
measure passed the House on a bipartisan basis. This budget
option reflects a provision in H.R. 3016 that applies a tuition
cap for flight programs at public institutions of higher
learning that is consistent with other veterans' educational
programs.\154\ This budget recommendation also assumes
beneficiaries who were enrolled before enactment would not be
affected by any policy change. This policy recommendation is
also included in President Trump's fiscal year 2018 budget
request.
---------------------------------------------------------------------------
\152\Curtis L. Coy, Deputy Under Secretary for Economic
Opportunity, Veterans Benefit Administration, testimony before the
House Veterans' Affairs Subcommittee on Economic Opportunity, 19
November 2014: https://veterans.house.gov/witness-testimony/mr-curtis-
l-coy-7. The Iraq and Afghanistan Veterans of America, the American
Legion, and the Veterans of Foreign Wars all support closing this
loophole.
\153\Ibid.
\154\``Veterans Employment, Education, and Healthcare Improvement
Act'' (H.R. 3016): https://www.congress.gov/bill/114th-congress/house-
bill/3016/text.
Round Down Annual Cost-of-Living Allowance to the Next
Lower Whole Dollar. This option would require VA to round down
increases in the monthly compensation rate resulting from an
annual cost-of-living adjustment [COLA] to the next lower whole
dollar. The VA would apply this round down to both disability
compensation and dependency and indemnity compensation
payments. A similar requirement expired at the end of 2013 and
this budget option recommends a reinstatement of this policy.
This policy recommendation is also included in President
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Trump's fiscal year 2018 budget request.
Reform Chapter 33, Post-9/11 GI Bill, Monthly Housing
Allowance Rate. Under current law, the Post-9/11 GI Bill
housing allowance is based on the Department of Defense monthly
housing allowance [MHA] for a service member in pay grade E-5
with dependents.\155\ The housing allowance is equal to the MHA
payment for the military housing area in which the institution
of higher learning is located, and reduced according to the
beneficiary's enrollment rate.\156\
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\155\Section 403 of title 37 (The E-5 with dependents BAH is the
monthly basic allowance for housing for a member of the Armed Forces
with dependents in pay grade E-5) and subsection (B)(i)(I), Section
3313 of title 38.
\156\Cassandria Dortch, The Post-9/11 Veterans Educational
Assistance Act of 2008 (Post-9/11 GI Bill): Primer and Issues,
Congressional Research Service, 28 July 2014.
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The current Post-9/11 GI Bill policy for MHA payment does
not take into account that not every Post-9/11 GI Bill
beneficiary has a dependent. The Post-9/11 GI Bill is the only
Federal program to pay individuals with a dependent who do not
warrant such a payment (e.g., Active Duty MHA and IRS filings).
The Post-9/11 GI Bill MHA should be aligned with other federal
programs. This budget option recommends a change to the current
policy to require that beneficiaries verify their dependent to
collect Post-9/11 GI Bill BAH at the E-5 with dependent pay
rate. Should the beneficiary be unable to verify their
dependent, they will be paid at E-5 without dependent pay rate,
and dependents will be paid at the E-5 without dependent pay
rate. This budget recommendation also assumes beneficiaries who
were enrolled before enactment would not be affected by any
policy change.
ADMINISTRATION OF JUSTICE
Function Summary
While freedom is Americans' most cherished possession,
their personal safety and equal protection under the law are
instrumental in securing it. Therefore, over the Nation's
history, States, localities, and the Federal Government have
written laws and established institutions to ensure their
enforcement. As in so much of the American system, States and
localities are better suited to enforcing laws of more local or
regional character. The Federal Government's main role is to
address security issues that affect the entire Nation, such as
terrorism and border security. Yet vast amounts of Federal
resources are shipped back to the States and localities they
came from, typically with strings attached by domineering
Washington bureaucracies.
The ongoing risk of domestic terrorism, and the tidal wave
of government debt, call for better targeting of Federal law
enforcement funds. Federal tax dollars for the Department of
Justice [DOJ] and the Department of Homeland Security [DHS]
should be focused on administering justice, arresting and
prosecuting terrorists, protecting and securing the Nation's
borders, investigating Federal crimes, and seeking punishment
for those guilty of unlawful behavior. Local law enforcement,
in contrast, is the responsibility of the States and local
communities, and they should determine the best course of
action in deterring local crime.
In 2016, the Federal Government provided States and
localities with more than $666 billion in grants.\157\ Of that
amount, $2.4 billion went to three agencies in the Department
of Justice: the Office of Justice Programs, the Office on
Violence Against Women, and the Community Oriented Policing
Services Office. The Government Accountability Office reported
in 2012 that many of DOJ's roughly 11,000 annual grants are
awarded without consideration of overlap or duplication with
other grant programs, and that DOJ should better target its
grants. GAO's 2015 update of that report states that DOJ had
only partially addressed this area of potential
duplication.\158\ In former President Obama's last budget
proposal, Washington was to award $7.2 billion in total justice
and homeland security grants to State and local governments. It
is not the function of the Federal Government to finance State
and local governments. Federal law enforcement needs to focus
on its core responsibilities. The Executive Branch needs clear
guidance from Congress in facing the Nation's continuing
security threats.
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\157\Government Accountability Office, DOJ Grants Management:
Justice Has Made Progress Addressing GAO Recommendations, testimony
before the House Oversight and Government Reform Subcommittee on
Government Operations, 14 July 2016.
\158\Government Accountability Office, 2015 Annual Report:
Additional Opportunities to Reduce Fragmentation, Overlap, and
Duplication and Achieve Other Financial Benefits, April 2015, p. 209:
http://www.gao.gov/assets/670/669613.pdf.
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The principal activities in this category (Function 750 in
the summary tables) include Federal law enforcement programs,
litigation and judicial activities, correctional operations,
and border security. The function includes most of the
Department of Justice and several components of the DHS. Other
agencies funded here include the Federal Bureau of
Investigation [FBI]; the Drug Enforcement Administration; the
Bureau of Alcohol, Tobacco, Firearms and Explosives; the United
States Attorneys; legal divisions within the Department of
Justice; the Legal Services Corporation; the Federal Judiciary;
and the Federal Bureau of Prisons.
The vast majority of this category's funding is
discretionary, provided by the Appropriations Subcommittees on
Commerce, Justice, Science and Related Activities, and Homeland
Security. The Committee on the Judiciary and the Committee on
Homeland Security have the main authorizing duties. The
resolution calls for $54.0 billion in discretionary budget
authority and $55.2 billion in outlays for fiscal year 2018.
The small amount of direct spending in the category--which
funds certain immigration activities, the Crime Victims Fund,
the Assets Forfeiture Fund, and the Treasury Forfeiture Fund,
among others--totals -$2.6 billion in budget authority and $5.9
billion in outlays for fiscal year 2018. The 10-year totals for
the function are $628.6 billion in budget authority and $637.8
billion in outlays.
TERRORISM
In the 16 years since 9/11, Americans have grown accustomed
to living in an environment of enhanced security. Airports,
government buildings, major sporting venues, and myriad other
public facilities now feature the instruments of vigilance that
have become necessarily common. Yet despite these measures,
terrorism continues to lurk in the shadows, striking out all
too unexpectedly--from San Bernardino to Orlando, Chattanooga
to the campus of Ohio State University. Terrorists need to
succeed only once to inflict their damage; the vigilance needed
to stop them must be tireless and ongoing. Yet this must not
entail any sacrifice of personal freedoms so easily at risk in
today's high-technology environment. The words of the Fourth
Amendment are unconditional: ``The right of the people to be
secure in their persons, houses, papers, and effects, against
unreasonable searches and seizures shall not be violated * *
*'' [emphasis added].
IMMIGRATION AND BORDER SECURITY
The ongoing debate over America's troubled immigration
processes demonstrates the numerous vexing challenges in
addressing the issue. All too often, the current system rewards
those who enter the United States illegally, while doing little
to recognize those who spend years waiting in line to immigrate
properly. While specific immigration policies debated in
previous years provided for semi-legal protections for
undocumented residents already present within the United
States, comprehensive reforms must make security a paramount
concern. Whether it is enhanced protection, increased
enforcement, or more robust cooperation between Federal and
local jurisdictions, immigration reform policies cannot proceed
until all Americans have confidence in the security of the
Nation's borders.
SANCTUARY CITIES
A ``sanctuary city'' is one that has adopted a policy of
protecting undocumented immigrants, which runs contrary to
Federal immigration law. These cities not only fail to
prosecute violations, in specific situations they have enabled
criminal activity. As stated by Immigration and Customs
Enforcement [ICE]: ``A significant factor impacting removal
operations has been the number of state and local law
enforcement jurisdictions that have limited or declined
cooperation with ICE, due to the enactment of numerous state
statutes and local ordinances reducing and/or preventing
cooperation with ICE, in addition to federal court decisions
that created the perception of liability concerns for
cooperating law enforcement agencies. Declined detainers result
in convicted criminals being released back into U.S.
communities with the potential to re-offend. Moreover, they
draw resources away from other ICE efforts to protect public
safety, by requiring ICE to expend additional resources to
locate and arrest convicted criminals at-large rather than
safely taking custody of such individuals in jails.''\159\
President Trump has criticized such ``sanctuary cities'' and
has pledged to defund them. Withholding Federal funds from
these cities may be initiated by placing an amendment in the
Commerce, Justice, and Science Appropriations bill that blocks
grants from the Department of Justice to local law enforcement
agencies that engage in sanctuary practices. Congress could
take action on one or both of the following pieces of
legislation introduced in the 115th Congress. H.R. 83, the
``Mobilizing Against Sanctuary Cities Act'', would prohibit a
State or local government from receiving Federal funds for a
minimum of one year if it interfered with immigration laws.
Similarly, H.R. 3003, the ``No Sanctuary for Criminals Act''--
cosponsored by Representatives Goodlatte (R-VA), King (R-IA),
and Biggs (R-AZ)--restricts sanctuary jurisdictions from
receiving Federal law enforcement grants while protecting
jurisdictions who comply with immigration law from being sued.
The bill also has the potential to decrease government spending
and lower the deficit by as-yet-undetermined amounts, according
to the Congressional Budget Office.
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\159\Department of Homeland Security, DHS Releases End of Fiscal
Year 2016 Statistics, 30 December 2016: https://www.dhs.gov/news/2016/
12/30/dhs-releases-end-year-fiscal-year-2016-statistics.
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THE JUDGMENT FUND
The Judgment Fund was created in 1956 to pay judgments and
settlements of lawsuits against the Federal Government. The
fund is a permanent appropriation, and payments do not require
congressional notification or approval. Simply put, it is a
limitless bank account shielded from congressional oversight.
Due to the fund's design, the Obama Administration was able
to pay billions of dollars in interest payments to Iran,
sidestepping Congress. On 17 January 2016, the State Department
announced the U.S. Government agreed to pay the Iranian
government $1.7 billion to settle a case related to the sale of
military equipment prior to the Iranian revolution, and $1.3
billion was sourced through the Judgment Fund.
The Obama Administration's ability to unilaterally draw
from the fund for its agenda without congressional oversight or
approval illustrates the fund's inherent structural flaws.
Several long-term solutions are available for consideration
that would reassert Congress's Article I power of the purse,
reining in automatic spending that currently occurs through
this program, and closing the administrative loophole. Congress
could require a Joint Resolution of Approval for any sum of
payments over a certain amount, increased transparency, and
agency reimbursements to the fund over a fixed time period.
Short-term solutions include H.R. 1096 and S. 565, the
``Judgement Fund Transparency Act of 2017'', which requires to
the Department of the Treasury to publically disclose details
after payments are made.
Illustrative Policy Options
In developing policies to meet their budget targets, the
committees of jurisdiction cited above should give priority to
those activities that are essential for the Federal Government.
This does not necessarily require more funding in each area; it
means addressing those Federal responsibilities first. The
committees have sole authority in determining the policy
choices and priorities in these areas. The discussions below
are illustrative, intended to indicate policy options or
directions the committees might consider.
DISCRETIONARY SPENDING
Consolidate Justice Grants. In fiscal year 2016, DOJ
awarded $2.4 billion in grants to conduct research, provide
training assistance, and support the State and local criminal
justice system. The Congressional Research Service and GAO have
identified overlap and duplication within many of these grant
programs, and it is clear they fund law enforcement activities
that are primarily State and local responsibilities. In
addition, Federal grants should not be awarded to State and
local law enforcement agencies unless they comply with the
Federal law. This includes jurisdictions that refuse to honor
Federal detainers, harbor illegal aliens, or fail to share
information on criminal illegal aliens. This option streamlines
grants into three categories--first responders, law
enforcement, and victims--while eliminating waste,
inefficiency, and bureaucracy.
Eliminate Unnecessary Headquarters and Construction Funding
for DHS, DOJ, and the Judiciary. Construction funding for
various agencies within this budget function have increased
without due oversight and cost-benefit analysis, though the
committees of jurisdiction have focused on addressing cost
overruns and increasing accountability. This budget recommends
reducing DHS and DOJ construction budgets by 15 percent to rein
in unnecessary construction projects, exempting those agencies
involved with border security and immigration enforcement. The
budget recommends additional scrutiny of cost overruns of DHS's
St. Elizabeth's project, the largest Federal building project
in the District of Columbia since the Pentagon. Another major
concern is the mishandling of taxpayer funds by the General
Services Administration for giving priority to green energy
projects over security and life safety issues at Federal
courthouses. The renovation of the Poff Federal Building is a
prime example of this wasteful spending. A sum of $51 million
was used to make this building more energy-efficient, money
that was critically needed to address security and public
safety at other sites.
Eliminate the Legal Services Corporation. It is the duty of
State and local governments to provide legal services to those
individuals unable to provide it for themselves. Local
jurisdictions are more aware of their citizens' needs and can
provide more responsive service than the Federal Government.
Critics have argued that despite restrictions already in place,
the Legal Services Corporation too often focuses on social
activist causes rather than advocating for those persons
needing legal help the most.
DIRECT SPENDING
Permanently Extend Customs User Fees. Continuing the policy
of the ``Emergency Unemployment Compensation Extension Act of
2014'', the budget assumes the Bureau of Customs and Border
Protection continues to collect customs user fees through
fiscal year 2027, the last year of the budget window. With the
passage of the ``Emergency Unemployment Compensation Extension
Act of 2014'', authority to collect these fees expires in 2024.
The Bipartisan Budget Agreement of 2015 extended customs user
fee collections through 2025. This budget assumes making these
customs user fees permanent.
GENERAL GOVERNMENT
Function Summary
As government strives to make its programs more effective
and efficient, it must also do so with its own internal
operations. One cannot be achieved without the other. Yet this
has not been the case with many of the Federal Government's
agencies. Funding in the category of General Government
(Function 800 in the summary tables) has increased by roughly
30 percent in the past 10 years, but no one would contend the
additional resources have yielded commensurate gains in
productivity or effectiveness. Across the Nation, startups and
existing companies continue to innovate, replacing outdated
business practices and sectors of industry, but the Federal
Government remains entrenched in bloated bureaucracies, legacy
technology, and obsolete procedures. To respond to the Nation's
needs in the 21st Century, the Federal Government must
constantly improve operations, remove practices that stand in
the way of innovation, and maximize the return on taxpayers'
dollars. To this end, the budget resolution aims to eliminate
waste across all Federal Government branches and agencies, and
provide resources for necessary reforms to all facets of
government operations. If a program or activity is poorly
targeted, ineffective, duplicative of other efforts, requires
updated technology, or could be better performed by the private
sector, it is a candidate for elimination or restructuring.
This budget category mainly provides funding for the
Legislative and Executive Branches of the Federal Government.
On the legislative side, these funds support the operations of
Congress, including the Congressional Budget Office, the
Library of Congress, and the Government Accountability Office.
In the Executive Branch, the category finances the Executive
Office of the President, including the Office of Management and
Budget, the Council on Environmental Quality, White House
salaries, and White House building repair; general tax
administration and fiscal operations of the Department of the
Treasury (including the Internal Revenue Service); the Office
of Personnel Management; the real-property and personnel costs
of the General Services Administration; general-purpose fiscal
assistance to States, localities, the District of Columbia, and
U.S. territories; and other general government activities.
Most of this funding comes through annual appropriations
(discretionary spending), which in fiscal year 2018 totals
$15.9 billion in budget authority and $15.5 billion in outlays.
Budget authority for direct spending in this area will total
$7.7 billion, with $7.6 billion in accompanying outlays. Over
10 years, the budget anticipates $248.5 billion in total budget
authority and $245.8 billion in outlays.
Illustrative Discretionary Spending Policy Options
While specific policy decisions are entirely under the
authority of the committees of jurisdiction--which include the
Committees on Transportation and Infrastructure, House
Administration, Ways and Means, Natural Resources, and
Oversight and Government Reform--the discussion below offers
illustrative options they might consider. Funding for Federal
operations and property management are just a few areas where
savings should be achieved. This resolution also urges the
Office of Management and Budget and relevant agencies to make a
top priority of implementing the data aggregation and
transparency initiatives in the ``Digital Accountability and
Transparency Act'', as well as information technology upgrades
and the retirement of legacy systems via the Technology
Modernization Fund provided by the ``Modernizing Government
Technology Act of 2017''. The budget resolution also supports
the House Majority Leader's ``Innovation Initiative'', focusing
on modernizing the information and technology systems within
the Federal government to bring about greater efficiency and
efficacy.
Some specific options worthy of consideration are described
below.
Terminate the Election Assistance Commission. This
independent agency was created in 2002 as part of the ``Help
America Vote Act'' to provide grants to States to modernize
voting equipment. Its mission has been fulfilled. The National
Association of Secretaries of State, the association of State
officials responsible for administering elections, has passed
resolutions stating the Election Assistance Commission [EAC]
has served its purpose, and funding is no longer necessary. The
EAC should be eliminated and any valuable residual functions
should be transferred to the Federal Election Commission.
Accompany Pro-Growth Tax Reform with Responsible Reductions
to the Internal Revenue Service. The Internal Revenue Service
[IRS] has nearly 90,000 employees and spends in excess of $12
billion annually. Additionally, the Internal Revenue Code now
contains approximately four million words, and each year
taxpayers and businesses spend more than six billion hours
complying with filing requirements.\160\ The investigation
related to the IRS targeting American citizens demonstrates
that the massive budget has not resulted in better service to
taxpayers; rather, it has created a bloated bureaucracy filled
with inefficiency and abuse. A simplified tax code would have
the dual benefits of reducing both the time taxpayers devote to
complying with an overly complex code, and the taxpayer dollars
needed to administer and enforce it.
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\160\National Taxpayer Advocate, 2016 Annual Report to Congress,
December 2016.
Make More Efficient Use of Legislative and Executive Branch
Resources. The budget for the House of Representatives today is
$188 billion less than it was when Republicans assumed the
majority in 2011. This budget resolution aims to scale back
government wherever it has expanded needlessly or beyond its
proper role. That includes within government operations and
offices themselves. It also could include reforms such as
scaling back pensions of former U.S. presidents--recognizing
their ability to support themselves primarily through other
means of employment--while providing for their security and
pensions for any surviving spouses. The resolution recommends
treating the Legislative and Executive Branch appropriations
the same as other Federal agencies and programs, and paring
costs where possible. As taxpayers are required, at times, to
do more with less, so too must Congress and the Executive
Branch. The budget supports cost-cutting efforts and reforms
that require better priority-setting for Legislative and
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Executive Branch funds.
Further Consolidate Federal Data Centers. This budget
supports the bipartisan Federal Data Center Consolidation
Initiative, which was created in 2010 to reverse the widespread
escalation of Federal data center construction, acquisition,
management, and maintenance. By increasing efficiencies and
continued efforts to incorporate cloud computing technologies,
the Federal government can significantly decrease taxpayer
spending on underused infrastructure.\161\
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\161\Chief Information Officer [CIO], Federal CIO Council, ``Data
Center Consolidation and Optimization'': https://cio.gov/drivingvalue/
data-center-consolidation/.
Modernize Federal Information Technology. OMB and multiple
agencies could help the Federal Government realize savings by
strengthening oversight and taking steps to implement H.R.
2227, the ``Modernizing Government Technology Act of 2017''.
This bipartisan-supported process provides agencies with the
ability to upgrade their information technology investments
through a Technology Modernization Fund.\162\ This budget
supports the work of the White House Office of American
Innovation, a group of private sector and administration
officials responsible for updating the technology and data
infrastructure of the Federal Government. The President's
executive order establishing the American Technology Council is
also a welcome move to create a resource of data and IT
infrastructure innovation for the Federal Government. Regarding
previous measures, OMB launched the PortfolioStat initiative in
2012, to maximize the return on IT investments across the
Federal Government's portfolio. Nevertheless, the Government
Accountability Office has listed a variety of IT reforms from
various agencies that need of attention. The following examples
were identified in the testimony of Gene L. Dodaro, Comptroller
General, before the Committee on the Budget on 3 May 2017.\163\
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\162\The ``Modernizing Government Technology Act of 2017'' (H.R.
2227) 28 April 2017.
\163\Gene L Dodaro, Comptroller General of the United States,
testimony before the Committee on the Budget, U.S. House of
Representatives, 3 May 2017.
Department of Defense contract management for
information technology. GAO has found that DOD department
components have employed strategic sourcing for only 10 percent
and 27 percent of their $8.1 billion IT service contracts.
Strategic sourcing is an approach to supply chain management
that allows organizations to use information to leverage their
consolidated purchasing power, thereby realizing the best
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values in the marketplace.
The Department of Veterans Affairs outdated
financial IT systems. While the VA has examined options to
upgrade its financial systems and IT infrastructure, GAO has
raised concerns regarding the fiscal year 2020 completion date
and the amount of resources required to implement the
transition.
OMB's PortfolioStat initiative. GAO has provided
OMB with several recommendations regarding the transparency and
accountability of the initiative. While OMB has taken steps to
publicly disclose planned and actual data consolidation
efforts, OMB needs to improve its ability to track planned cost
savings and cost avoidance figures.
The Federal Government's geospatial investments.
While the government collects, manages, and uses a variety of
geospatial information to assist and aid in decision-making
across the Federal Government, GAO has recommended to OMB that
better coordination and data sharing among agencies could
eliminate duplicative spending on similar geospatial
information systems and IT investments, and achieve annual
savings of billions of dollars.
GOVERNMENT-WIDE POLICY
Function Summary
A number of policies assumed in the budget resolution cut
across agencies or functional categories, and have government-
wide effects. These include changes in the Federal civilian
workforce or reductions in the government's improper payments.
For ease of understanding, the budget resolution employs this
category, Government-Wide Policy, to describe these
assumptions. For fiscal year 2018, the resolution calls for
$34.1 billion in budget authority and $2.8 billion in outlays.
The 10-year totals for budget authority and outlay savings are
-$1.4 trillion and -$1.3 trillion, respectively. (The figures
appear in Function 930 in the summary tables.) As is true
elsewhere, specific policies will be determined by the
appropriate committees of jurisdiction.
Illustrative Policy Options
The options discussed below are for illustrative purposes
only. The committees of jurisdiction will determine actual
policy changes, and they have maximum flexibility in deciding
what those policies are.
DISCRETIONARY SPENDING
The total base discretionary budget authority for fiscal
year 2018 assumed in the resolution is $1.132 trillion. The
resolution calls for approximately $60.0 billion in fiscal year
2018 non-defense discretionary savings in several budget
functions should Congress choose to enact additional deficit
reduction for that year. Because these additional savings would
cause the resolution to display a lower total base
discretionary level than contemplated in the resolution, $60.0
billion in non-defense discretionary spending is added back to
Function 930 to make the total budget resolution base
discretionary level match the amount specified.
Additional illustrative savings options, of a government-
wide nature, are presented below.
Reduce the Federal Civilian Workforce Through Attrition.
The budget assumes discretionary savings through a 10-percent
reduction in certain agencies of the Federal civilian workforce
through attrition. Under the assumed strategy, the
administration would be permitted to hire one employee for
every three who leave government service. National security
positions would be exempt.
Reform Civil Service Pensions. The policy described in the
Income Support, Nutrition, and Related Programs section of this
report would increase the share of Federal retirement benefits
funded by the employee. This policy has the effect of reducing
the personnel costs for the employing agency. The budget
assumes savings from a reduction in agency appropriations
associated with the reduction in payments that agencies make
into the Civil Service Retirement and Disability Fund for
Federal employee retirement.
Implement Federal Transition to Shared Services. ``Shared
Services'' is a proven, ``best practice'' business model, in
both the public and private sectors, for delivering common
administrative services (e.g., human resources, financial
management, acquisition, supply chain, IT services, and so on).
The shared services approach allows a government enterprise to
offer customer agency services from third-party service
providers with high-capacity platforms. These providers can
serve multiple agencies more cost-effectively than if the
individual agencies operated the same services themselves in-
house. After decades of evolution, shared services has become
the delivery model of choice for common business transactions
in leading public- and private-sector organizations throughout
the world. Global experience demonstrates typical cost savings
of 25 percent to 45 percent, and significant service
improvements through leveraging economies of scale and skill
over decentralized or self-service models. The advent of
``cloud'' technologies is creating ever-increasing
opportunities to drive ``commodity'' transactions to shared
service business platforms.
Shared services, also known as ``line of business''
modernization, has been under way in the Federal Government for
several decades, with support from administrations of both
parties. Nevertheless, progress has been extremely slow and
disjointed across administrations and the 24 Chief Financial
Officers Act (1990) departments and agencies. The leading
success story to date has been payroll shared services, but it
took more than 25 years to consolidate from dozens of agency-
specific arrangements to today's four government-wide
platforms.\164\ The Office of Personnel Management has
estimated cumulative savings of $1.6 billion to date from
payroll consolidation\165\--but the government has only
scratched the surface of the full potential across the entire
Federal back office.
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\164\The four Federal payroll providers are: USDA's National
Finance Center; the Interior Business Center; the Defense Finance and
Accounting Service; and the General Services Administration.
\165\Office of Personnel Management, HR Line of Business: FY 2011
Cost Benefit Analysis Report, May 2012.
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A report published by the non-partisan Partnership for
Public Service in 2015 estimated Federal agencies spend about
$125 billion per year on their individual back offices, and
that full implementation of shared services across these common
functions could produce savings of nearly $50 billion by
eliminating wasteful duplication and improving efficiency.\166\
The Shared Services Roundtable's cost savings estimate was
endorsed in a report issued by the Technology CEO Council in
January 2017.\167\ Shared services can not only improve
efficiency and effectiveness, but can also enable improved
transparency, accountability and a more secure cyber
environment in government business operations.
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\166\Partnership for Public Service, Shared Services Roundtable,
``Building a Shared Services Marketplace,'' March 2015.
\167\Technology CEO Council, ``The Government We Need,'' January
2017.
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DIRECT SPENDING
Reduce Improper Payments/Program Integrity. This budget
calls for program integrity savings by assuming that Continuing
Disability Reviews and Supplemental Security Income
Redeterminations are fully funded and that additional steps are
taken to reduce improper payments in Medicare, Medicaid,
Unemployment Insurance [UI], the Earned Income Tax Credit
[EITC], and other programs (see the separate discussion of
improper payments elsewhere in this report). By ensuring all
benefits are targeted toward the appropriate households, this
budget will reduce fraud and improper payments in these
programs.
``Improper payments'' are defined as any government payment
made in an incorrect amount (mostly overpayments), to the wrong
individual or entity, or for the wrong reason. According to the
Government Accountability Office, these payments totaled a
stunning $144.3 billion in 2016, up from $107.1 billion in
2012. Worse, this figure likely understates the full extent of
the problem; 18 government programs deemed susceptible to
improper payments did not even submit error estimates last
year, according to GAO. Thus, the estimated total may very well
represent a floor rather than a ceiling.\168\
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\168\Government Accountability Office, briefing to the House Budget
Committee, 29 March 2017.
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These payment errors occur widely throughout government,
including 112 government programs across 22 agencies, GAO
reports. More than 75 percent of the problem, however, lies
with three large programs: Medicare, Medicaid and the Earned
Income Tax Credit [EITC]. In fact, the EITC program has an
estimated payment error rate of 24.0 percent, meaning that
nearly one in four dollars that leaves the Treasury for this
program is deemed to be incorrect. Other notable government
programs with improper payment problems include UI, Direct
Student Loans, and the National School Lunch Program. One
example of an improper payment would be a UI check going to
someone who has already returned to work. Another example would
be an EITC payment going to an individual who has earned income
above the program's qualifying amount.\169\
---------------------------------------------------------------------------
\169\Ibid.
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Since 2002, Congress has passed several legislative
measures to address the problem, with little tangible success.
This is an issue the Budget Committee intends to pursue
aggressively in the future under the leadership of
Representative Palmer (R-AL) and other Committee members. The
Committee believes those departments and agencies that cannot
decrease the amount of improper payments should be held
accountable for their inability to stop these inappropriate
expenditures. The Budget Committee will work with the
appropriations and authorizing committees exploring numerous
ideas to effectively address this problem.
GAO reported that agencies continue to face difficulties in
reducing improper payments. In addition, GAO found that sharing
death data can help prevent improper payments to deceased
individuals or those who use deceased individuals' identities,
but the Social Security Administration has trouble maintaining
these data, and other Federal agencies face difficulty
obtaining them.\170\
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\170\Government Accountability Office, ``Improper Payments,
Government-Wide Estimates and Use of Death Data to Help Prevent
Payments to Deceased Individuals,'' testimony before the U.S. Senate
Committee on Homeland Security and Governmental Affairs, 16 March 2015:
http://www.gao.gov/assets/670/669026.pdf.
Align the G-Fund Investment Return with an Appropriate Risk
Profile. The resolution assumes savings by correctly aligning
the rate of return on U.S. Treasury securities within the
Federal Employee Retirement System's Thrift Savings Plan with
its investment risk profile. Securities within the G-Fund are
not subject to risk of default. Payment of principal and
interest is guaranteed by the U.S. Government. Yet the interest
rate paid is equivalent to a long-term security. As a result,
those who participate in the G Fund are rewarded with a long-
---------------------------------------------------------------------------
term rate on what is essentially a short-term security.
Assume Savings in Budget Control Act Continue. The BCA
established an automatic enforcement mechanism--commonly known
as a sequester--to ensure a promised level of savings from that
law was actually realized. These savings were first implemented
in 2013 and are scheduled to last through 2025. The resolution
proposes to extend the savings created by the BCA through 2027,
although the budget calls on Congress to replace the automatic
sequester with specific, targeted reforms.
Domestic Priorities
----------
The budget resolution provides funding for a range of
priority activities and services that are domestic in nature.
Although all of them have national importance--that is why they
appear in the Federal budget in the first place--they bear a
special connection to the States and localities that constitute
the Nation, as well as the vast array of non-government
institutions throughout the country. K-12 education, for
instance, is a quintessentially local priority. Because most
Americans do most of their traveling in or near their own
communities, their own roads and bridges are a fundamental
local concern. Health care is provided mainly through local
hospitals and private physicians. All these activities, and
many others, would exist even if there were no Federal
Government. Washington did not create them; States and
localities and the private sector did. The concept on which
America was founded--commonly known as federalism--recognizes
that fact, and encourages the diversity of approaches best
furnished by layers of government or non-government
institutions closer to the people served. In grouping these
activities together, the discussion below seeks to recognize
the initiative of States and localities in finding new, better,
and more efficient ways to provide these services. The Federal
Government can assist these efforts through judicious
allocation of supporting resources.
The activities presented here are mainly the discretionary
spending components in Function 250 through 650 in the
conventional budget format. In two areas, however--Energy
(Function 270) and Transportation (Function 400)--both the
discretionary and direct spending components are presented.
This is because in these areas, the two forms of spending are
intertwined in ways unlike those of other functional
categories. In Energy, for example, what appears as
``negative'' direct spending mainly reflects the incoming
repayment of loans and receipts from the sale of electricity
produced by Federal entities, as well as rescissions of
unobligated balances in green energy loan programs. These are
fundamentally different from most direct spending, which
applies to government benefit programs. Transportation has a
split treatment of its funding. Its budget authority is a kind
of mandatory spending called contract authority, while its
outlays--controlled by annual limitations on obligations set in
appropriations acts--are treated as discretionary spending; the
two cannot really be separated.
GENERAL SCIENCE, SPACE, AND TECHNOLOGY
Function Summary: Discretionary Spending
The largest component of this category--about half its
total spending--is for the space-flight, research, and
supporting activities of the National Aeronautics and Space
Administration [NASA]. The function also contains general
science funding, including the budgets for the National Science
Foundation [NSF] and the Department of Energy's Office of
Science.
The budget reduces questionable and unjustified spending,
while supporting core government responsibilities. The
resolution provides stable funding for NSF to refocus on
priority basic research in the Mathematical and Physical
Sciences, Engineering, Computer and Information Science, and
the Biological Sciences. As part of the criteria in the just-
enacted ``American Innovation and Competitiveness Act,'' the
NSF needs to restore its grant making process to better align
with one national interest, and remain accountable to the
American public.\171\ The budget provides continued support for
NASA and recognizes the vital strategic importance of the
United States remaining the preeminent space-faring nation.
This budget aligns funding in accordance with NASA's core
principles: to support robust space capability, to allow for
exploration beyond low Earth orbit, and to support the Nation's
scientific and educational base.
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\171\The ``American Innovation and Competitiveness Act'' (Public
Law 114-329): https://www.congress.gov/bill/114th-congress/senate-bill/
3084.
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The budget resolution also calls for consistent funding for
the basic research programs in the Department of Energy Office
of Science. The Office of Science is the lead Federal agency
for basic research in the physical sciences, and hosts more
than 30,000 researchers per year at national laboratories and
user facilities across the country. The fundamental research
conducted by the Office of Science has provided the foundation
for groundbreaking discoveries about the universe, innovative
new technologies, and private sector achievements. In
particular, this budget resolution will give priority to the
Department of Energy's science infrastructure to ensure
American leadership in scientific discovery.
The vast majority of this category's funding is
discretionary, provided by the House Committee on Science,
Space, and Technology and the Appropriations Subcommittee on
Commerce, Justice, Science, and Related Activities. The
resolution calls for $28.4 billion in discretionary budget
authority and $30.0 billion in outlays in fiscal year 2018. The
10-year totals for discretionary budget authority and outlays
are $313.3 billion and $307.5 billion, respectively.
Illustrative Discretionary Spending Policy Options
The committees of jurisdiction will determine policies to
align with the spending levels in the resolution. They have
complete authority to make those determinations, and maximum
flexibility in doing so. The options below are offered as
illustrations of the kinds of proposals that can help meet the
budget's fiscal guidelines.
Restore Core Government Responsibilities. Spending in
research and development between NASA and the NSF is projected
to reach $16.3 billion in 2017.\172\ The resolution's levels
support preserving the Federal scientific community's original
role as a venue for groundbreaking discoveries and a driver of
innovation and economic growth. It responsibly pares back
applied and commercial research and development and areas of
wasteful spending that do not provide a high return on taxpayer
resources. The proper role of the Federal Government is to
support basic research, and funding should be distributed
accordingly. For example, the NSF needs to be more transparent
and accountable to the taxpayer. Every grant issued should be
accompanied by an explanation of the project's scientific
merits and how it serves the national interest as prescribed in
the recently enacted American Innovation and Competitiveness
Act. NSF-funded studies--such as a $300,000 grant to study
whether girls are more likely to play with Barbie dolls than
boys,\173\ $40 million investigating social media's obsession
with Ebola, coined ``Fearbola,''\174\ $565,000 to study how
long Mudskipper Fish could run outside the water,\175\ and a
$450,000 project to study whether dinosaurs had the ability to
sing\176\--do not serve a vital national interest. Funding for
these programs and similarly wasteful or low-return social and
behavioral studies should be redirected to scientific research
that better serves the national interest.
---------------------------------------------------------------------------
\172\Office of Management and Budget, Budget of the U.S.
Government--Fiscal Year 2017: Historical Tables, Table 9.8: Outlays for
Research and Development: https://obamawhitehouse.archives.gov/omb/
budget/Historicals.
\173\Senator Jeff Flake, Wastebook: The Farce Awakens, December
2015, p. 62.
\174\Ibid., p. 106.
\175\Ibid., p. 17.
\176\Ibid., p. 72.
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Similarly, spending for Biological and Environmental
Research within the DOE Office of Science has eclipsed $600
million per year. While much of the research conducted within
the Office of Science is critical basic research in the
physical sciences, using taxpayer dollars allocated for basic
science research on duplicative climate change research is not.
The previous administration also neglected programs within the
core mission of the Department at BER, like the Low Dose
Radiation Research Program, in order to fund climate change
programs.
Finally, NASA's spending on earth science has increased
significantly in recent years, almost doubling, while funding
for other activities have remained flat or decreased. This
spending should return to previous funding levels so NASA can
maintain a balanced portfolio of activities by reconstituting
NASA's unique capabilities in Exploration, Planetary Science,
Astrophysics, Heliophysics, and Aeronautics.
Reduce Expenses for the Department of Homeland Security's
Directorate of Science and Technology. The budget recommends
reductions in management and administrative expenses for the
Department of Homeland Security's Directorate of Science and
Technology, while shifting funding to frontline missions and
capabilities.
ENERGY
Function Summary
Regulations placed on the private sector paired with ill-
advised investments have hampered the Nation's ability to
effectively address its energy security needs. The government
continues to pick winners and losers in energy markets, hoping
that flooding money into politically connected private
companies to deploy energy technology will produce greater
results than getting the government out of the way for
innovators. The Department of Energy [DOE] has an exemplary
track record in the basic research that facilitates technology
development led by the private sector. When limited Federal
research dollars are used to fund loans, loan guarantees,
commercial-scale demonstration projects, or the deployment of
energy technology, there are fewer funds for this basic
research. The fact is, the private sector is better suited to
commercialize and deploy energy technology than the federal
government. The DOE needs to focus on three primary missions;
maintaining and modernizing the national nuclear supply,
environmental cleanup, and the basic research programs that
ensure American leadership in discovery science and energy
security.
The Office of Energy Efficiency and Renewable Energy has
grown by almost 50 percent in the past decade, and is currently
funded at more than the budgets for applied research in nuclear
energy, fossil energy, and electricity combined. In March 2017,
CBO testified before the Energy and Commerce Committee,
concluding that ``energy related R&D; funding by the DOE has had
mixed results.''\177\ CBO found that federal funds are most
cost effective when it supports research that profitable firms
would not take on their own, such as the basic research
conducted by the DOE Office of Science. While there are
certainly benefits to using Federal funds for conducting basic
research, spending on technology deployment, loans and loan
guarantees, and commercial scale-demonstration projects for
technologies that are backed by mature industries in the
private sector is highly questionable.
---------------------------------------------------------------------------
\177\Congressional Budget Office Testimony before Subcommittee on
Energy, Federal Support for Developing, Producing, and Using Fuels and
Energy Technologies, 29 March 2017.
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In addition to significant Federal investment through R&D;
spending, renewable energy receives an overwhelming benefit
through the U.S. tax code. In 2016, energy-related tax
preferences totaled $18.4 billion.\178\ $10.9 billion of this
total was directed towards renewable energy.
---------------------------------------------------------------------------
\178\Ibid.
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The DOE loan and loan guarantee programs are another
example of DOE's intervention in the energy market. The
Department's current loan programs portfolio consists of 34
loans and loan guarantees that total approximately $28 billion
in support of 30 projects.\179\ To date, borrowers have
defaulted on loans for five projects, at a cost of $807 million
to the taxpayer, including two solar manufacturing projects,
two advanced automotive manufacturing projects, and one energy
storage project.\180\
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\179\Government Accountability Office, DOE Loan Programs: Current
Estimated Net Costs Include $2.2 Billion in Credit Subsidy, Plus
Administrative Expenses, GAO-15-438, 7 April 2015: http://www.gao.gov/
products/GAO-15-438.
\180\Ibid., (emphasis added).
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According to the Government Accountability Office, between
2008 and 2014, administrative costs totaled approximately $312
million, or $251.6 million for loan guarantees and $60.6
million for the Advanced Technology Vehicles Manufacturing loan
program, a cost that has been partially offset by the
approximately $196 million in fees collected under the loan
guarantee program in the same period.\181\ GAO estimates that
the total credit subsidy cost (the expected net cost of
subsidizing loans over their duration) for the current
portfolio to be $2.21 billion.\182\
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\181\Ibid.
\182\Ibid.
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Projects that received loan guarantees have also been given
preferential treatment by the previous administration. Abound
Solar, which received $400 million in loan guarantees, was
cited by the Colorado Department of Public Health and
Environment for hazardous waste left from its failed solar
panels.\183\
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\183\Michael Sandoval, ``Bankrupt Abound Solar to Bury Unused Solar
Panels in Cement,'' The Daily Signal, The Heritage Foundation, 26
February 2013.
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Another grant recipient, A123, was given permission to hand
out as much as $3.7 million in bonuses to top executives as a
part of its bankruptcy proceedings.\184\ And in the
Department's most high profile failure, Solyndra, the DOE
Inspector General found that DOE officials had many
opportunities to validate claims of success, but repeatedly
failed to conduct due diligence and ``critically analyze
problematic information that Solyndra had provided to the
Department.''\185\
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\184\Paul Chesser, ``A123's Executives Get Their Richly Undeserved
Bonuses,'' National Legal and Policy Center, 13 November 2012: http://
nlpc.org/stories/2012/11/13/a123s-executives-get-their-richly-
undeserved-bonuses.
\185\Department of Energy Office of the Inspector General, Special
Report: The Department of Energy's Loan Guarantee to Solyndra, Inc. 24
August 2015: http://energy.gov/sites/prod/files/2015/08/f26/11-0078-
I.pdf.
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This is particularly problematic, because unlike the
private sector, in which this company would eventually be held
accountable to its investors for these failures, taxpayers have
no way of holding the Federal Government accountable for each
``investment.''
The Advanced Research Projects Agency-Energy [ARPA-E] is
also a misuse of federal research dollars. ARPA-E was intended
to provide investment in high risk, high reward energy
technologies that are too innovative to gather private
financing. While some of ARPA-E's funding has gone to
innovative technology projects, GAO has found that a
significant portion of ARPA-E awards went to companies that had
already received private sector financing for similar
technologies.
A number of ARPA-E funded projects have also exemplified
the Obama Administration's tendency toward crony capitalism and
the picking of winners and losers in support of its ``green
energy'' agenda, with the winners often conveniently being
supporters of the previous administration's political agenda.
Simply put, the late stage, venture-capital-style funding
allocated through ARPA-E distorts the energy market and extends
far beyond the appropriate role of the Federal Government in
energy R&D.; The new administration should strive to reverse the
Obama agenda.
After eight years, the verdict is in: increased oil and
natural gas production by private sector companies on private
land has made the U.S. the world's number one energy producer.
The world has experienced an energy boom that continues to
drive gas and other energy prices lower. Yet billions of
dollars of government spending has brought the Nation no closer
to cost-effective zero-carbon energy. Instead of prioritizing
the basic research that can lead to technology breakthroughs,
DOE has spent limited research dollars on picking winners and
losers in the energy market. Technological breakthroughs will
continue to occur--such as the combination of horizontal
drilling and hydraulic fracturing that built off early stage
research in the DOE national labs to revolutionize oil and gas
production in the mid-2000s--but the Federal Government must
resist the temptation to intervene at taxpayers' expense.
These collective failures are only made worse by the
failure to dispose of the spent nuclear fuel that is stuck at
the country's nuclear power plant sites. GAO has recently
reported that the Federal Government's environmental liability
is up to $447 billion, compared to $212 billion in 1997.\186\
The Nuclear Waste Policy Act of 1982 obligated the government
to dispose of the spent fuel by 1998, yet nearly 20 years later
the material sits scattered around the country. Taxpayers
remain on the hook for the Federal government's broken
promises. The Obama Administration's negligence concerning the
Yucca Mountain program, the designated disposal site, leaves
our country with a challenging pathway to dispose of the
growing amount of spent nuclear fuel. In the meantime,
taxpayers have already paid more than $4.4 billion to cover the
cost of the government's failed promises,\187\ with a $25-
billion bill coming due in the future.\188\ This will continue
to rise until the government begins meeting these obligations.
---------------------------------------------------------------------------
\186\GAO High-Risk Series: Progress on Many High-Risk Areas, While
Substantial Efforts Needed on Others. February 15, 2017.
\187\CBO testimony before the Subcommittee on Environment and the
Economy, 3 December 2015.
\188\DOE FY16 Agency Financial Report: https://energy.gov/sites/
prod/files/2016/11/f34/DOE_FY2016_AFR.pdf.
---------------------------------------------------------------------------
Last year, the Department of Energy was provided with $29.7
billion, a 6.4-percent increase over the previous year. In
particular, the Office of Energy Efficiency and Renewable
Energy was given a budget of $2.07 billion, an 18-percent
increase since 2013. Many of DOE's national security, defense
and civilian programs, environmental cleanup activities, and
the basic research programs that ensure American leadership in
discovery science and energy security remain worthy of support;
significantly increasing funding for the expedited
commercialization of costly technologies that put taxpayer
dollars at risk is of dubious value.
The Trump Administration is committed to changing how we
handle energy policy. Lowering costs at the pump, maximizing
domestic resources, lessening U.S. dependence on foreign oil,
and eliminating unnecessary regulations on American industry
have been a staple of the President's vision for the country.
He plans to eliminate harmful and unnecessary policies such as
the Climate Action Plan and the Waters of the U.S. rule.
``Sound energy policy begins with the recognition that we have
vast untapped domestic energy sources and reserves right here
in America.''\189\
---------------------------------------------------------------------------
\189\The White House: http://www.whitehouse.gov/america-first-
energy.
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Discretionary spending in this category includes some of
the civilian energy and environmental programs of the
Department of Energy. It also includes funding for the
operations of the Nuclear Regulatory Commission [NRC]. A large
majority of the DOE discretionary budget is allocated to
applied research and development [R&D;], commercialization, and
deployment of energy technologies in renewable energy, energy
efficiency, fossil energy, nuclear energy, and electricity
delivery and energy reliability. Beyond the early stage applied
research that cannot be accomplished by the private sector--
like research in cybersecurity for electrical systems and
nuclear energy research requiring access to controlled nuclear
research reactors--these activities are better left to the
private sector. Spending also includes operations and
maintenance accounts for some of DOE's direct spending
programs, like the Power Marketing Administrations.
According to the National Science Foundation, private
sector companies in the U.S. spent more than $341 billion on
research and development in 2014 (the most recent figures
available).\190\ While these efforts focus on more than energy,
detailed NSF surveys indicate that funding for more efficient
fuel consumption, electric vehicles, energy efficiency, and
fossil fuel R&D; total billions of dollars' worth of private
sector capital per year. As a result, DOE's civilian research
should focus solely on basic research and early stage applied
research of breakthrough, innovative technologies.
---------------------------------------------------------------------------
\190\https://www.nsf.gov/statistics/2016/nsf16315/.
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Direct spending in this category includes the remaining
civilian energy and environmental programs at the DOE. It also
includes the Rural Utilities Service of the U.S. Department of
Agriculture [USDA], the Tennessee Valley Authority, and the
Federal Energy Regulatory Commission. (It does not include
DOE's national security activities, conducted by the National
Nuclear Security Administration, which are in Function 050, or
its basic research and science activities, which are in
Function 250.)
For fiscal year 2018, the budget resolution provides $3.4
billion in discretionary budget authority, with $5.7 billion in
related outlays (shown in Table 2, Function 270). Direct
spending figures (shown in Table 3, Function 270) are -$6.5
billion in budget authority and -$3.1 billion in outlays. The
negative balances reflect the incoming repayment of loans and
receipts from the sale of electricity produced by Federal
entities, which are accounted for as ``negative spending,'' as
well as rescissions of unobligated balances in green energy
loan programs. Over 10 years, the resolution provides
discretionary budget authority of $33.5 billion and $38.0
billion in outlays. Ten-year totals for direct spending are
-$36.8 billion in budget authority and -$44.0 billion in
outlays.
Illustrative Discretionary Spending Policy Options
In the House, discretionary spending energy programs
(Function 270 in Table 2) fall under the jurisdiction of the
Committee on Energy and Commerce and the Committee on Science,
Space, and Technology. Funding for these programs comes from
the Appropriations Subcommittees on Energy and Water
Development, and Related Agencies, and Interior, Environment,
and Related Agencies.
These committees will determine specific policy options to
meet the budget's fiscal guidelines. Nothing in this report
binds the committees to any specific policy direction; they
have complete flexibility in making those determinations.
Nevertheless, a central aim for them to consider is ensuring
private sector capital is not crowded out by government
intervention in the energy market and bureaucratic waste. They
should also seeks to protect taxpayers from poor government
decision-making that wastes Federal dollars, increases energy
prices, and picks winners and losers in the energy market.
Finally, streamlining R&D; activities across the Department of
Energy to prioritize basic and early stage applied research
will increase efficiency, consolidate operations, and reduce
costs, while ensuring American leadership in energy technology
and discovery science. The following illustration reflects this
approach.
Reduce Funding for Commercial Research and Development. The
resolution supports maintaining current funding levels for
basic R&D; activities within the DOE, while significantly
reducing funding for applied R&D.; Focusing on basic R&D; will
allow DOE to zero in on cutting-edge discoveries in the
physical sciences that may lead to major improvements in
society, such as the Internet, while leaving the application,
commercialization, and deployment of new technologies to the
private sector.
Illustrative Direct Spending Policy Options
In the process of transforming policy in this area, the
Committee on Energy and Commerce and the Committee on Science,
Space, and Technology can be guided in part by seeking to
reverse the damage caused by the previous administration's
spending priorities. They can also evaluate each program's
merit by asking two simple questions: If this program did not
exist, would there be a private sector industry or entity that
would fund similar activities? Does this program align with
DOE's mission? Unless the answers are ``no and yes,'' the
program should be viewed as ripe for reform or elimination. The
options below indicate some possible directions the Energy and
Commerce Committee and the Science, Space, and Technology
Committee could take.
Rescind Unobligated Balances from the Stimulus Bill's Green
Energy Programs. The budget recommends rescinding unobligated
balances in DOE's loan portfolio. Since implementation of the
``American Recovery and Reinvestment Act of 2009'', or the
stimulus bill, these programs have spawned numerous failures,
such as Solyndra and Abound Solar. The government cannot undo
the harm that has been done or recover taxpayer dollars from
failed entities. It can, however, reclaim all of the spending
authority the DOE has not yet obligated to ensure that
taxpayers are not exposed to further risk for renewable energy
projects that would not otherwise be market-viable.
Rescind Unobligated Balances from the Title XVII Loan
Guarantee Program. The budget recommends rescinding unobligated
balances in DOE's Title XVII Section 1703 loan guarantee
program. The Department has over $25 billion in remaining loan
guarantee authority, which includes over $12.5 billion in
authority for advanced nuclear energy, $8.5 billion for
advanced fossil energy, and $4.5 billion for renewable energy
and energy efficiency projects.\191\ Despite high-profile
project failures, the office also lacks transparency and has
been slow to implement management recommendations made by the
GAO.\192\ The government must continue to manage the existing
portfolio of loan guarantees, but it should not put additional
tax dollars at risk by issuing new loan guarantees. The Federal
Government should reclaim the remaining spending authority the
DOE has not yet obligated to ensure that taxpayers are not
exposed to further financial risk.
---------------------------------------------------------------------------
\191\U.S. Department of Energy Loan Programs Office, ``Investing in
American Energy.'' March 2016: https://energy.gov/sites/prod/files/
2016/07/f33/DOE-LPO_Email-Update_014_Final_2-Mar-2016.pdf.
\192\Frank Rusco, ``Testimony before the Subcommittees on Energy
and Oversight, Committee on Science, Space, and Technology, House of
Representatives,'' Government Accountability Office, 3 March 2016:
https://science.house.gov/sites/republicans.science.house.gov/files/
documents/HHRG-114-SY20-WState-FRusco-20160302.pdf.
Rescind Unobligated Balances from the ATVM direct loan
program. The budget recommends rescinding unobligated balances
in DOE's Section 136 Advanced Technology Vehicles Manufacturing
[ATVM] direct loan program. Since 2007, DOE has awarded $8.4
billion in loans to five companies (Fisker, Ford, Nissan,
Tesla, and the Vehicle Production Group). Two companies were
unable to continue payments on their loans, resulting in $181
million in losses to the American taxpayers.\193\ DOE has over
$16 billion in remaining loan authority under the ATVM program.
While DOE should continue to provide responsible management and
oversight for the existing loan portfolio, the Federal
Government should rescind the remaining loan authority and
protect the taxpayer from future loss.
---------------------------------------------------------------------------
\193\Department of Energy Loan Program Office, ``ATVM Program
Overview'': https://www.energy.gov/lpo/atvm.
Rescind Funding for Biomass Research and Development. The
Biomass Research and Development program is a joint initiative
of the USDA and DOE intended to ``carry out research on and
development and demonstration of (1) biofuels and biobased
products, and (2) the methods, practices, and technologies, for
the production of biofuels and biobased products.''\194\ In
fiscal year 2016, DOE received $225 million for the Bioenergy
technologies program within the Office of Energy Efficiency and
Renewable Energy in order to accelerate ``the development and
commercialization of cost-competitive technologies'' for
biofuels.\195\
---------------------------------------------------------------------------
\194\Department of Agriculture, ``Biomass Research and Development
Initiative Competitive Grants Program,'' Catalog of Federal Domestic
Assistance: https://www.cfda.gov/index?s=program&mode;=form&tab;=core&id;=
416c795f6d234174f72d346d328d0464.
\195\Department of Energy, ``FY 2017 Congressional Budget Request:
Volume 3,'' February 2016: http://energy.gov/sites/prod/files/2016/02/
f29/FY2017BudgetVolume3_2.pdf.
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Unreasonable mandates in the Renewable Fuel Standard have
already forced private sector gasoline refiners and importers
to spend billions of dollars of their own money to assist
bringing uneconomic biofuels to market. Piling on millions of
Federal dollars only perpetuates the problem and exposes
taxpayers to financial risk. This program is a prime example of
late stage commercialization activities at the Department that
take away funding for basic research at DOE.
Repeal Stimulus-Driven Borrowing Authority Specifically for
Green Transmission. The $3.25 billion in borrowing authority in
the Western Area Power Administration's Transmission
Infrastructure Program provides loans to develop new
transmission systems aimed solely at integrating renewable
energy. This authority was inserted into the 2009 stimulus bill
without the opportunity for debate. Of most concern, the
authority includes a bailout provision that would require
American taxpayers to pay outstanding balances on projects that
private developers fail to repay. The budget recommends the
rescission of the program's unobligated funds, which could save
taxpayers almost a billion dollars.
NATURAL RESOURCES AND ENVIRONMENT
Function Summary: Discretionary Spending
America's heritage thrives on the Nation's stunning
landscapes and resources. Among these are its inspiring parks
and forests, countless species of wildlife, bountiful rivers
and lakes, and land, water, and mineral resources. All call for
responsible stewardship as a moral obligation to today's
generation, and those of the future. It does not require a
domineering Federal Government twisting the aims of
preservation into an excuse for ever more centralized
regulation.
Yet too often this is precisely what happens. As one
example, the primary role of the Environmental Protection
Agency [EPA] is to ensure the air Americans breathe and the
water they drink is clean and unpolluted. Instead, however, the
EPA for too long has viewed itself as an energy policy
authority, regulating low-cost, reliable energy sources out of
the market and mandating increased use of uncompetitive and
less reliable ones. Any EPA funding should require the EPA
Administrator to certify the availability to the public of all
scientific and technical information and data relied on to
support a risk, exposure, limitation, regulation, regulatory
impact analysis, or guidance.
The budget focuses on paring back unnecessary spending used
to carry out overreaching regulatory expansion. It supports the
recent actions taken by Congress and the Executive Branch to
pass ``Congressional Review Act'' [CRA] resolutions of
disapproval, repealing onerous and unnecessary regulatory
barriers that have handcuffed the Nation's economy and its
ability to achieve domestic energy independence. The following
resolutions of disapproval illustrate just a small amount of
the burdensome regulatory overreach that the Obama
Administration attempted to leave in its wake. Nevertheless, a
proactive Congress and Trump Administration have worked
diligently to rein in the regulatory state that has negatively
impacted the lives of everyday Americans.
H.J. Res. 38, the Stream Protection Rule. This
joint resolution nullifies the Stream Protection Rule finalized
by the Department of the Interior's Office of Surface Mining
Reclamation and Enforcement on 20 December 2016. The rule, a
highlight of the Obama Administration's regulatory state,
required more than seven years to finalize and precluded input
from major stakeholders and even State parties that would be
affected. The rule would have prohibited surface mining across
large sectors of the Nation, including Appalachia, and would
have resulted in thousands of lost jobs and economic malaise.
H.J. Res. 44, the Bureau of Land Management's
[BLM] Land Use Planning Rule. This joint resolution nullifies
the rule finalized by the Department of the Interior on 12
December 2016, relating to regulations that establish the
procedures used to prepare, revise, or amend land use plans
pursuant to the ``Federal Land Policy and Management Act of
1976''. The rule, also referred to as the ``BLM Planning 2.0
rule'', was intended to improve BLM's ability to administer
public lands. The reality, however, is that the rule would have
reduced local and State authority to determine the best uses
for public lands in their States. By consolidating authority
over resource management plans with BLM, the rule would have
given Washington bureaucrats sole authority over 175 million
acres of lands in 11 western States.
H.J. Res. 69, the Alaska National Wildlife
Refuges Rule. This joint resolution nullifies the rule
finalized by the Department of the Interior on 5 August 2016,
relating to non-subsistence takings of wildlife and public
participation and closure procedures on National Wildlife
Refuges in Alaska. The rule significantly reinterpreted Federal
law to effectively sharply limit recreational and subsistence
hunting of fish and wildlife in the State. The State of Alaska
had previously filed a lawsuit against the rule, arguing that
it would upend the traditional State-Federal jurisdictional
relationship.
This budget also emphasizes core government
responsibilities, while reducing spending in areas of
duplication or non-core functions. Pursuant to these
guidelines, the resolution provides $31.3 billion in
discretionary budget authority for fiscal year 2018, with $34.6
billion in related outlays (see Function 300 in Table 2). These
funds will finance programs within the Departments of Interior,
Agriculture, Commerce, and Transportation, as well as the Army
Corps of Engineers, and the EPA.
Some of the larger spending programs subject to
appropriations are the EPA's clean water and drinking water
programs, as well as the agency's environmental programs and
management account.
The Army Corps of Engineers' construction and operations
and maintenance accounts also fall under this function.
Congress most recently authorized the Corps' Civil Works
Program to perform a range of water resources development
activities within its mission, which includes navigation, flood
and storm damage reduction, and aquatic ecosystem restoration--
in 2016 legislation. The Committee on Transportation and
Infrastructure intends to take up another Water Resource
Development Act authorization bill this Congress.\196\
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\196\Committee on Transportation and Infrastructure, Views and
Estimates for Fiscal Year 2018, 28 February 2017: https://
transportation.house.gov/uploadedfiles/2017-02-28_views_and_esti-
mates_fy2018.pdf.
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Given the Panama Canal expansion and rapidly increasing use
of larger, cost-efficient post-Panamax vessels that require
deeper draft harbors and channels, the Corps' port maintenance
and dredging activities have received renewed attention from
policymakers and stakeholders. Congress passed legislation in
2014 and 2016 aimed at maintaining and improving the Nation's
port infrastructure so they can accommodate post-Panamax
vessels. A number of U.S. ports have achieved depths and widths
necessary to receive these larger vessels; some other domestic
ports, however, are seeking to increase their depths and widths
so they can accommodate such vessels in the future. A number of
factors affect port maintenance and capital improvement
projects. Stakeholder views on future needs vary, but encompass
the following: increased coordination of Federal or local
spending; ways of lowering project costs; determining project
priorities and moving them through the Corps' project
authorization queue more efficiently; and reviewing statutes
governing port maintenance and dredging. It is important for
U.S. ports to be capable of meeting the needs of 21st-Century
maritime trade and remain competitive in the global economy.
The budget envisions that the committees of jurisdiction will
consider cost-effective, market-based solutions to meet the
Nation's port maintenance and capital improvement project
needs. In doing so, the authorizing committees can promote
innovation and spur domestic job creation and economic growth.
Another large discretionary part of this function consists
of accounts responsible for operation of the National Park
Service and Wildland Fire Management in the U.S. Forest Service
and the Department of the Interior. The Forest Service and the
Interior Department have used a large amount of their overall
budget allocations toward wildfire suppression in the Western
region of the U.S. Under the ``Budget Control Act of 2011''
(Public Law 112-25) the Disaster Relief Fund [DRF] has received
appropriations first through the Disaster Relief Allowable
Adjustment (``Disaster Cap''), then through the Emergency
Requirements Adjustment. Supplemental wildfire funding has been
made available in previous years due to the difference between
the annual appropriation amount to the DRF and the total
Disaster Cap funding limit. This allows for additional funding
without using the Emergency Requirements Adjustment. As the
Disaster Cap decreases, however, allowable funding under the
BCA will be insufficient to meet both the Federal Emergency
Management Agency's disaster needs and supplemental wildfire
funding.\197\ The frequency and severity of these wildfires
pose a risk to the citizens, water, and wildlife in the region.
Borrowing for wildfires is detrimental to the long-term
planning of these agencies. This budget acknowledges the need
to minimize the adverse effects of fire transfers on the
budgets of other fire and non-fire programs, and the need to
responsibly budget for wildfires. The budget recommends
responsible forest management and supplemental wildfire funding
solutions. Congress and the Trump Administration must work to
find a viable solution to the forthcoming Disaster Cap
reduction that will allow supplemental wildfire suppression to
continue to be funded without having to compete with other
Disaster Relief Fund activities and regular operations.
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\197\The Disaster Cap is limited by a formula calculated with the
rolling average of the past ten years' appropriations to the Disaster
Relief Fund, with the maximum and minimum years subtracted, and
includes last year's average minus the actual DRF appropriation.
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Illustrative Discretionary Spending Policy Options
The Committee on Natural Resources is the primary
authorizer in this area. The Appropriations Subcommittees on
Energy and Water Development, and Related Agencies, and
Interior, Environment and Related Agencies are responsible for
annual funding. These committees have complete authority and
maximum flexibility in determining the policies in their
jurisdictions. The Budget Committee's role is solely to
recommend spending parameters. The discussion below suggests
illustrative options the committees may wish to consider. In
doing so, the committees may be guided by the budget's effort
to focus on core government activities and reduce duplication
and waste.
Reduce and Refocus Environmental Protection Agency Funding.
The EPA continues to use its budget to implement its
unprecedented activist regulatory policy to the detriment of
States, localities, small businesses, and energy consumers.
This is evidenced in the many ongoing legal challenges facing
EPA's proposed regulations. The budget calls for reducing
annual funding levels for the EPA to allow the agency to focus
on its core mission of simply enforcing laws passed by Congress
rather than continually attempting to re-write them through
regulations. The budget recommends no funding reductions to the
EPA's Regional Geographic Initiative Program, which encompasses
a dual mandate of improving the environment while
simultaneously spurring economic development. Specific
programs, such as the Great Lakes Restoration Initiative and
the Chesapeake Bay Program, not only support efforts to restore
the health of many of the Nation's most treasured water
ecosystems, but also provides domestic jobs in communities that
depend on these natural landmarks.
Eliminate the EPA Office of Regulatory Policy and
Management. This office manages the regulatory development
process for the EPA by providing support and guidance for the
agency's national and regional offices in developing
regulations. According to the EPA website, a primary function
of this office is to ``manage the Agency's policy priority
agenda.''\198\ As an executive agency created to enforce
congressional statutes, the EPA should have no policy priority
agenda at all.
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\198\Environmental Protection Agency, ``About the Office of
Policy,'' February 2016: www.epa.gov.
Streamline Climate-Change Activities Across Government.
This budget resolution reduces spending for numerous climate-
change-related activities and research within this function,
primarily by reducing overlapping or unproductive policies. It
also recommends better coordination of programs and funds to
eliminate duplicative and unnecessary spending. Many of these
programs are funded within the National Oceanic and Atmospheric
---------------------------------------------------------------------------
Administration [NOAA], as well as the EPA.
Eliminate the National Sea Grant College and Fellowship
Programs. Since 1966, NOAA has provided Federal funds to
various universities and academic research organizations across
33 States to sponsor a variety of marine research, outreach,
and education projects. The program also funds a National Sea
Grant Office, which offers fellowship opportunities for
graduate students. While the premise of these programs is
reasonable, they illustrate a growing trend within individual
agencies to offer and fund education-based grants and
fellowships that are better suited for either the Department of
Education or provided by State and local government.
Eliminate Funding for EPA Armed Enforcement Division. The
EPA is one of nearly 70 Federal agencies that employs armed
agents. This troubling trend of militarization extends to many
Federal agencies that most Americans would never associate with
law enforcement. Federal agencies should be required to clearly
demonstrate their need for armed personnel. Absent such a
demonstration, agencies should rely on local law enforcement
when there is a need for armed protection.
Reduce Funding for the Office of Surface Mining Reclamation
and Enforcement [OSMRE]. OSMRE's budget and resources are well
above current and foreseeable needs, as the number of mines and
coal miners has declined by 35 percent since 2011. Under the
``Surface Mining Control and Reclamation Act'', States perform
the daily permitting and regulation for 97 percent of all coal
mines within the country, while OSMRE is tasked with a
secondary role of performing oversight of State implementation
of their programs. This budget helps ensure OSMRE's resources
are spent on core, non-duplicative functions--not direct
enforcement or permitting actions that the States perform.
Give Priority to Army Corps of Engineers Civil Works. This
budget encourages prioritization of the Army Corps of Engineers
Civil Works program, which supports water resources,
development, management, and restoration through investigations
and surveys, engineering and design, construction, and
operation and maintenance as authorized by Congress. To rebuild
the Nation's infrastructure, it is imperative to furnish the
Army Corps with the resources to continue to complete this
necessary work. Additionally, giving priority to projects of
regional or national significance that feature robust State and
local investment will boost domestic manufacturing and expand
American exports.
AGRICULTURE
Function Summary: Discretionary Spending
Discretionary funding in the agricultural category supports
agricultural research, education, and economics; direct and
guaranteed farm operating and ownership loans; operating
budgets of the Farm Service Agency, Foreign Agricultural
Service, and Risk Management Agency; marketing and information
services; animal and plant health inspection services;
Department of Agriculture administration; and a variety of
related programs and activities.
The budget provides for fiscal year 2018 discretionary
spending in these areas totaling $6.4 billion in budget
authority and $6.2 billion in outlays. Over the 10-year period
of 2018 through 2027, the budget assumes discretionary spending
of $71.6 billion in budget authority and $70.6 billion in
outlays. (See Function 350, Table 2).
Illustrative Discretionary Spending Policy Options
Funding for discretionary agriculture programs and
activities will be determined by the Appropriations
Subcommittee on Agriculture, Rural Development, Food and Drug
Administration, and Related Agencies. Like last year's budget,
this resolution recommends giving a higher priority to
competitive grant-based agricultural research. This type of
research funding, in contrast to formula-based and other forms,
is most likely to spur agricultural productivity growth, which
is important to enhancing the international competiveness of
U.S. agriculture over the longer term. Also, continued
attention should be given to streamlining and, where possible,
consolidating operations and activities across U.S. Department
of Agriculture agencies, including in its large network of
county field offices.
COMMERCE AND HOUSING CREDIT
Function Summary: Discretionary Spending
Supporting commerce--maintaining an environment that allows
ingenuity and free enterprise to flourish--is a worthy and
important role of government. This includes providing necessary
oversight and regulation of business and commerce. As in many
other areas, however, the Federal Government has too often
taken the approach that more money, more red tape, and more
bureaucracy can answer every problem. A fundamental government
role is to maintain competitive markets that encourage
innovation and creativity, and promote efficiency, thereby
stimulating an expanding range of products and services at
lower costs for consumers.
When the Federal Government creates artificial barriers to
entry for entrepreneurs and startups, it is consumers who pay
the price. The government should not be in the business of
picking winners and losers. The Federal regulatory regime of
the previous administration allowed the rulemaking process to
protect established corporate actors to the detriment of
innovative small businesses. When the costs of regulatory
compliance become onerous, sectors of the economy are ruled by
federally mandated oligopolies. To stem the tide of the ever-
growing regulatory state, this budget supports the recent
Presidential directives established by the Trump administration
to combat the regulatory burden placed on manufacturers and
streamline the permitting review and approval processes. The
Memorandum on Streamlining Permitting and Reducing Regulatory
Burdens for Domestic Manufacturing (``Memorandum on
Manufacturing'') provides for stakeholder engagement and
feedback from the Nation's domestic manufacturers in an effort
to highlight unnecessary regulatory burdens and other
administrative policies, practices, and procedures that inhibit
economic growth and job creation.
Another example of smart regulatory reform is H.R. 5, the
``Regulatory Accountability Act of 2017'' (115th Congress). It
is a comprehensive package of rulemaking and administrative
changes focused on government transparency, public input, and
regulatory overreach. This budget supports enacting the bill
into law and implementing the following provisions as soon as
possible:
``Require agencies to choose the lowest-cost
rulemaking alternative that meets statutory objectives,
permitting costlier rules only when cost-justified and needed
to protect public health, safety, or welfare;
``Require greater opportunity for public input
and vetting of critical information--especially for major and
billion-dollar rules;
``Repeal the Chevron and Auer doctrines to end
judicial deference to overreaching agency statutory and
regulatory interpretations;
``Require agencies to account for the direct,
indirect, and cumulative impacts of new regulations on small
businesses--and find flexible ways to reduce them;
``Prohibit new billion-dollar rules from taking
effect until courts can resolve timely-filed litigation
challenging their promulgation;
``Force agencies to publish online, timely
information about regulations in development and their expected
nature, cost and timing;
``Publish plain-language, online summaries of new
proposed rules, so the public can understand what agencies
actually propose to do.''\199\
---------------------------------------------------------------------------
\199\Representative Bob Goodlatte, ``Goodlatte Praises Passage of
Major Regulatory Reform Legislation,'' 11 January 2017.
These kinds of activities on the Federal level are
supported through discretionary spending in the Commerce and
Housing Credit category (Function 370 in Table 2), where the
government funds programs through the Departments of Commerce
and Housing and Urban Development. Entities funded with
discretionary dollars in this function include the Federal
Trade Commission, the majority of the Small Business
Administration, and regulatory agencies such as the Securities
and Exchange Commission.
On a unified basis, for fiscal year 2018, the budget
resolution provides -$16.1 billion in discretionary budget
authority and -$15.6 billion in outlays (Table 2). The negative
discretionary budget authority and outlay figures mainly
reflect the subsidy rates applied to certain loan and loan
guarantee programs scored under the guidelines of the ``Federal
Credit Reform Act'', such as Federal Housing Administration and
Government National Mortgage Association [Ginnie Mae] programs.
This accounting method is further discussed in the section of
this report titled ``Banking, Commerce, Postal Service, and
Related Programs.''
Illustrative Discretionary Spending Policy Options
The main committees responsible for funding programs in
this area are the Committee on Financial Services and the
Committee on Energy and Commerce. As they make final policy
determinations, the committees of jurisdiction should aim to
reduce unwarranted subsidies to big businesses, reform
inefficient government bureaucracies, and create a climate that
supports rather than stifles commerce and free enterprise.
Options worthy of consideration include those cited below. The
policy discussions in this report reflect purely illustrative
options the committees of jurisdiction may want to consider.
Nothing in these descriptions is intended to predetermine,
promote, or assume any specific policy change to be made. The
committees of jurisdiction retain complete flexibility in
deciding what policies they develop pursuant to the
resolution's budgetary goals.
Eliminate Corporate Welfare Programs in the Department of
Commerce. Subsidies to businesses distort the economy, impose
unfair burdens on taxpayers, and are especially problematic
given the fiscal problems facing the Federal Government.
Programs that should be considered for elimination include the
following:
The Hollings Manufacturing Extension Program,
which subsidizes a network of nonprofit extension centers that
provide technical, financial, and marketing services for small
and medium-size businesses. These services are largely
available in the private market. The program already obtains
two-thirds of its funding from non-Federal sources, and was
originally intended to be self-supporting.
The International Trade Administration [ITA].
This agency, within the Department of Commerce, provides trade-
promotion services for U.S. companies. The fees it charges for
these services do not cover the cost of these activities.
Businesses can obtain similar services from State and local
governments and the private market. The ITA should be
eliminated or should charge for the full cost of these ``Trade
Promotion Authority'' services.
The National Network for Manufacturing
Innovation. This program, previously known as the Advanced
Manufacturing Technology Consortia, provides Federal grants to
support research for commercial technology and manufacturing.
As stated in the Heritage Foundation's The Budget Book:
``Businesses should not receive taxpayer subsidies; these long-
lived and unnecessary subsidies increase federal spending and
distort the marketplace. Corporate welfare to politically
connected corporations should end.''\200\
---------------------------------------------------------------------------
\200\The Heritage Foundation, The Budget Book: 106 Ways to Reduce
the Size & Scope of Government, 2015, p. 94
Tighten the Belts of Government Agencies. Duplication,
hidden subsidies, and large bureaucracies are symptomatic of
many agencies within Function 370. For example, the Securities
and Exchange Commission [SEC] now has more than 4,000
employees. According to the Committee on Financial Services:
``The SEC's current budget authority represents an increase of
almost 57 percent since the passage of the Dodd-Frank Act in
2010, and it is 90 percent higher than a decade ago. Since
2000, the SEC's budget authority has increased by more than 345
percent.''\201\ Despite these large increases, the SEC has
consistently requested additional funding. The premise that
more funding for the SEC means better, smarter regulation is
highly questionable. The agency should be reformed so it can
perform its duties more efficiently. Another example is the
Federal Trade Commission's budget, which has increased 30
percent since 2008.
---------------------------------------------------------------------------
\201\Committee on Financial Services, U.S. House of
Representatives, Views and Estimates, 3 March 2017.
---------------------------------------------------------------------------
Congress should assess the ever-growing spending of Federal
agencies, determining what levels are necessary to effectively
and efficiently execute their missions, and adjusting funding
accordingly.
Streamline Federal Housing Programs. There are currently
three major federal home buying programs: the Federal Housing
Administration [FHA], the Rural Housing Service [RHS], and the
Veterans Affairs Home Loan Program [VA]. The fiscal year 2018
budget recommends Committees of jurisdiction streamline these
programs to gain efficiencies while continuing to serve each
program's core mission.
Eliminate Overlap and Consolidate Necessary Department of
Commerce Functions Into Other Departments. Since its
establishment in 1903, the Commerce Department has expanded in
size and scope to include many elements whose priorities would
be better suited in other agencies. The Department of Commerce
and its various agencies and programs are rife with waste,
abuse, and duplication. This budget recommends the following
dissolution, delegation of authority, and consolidation
measures:
Consolidate National Oceanic and Atmospheric
Administration functions into the Department of the Interior.
Establish the U.S. Patent and Trademark Office as
an independent agency.
Eliminate the International Trade Administration.
Delegate trade enforcement activities to the
International Trade Commission.
Consolidate the Bureau of Industry and Security
into the Department of State.
Eliminate the Economic Development
Administration.
Consolidate trade adjustment activities into the
Department of Labor, which already has a duplicate program.
Consolidate the Minority Business Development
Agency into the Small Business Administration.
Consolidate the National Institute of Standards
and Technology and the National Technical Information Services
into the National Science Foundation.
Consolidate the National Telecommunication and
Information Administration with the Federal Communications
Commission as an independent agency.
Consolidate the United States Census Bureau and
the Bureau of Economic Analysis into the Department of Labor's
Bureau of Labor Statistics.
TRANSPORTATION
Function Summary
Innovation is propelling the Nation's transportation sector
forward. The coming years will likely see technological leaps
of American ingenuity. Technologies at various stages of
development and deployment hold potential to increase mobility
and safety, solve persistent problems, and expand commerce
opportunities. Technology is available that collects real-time
traffic, road condition, and parking information; cities and
states that leverage this technology can employ the data and
analytics to do tasks ranging from identifying potholes to
assessing travel patterns. Ride-sharing technology and services
provide new ways to move around cities and towns. Technologies
on the horizon includ unmanned aircraft systems (drones), and
semi- and fully autonomous vehicles. These and other
advancements will be under consideration by Federal
policymakers, as they develop future transportation policies
and manage current surface, air, water, and other
transportation programs.
A transportation system that enables people and goods to
move freely, efficiently, and affordably is a national
priority. Such a system should be resilient and responsive to
the needs of the traveling public and businesses. Its funding
should be sustainable and finances sound. As the following
discussion and explanation of illustrative fiscal year 2018
budget options suggest, Federal policymakers have opportunities
to try new approaches to ensure America's transportation system
accommodates innovation and is financially healthy and focused
on performance.
Congress has a history of bipartisanship in setting
transportation policy. The Trump Administration has proposed--
most recently in the President's fiscal year 2018 budget
request\202\--increasing transportation infrastructure
investment and making it more productive, as well as reducing
red tape that delays projects and increases costs. Part of the
administration's proposal calls for improvements to existing
transportation systems, whether by improving airports and
seaports or maintaining roads and bridges, to help America
remain competitive and to increase productivity. In addition to
ongoing public funding for transportation, the President's
budget envisions a private sector role, both in partnership
with and separate from the public sector.\203\
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\202\The President's FY 2018 Budget Request, Fact Sheet:
Infrastructure Initiative: May 2017, https://www.whitehouse.gov/sites/
whitehouse.gov/files/omb/budget/fy2018/fact_sheets/
2018%20Budget%20Fact%20Sheet_Infrastructure%20Initiative.pdf.
\203\Ibid. p. 2.
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Indeed, all levels of government and the private sector
fund and manage transportation activities, from construction to
operations to safety oversight. Though public-private
partnerships are not suitable for all types of projects,
government and private businesses do collaborate and share the
costs of constructing and maintaining transportation assets.
Mandates, rules, and regulations accompany Federal
transportation funding.\204\ They have received renewed
attention from lawmakers, scholars, and the Trump
Administration, because they can undermine the goal of
efficient, productive investment. Some Federal mandates pertain
to workers. Others place sourcing requirements on certain
construction materials; they can increase project costs or lead
to delays. Other laws, rules, and regulations, such as those
governing permitting and environmental reviews, also delay
transportation projects, at the expense of time and funding.
The current fiscal environment should prompt lawmakers, as
stewards of public dollars, to review such rules and
regulations and assess viable alternatives. The budget
recognizes that pursuing free-market reforms in these areas,
through statutory, regulatory, and organizational improvements,
could reduce costs, speed up project timelines, and get more
value overall from Federal transportation spending.
---------------------------------------------------------------------------
\204\For discussion of specific mandates and restrictions on
transportation funding and proposed solutions, see Philip K. Howard,
``Two Years Not Ten Years: Redesigning Infrastructure Approvals,''
Common Good, September 2015: http://commongood.3cdn.net/
c613b4cfda258a5fcb_ e8m6b5t3x.pdf and Michael Sargent and Nicolas
Loris, ``Driving Investment, Fueling Growth: How Strategic Reforms Can
Generate $1.1 Trillion in Infrastructure Investment,'' The Heritage
Foundation, 3 May 2017: http://www.heritage.org/government-regulation/
report/driving-investment-fueling-growth-how-strategic-reforms-can-
generate.
---------------------------------------------------------------------------
In addition to alleviating the regulatory burden, the House
budget envisions focusing the Federal Government's role on
needs that are national in scope and Federal in responsibility.
State and local governments are versed in their particular
transportation challenges, such as planning what to build and
maintain or how to pay for transportation improvements. Federal
policies should aid, not hinder, States' efforts to solve those
problems. Federal reforms that cut red tape, for example, would
free up resources and allow all levels of government and
private businesses to invest efficiently and experience fewer
project delays.
Major components of the Nation's transportation system
include the vast network of interstate highway roads and
bridges and major arterials, and the civil aviation system,
including air traffic control and airport improvement
activities. Federal transportation programs in these areas face
challenges, and the illustrative budget options that follow
contain further discussion of the problems along with
consideration of other categories of transportation.
The transportation category of the budget (Function 400 in
the summary tables) reflects ground, air, water, and other
transportation funding. The major agencies and programs within
this function are the Department of Transportation (which
includes the Federal Aviation Administration; the Federal
Highway Administration; the Federal Transit Administration;
highway, motor-carrier, rail, and pipeline-safety programs; and
the Maritime Administration); the Department of Homeland
Security (including the Federal Air Marshals, the
Transportation Security Administration [TSA], and the U.S.
Coast Guard); the aeronautical activities of the National
Aeronautics and Space Administration; and the National Railroad
Passenger Corporation, or Amtrak.
For these programs and agencies, the budget resolution
calls for $88.1 billion in budget authority and $91.8 billion
in outlays in fiscal year 2018. Discretionary budget authority
in 2018 is $28.5 billion, with outlays of $90.6 billion (see
Table 2); direct spending is $59.6 billion in budget authority
and $1.2 billion in outlays (Table 3). Over 10 years, budget
authority totals $707.4 billion, with outlays of $762.1
billion.
The large discrepancy between discretionary budget
authority and outlays here results from the split treatment of
the Highway Trust Fund programs and certain aviation
activities, for which funding is provided as a type of
mandatory budget authority called contract authority, while
outlays--controlled by annual limitations on obligations set in
appropriations acts--are treated as discretionary spending.
Because of this unique budgeting regime, the discussion below
examines both categories of transportation spending.
Basic transportation policies in this area fall under the
jurisdiction of the Committee on Transportation and
Infrastructure and the Appropriations Subcommittee on
Transportation, Housing and Urban Development, and Related
Agencies. The Committee on Homeland Security and the
Appropriations Subcommittee on Homeland Security will determine
policies for the Transportation Security Administration and
Federal Air Marshals. These committees retain full authority
and flexibility in determining policy choices over programs in
their jurisdictions. The options that follow demonstrate the
credibility of the budgetary assumptions of the resolution. In
the spirit of ensuring the safe, reliable transportation system
described above, the budget envisions maintaining essential
funding for surface transportation, aviation, and safety--
offset by reductions in other transportation activities of
lower priority to the Federal Government.
Illustrative Direct Spending Policy Options
Put the Highway Trust Fund on a Path Toward Solvency and
End Taxpayer Bailouts. The Highway Trust Fund [HTF] has
required large general fund contributions totaling $141 billion
since 2008 to cover cash shortfalls. These transfers from the
general fund enable the U.S. Department of Transportation to
reimburse States for Federal highway and transit commitments in
a timely manner. While a cash shortfall is not imminent for
several years, the budget resolution continues a reform that
would require offsets for any future general fund transfer to
the HTF. CBO estimates that, absent changes, the Highway Trust
Fund again will face insolvency during fiscal year 2021, the
year after the current authorization law, the ``Fixing
America's Surface Transportation Act'', expires.
Congress created the Highway Trust Fund (under the Highway
Revenue Act of 1956) as a mechanism to connect revenue
generated from gasoline taxes to the purpose of building the
Interstate Highway System. The Federal-Aid Highway Act of 1956
established the program enabling its construction.\205\
Receipts from Federal excise taxes on fuels, levied on
motorists, truckers, and bus operators, along with related
truck and tire fees, fill the Highway Trust Fund; these tax
rates stand at 18.4 cents per gallon for gasoline and 24.4
cents per gallon for diesel. Congress and the President enacted
the most recent fuel tax increase in 1993--originally as part
of deficit-reduction legislation.
---------------------------------------------------------------------------
\205\The Interstate Highway System, in fact, dates to 1944
legislation.
---------------------------------------------------------------------------
For decades, the trust fund was self-financing; cash
shortfalls date only to 2008. In addition to inflation's
effects on Highway Trust Fund revenue's purchasing power,
Federal fuel-economy standards and increased use of hybrid and
electric vehicles are eroding the trust fund's balances. In
recent years, Congress also has authorized annual spending out
of the trust fund above the amount of tax receipts collected or
projected for collection. From 1999 through 2008, outlays
outpaced receipts in the trust fund by almost $1 billion a
year, on average. The spending-revenue gap widened further
under the Obama Administration, expanding to more than $11
billion a year. The ``Fixing America's Surface Transportation
Act'' reauthorized Federal highway and transit programs for 5
years and provided for a $70-billion general revenue transfer
to the trust fund. The transfer covers trust fund deficits,
which range from $11 billion in fiscal year 2016 to a projected
$16 billion in fiscal year 2020. The CBO projects the trust
fund's accounts will face a combined $5-billion shortfall
sometime in fiscal year 2021, and the trust fund's cumulative
deficit will grow from $24 billion in fiscal year 2022 to $138
billion by fiscal year 2027.\206\
---------------------------------------------------------------------------
\206\Congressional Budget Office, ``Projections of Highway Trust
Fund Accounts''--CBO's June 2017 Baseline: https://www.cbo.gov/sites/
default/files/recurringdata/51300-2017-06-highwaytrustfund.pdf.
---------------------------------------------------------------------------
Congress has time and options to address the systemic
factors driving the repeated cash shortfalls in the trust fund
and implement sustainable solutions. Congress could continue
using general tax dollars to pay for an increasing share of
Federal transportation programs, although doing so would
further unravel the user-pays/user-benefits model that proved
successful over the Federal-Aid Highway Program's history.
Congress also could reconsider the mission and scope of surface
transportation program, including which activities belong in a
Federal program and those that do not. It may conclude, for
example, that the Federal Government bears some role in the
considerable task of rebuilding the decades-old Interstate
Highway System in the future, while providing aid to States and
cities for activities of local benefit, such as bicycle and
recreational trails, sidewalks, and streetcars, lies outside
its purview or are of lower priority given scarce funding.
Toward this end, Federal policymakers could reconsider spending
mandates on non-highway projects through program set-asides or
the eligibility of non-highway activities for funding. Another
solution could involve a pilot program for States to fund their
transportation priorities with State revenues, opt out of the
Federal fuel taxes, and forgo Federal allocations. Indeed,
numerous States have proposed and enacted legislation to
generate more money for their transportation programs in recent
years.
Pursuing other reforms to Federal surface transportation
policy, in tandem with reforms to the Highway Trust Fund and
its programs, would help advance the broad public policy goal
of efficiently directing resources toward high-value, cost-
effective projects that address congestion problems and improve
mobility and safety. For example, policymakers could assess the
progress of recent legislative efforts to simplify
transportation project review processes and reduce red tape.
They could then use that assessment to inform future
legislation.\207\ To ensure productive use of resources,
lawmakers could consider reforms to other regulations and
mandates that unintentionally increase project costs or siphon
money to government bureaucracy. To ameliorate funding
concerns, they could continue to refine financing mechanisms
for public-private sector partnerships (as demonstrated in the
Transportation Infrastructure Finance and Innovation Act
program). Lawmakers also could consider policies that remove
barriers States face in generating transportation revenue to
fund and finance projects.
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\207\The FAST Act, enacted in December 2015, contained provisions
to improve and consolidate the environmental and permitting process for
surface transportation projects, for example.
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The budget encourages reform that puts the trust fund back
on sound financial footing, and it dispenses with the habit of
raiding general funds and increasing the deficit. It recommends
sensible reforms to avert the projected bankruptcy of the
Highway Trust Fund within the budget window, by aligning
spending with incoming revenues, and it includes a provision to
ensure offsets to any future general-fund transfers. President
Trump included this policy in his fiscal year 2018 budget
request.\208\
---------------------------------------------------------------------------
\208\Office of Management and Budget, The Fiscal Year 2018 Budget
of the U.S. Government, A New Foundation for American Greatness, p. 42,
https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/budget/
fy2018/budget.pdf.
Restructure the Air Traffic Control System. Upgrading the
United States' air traffic control [ATC] system, by reforming
its governance and funding structures, is in the interests of
air travelers, businesses that operate within the National
Airspace System, and Federal taxpayers. Without reform,
improvements such as reduced airport congestion, timely
technological upgrades, improved service, and stable funding
for investments will continue to be delayed--and at a steep
cost. Restructuring the system, on the other hand, would have
numerous benefits, including attracting a talented workforce,
meeting demand in the skies, and cost-effectively maintaining
the safest ATC system in the world. A model successfully
adopted by some other countries is that of a federally
chartered, not-for-profit corporation. The government
establishes the corporation, which then operates the ATC system
day to day and makes business decisions, to include investments
in technology. The corporation is self-funded through service
charges paid by users. A government entity--the Federal
Aviation Administration [FAA] in the U.S.--retains its strong
safety oversight and regulatory role.
The budget does not assume budgetary figures associated
with a new approach for providing ATC services. It does include
a reserve fund to accommodate the budgetary effects of such a
proposal, and the reserve fund requires the downward revision
of the Budget Control Act's discretionary spending limits to
reflect the reduction in appropriated spending on ATC-related
activities that should occur as part of ATC reform.
This is not a new concept. Considerable study and debate of
this approach to providing ATC services has gone on over
several decades. The fiscal year 1997 House budget resolution,
for example, proposed to study separating ATC operations from
the Federal Aviation Administration. The budget report
discussed projected congestion at airports and the inability of
the system to meet travel demands cost-effectively and
efficiently. It cited the current system's outdated technology
and that ``Washington has bungled its modernization for more
than a decade.''\209\ Twenty years later, similar problems
hamper the system. Recognizing the need for modern equipment
and ATC facilities, President Trump also proposed to
restructure the ATC system in his fiscal year 2018 budget
request.\210\ The President's proposal envisions a new ATC
provider that quickly and efficiently invests in technology
upgrades and improves services, while the Federal Government
dedicates its resources to maintaining unparalleled safety in
the air navigation system. More recently, the Committee on
Transportation and Infrastructure reported a Federal aviation
program authorization bill to the House; this bill would
transfer operations of the Nation's air traffic control system
to a federally chartered, not-for-profit corporation, and it
would maintain the Federal Aviation Administration's role in
overseeing safety in the system.\211\
---------------------------------------------------------------------------
\209\H. Con. Res. 178, Concurrent Resolution on the Budget for
Fiscal Year 1997, https://www.congress.gov/104/crpt/hrpt575/CRPT-
104hrpt575.pdf pg. 92-94.
\210\The President's FY 2018 budget, https://www.whitehouse.gov/
sites/whitehouse.gov/files/omb/budget/fy2018/fact_sheets/.
2018%20Budget%20Fact%20Sheet_Air%20Traffic%20Control%20Reform.pdf.
\211\On 27 June 2017, the committee favorably reported H.R. 2997,
the 21st Century Aviation, Innovation, Reform, and Reauthorization Act.
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AN UPGRADE IS NEEDED
The FAA operates a safe ATC system, but not because the
Federal Government owns and operates it. It is safe due to the
daily efforts of the FAA's approximately 14,000 air traffic
controllers and to safety being at the fore of aircraft design
and maintenance. Technology used by the FAA is obsolete. Its
computer system relies on ground-based radar, not Global
Positioning System [GPS]. As a point of contrast, the thousands
of travelers who fly daily within the system carry GPS-enabled
phones. For at least two decades Congress, with little success,
has legislated reforms requiring the FAA to operate its Air
Traffic Organization [ATO] like a business and expedite
modernization.
The ATO remains a massive bureaucracy with high operating
costs, losses in productivity, and a culture that resists
change. The FAA also has received criticism over its
implementation of the multibillion-dollar Next Generation Air
Transportation System [NextGen] program, which is to upgrade
the ATC system. In a letter to the FAA's Administrator, the
Department of Transportation's Inspector General wrote: ``While
FAA reports improvements in its management of acquisitions,
major projects continue to experience problems that delay the
introduction of new technologies, such as performance-based
navigation; postpone benefits to users; and defer the
retirement of costly legacy systems * * * Notwithstanding
reforms, several underlying and systemic issues--including
overambitious plans, shifting requirements, software
development problems, ineffective contract and program
management, and unreliable cost and schedule estimates--affect
the FAA's ability to introduce new technologies and
capabilities that are critical to transitioning to
NextGen.''\212\
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\212\See Office of the Inspector General, Department of
Transportation, FAA Reforms Have Not Achieved Expected Cost,
Efficiency, and Modernization Outcomes, Audit Report AV-2016-05, 15
January 2016: https://www.oig.dot.gov/sites/default/files/
FAA%20Organizational%20Structure_ Final%20Report%5E1-15-16.pdf.
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A high-tech ATC service provider, by contrast, would be
able to respond quickly to market forces and implement new
technology efficiently. Recognizing this need in their
respective situations, more than 50 countries--from Canada, the
United Kingdom, and Spain, to Germany, Australia, and New
Zealand--have remodeled their ATC systems over the past few
decades. While the countries have adopted different corporation
models, they have enjoyed similar results: consistent or
greater safety, modernized systems, improved service, and lower
costs.
All those who use the national airspace value access to it.
They all have a stake in the future of the ATC system,
including any proposal to change its governance structure and
means of funding. Likewise, uninterrupted and matchless safety
on the ground and in the skies is paramount to all users. As
the Congress and administration consider future measures, they
will take into account the interests of rural communities,
airports, business jet owners, and private pilots, as well as
labor groups, commercial airlines, the traveling public, and
national security.
Modernization of the United States' ATC system has the
potential to improve the airspace navigation experience for all
users. It would allow for better cost management, safe and
efficient delivery of services, and a more direct connection
between system users and funding.
BUDGETARY EFFECTS
The budget contains a reserve fund to accommodate any
budgetary effects resulting from ATC system reform. The budget
would view a new provider of ATC services as independent, and
therefore it would not view such an entity's spending and
revenue as part of the Federal Government's budget. Under such
reform, Federal spending on ATC and related activities should
necessarily decrease as soon as the new provider assumes
operational responsibility and begins assessing service
charges. Therefore, the budget's reserve fund requires that the
Budget Control Act's discretionary spending caps be lowered to
reflect this decrease in appropriated funding.
Congress may choose to transition the U.S. ATC system to a
federally chartered, non-profit corporation model as part of
reform efforts. As international experience has shown, the
following factors are typical under this type of model: the new
ATC services provider would be independent and self-supporting,
charging its users fees for services it provides. The fees
would fund daily operations and finance borrowing in private
capital markets to pay for capital-intensive investments.
Receipts from the fees would not be deposited into the U.S.
Treasury but would be managed directly by the ATC provider.
This entity would operate the ATC system directly and set its
own budget. It would become the employer of current government
employees connected to providing ATC services, and it would
provide for the health and retirement benefits of new
employees. A chief executive officer and governing board would
be composed of aviation stakeholders with a fiduciary duty to
the Corporation, and the board would make all business
decisions. The ATC provider, not Congress, would initiate
organizational changes and investments. The budget resolution
would view such an entity as independent, not as an agent of
the Federal Government.
Encourage Efficiencies and Controlled Costs in Essential
Air Service. The Essential Air Service [EAS] program began as a
temporary program following airline deregulation in the late
1970s, to provide transitional assistance and ensure airlines
would provide at least some service in small communities.
Through the program, the Department of Transportation enters
into contracts with air carriers (airlines) and subsidizes a
certain number of flights between small community airports and
larger, hub airports. EAS program costs increased by an
inflation-adjusted 123 percent between 2008 and 2015; these
cost escalations have come even though the government has
implemented reforms aimed at containing costs, such as
restricting subsidies to airports beyond a certain driving
distance from a hub airport and allowing airlines to use
smaller planes. According to Congressional Research Service
findings, current law does not require the Department to weigh
cost in the bidding process for EAS service. Congress and the
Department have the opportunity to devise solutions that
control the costs of providing this service.
Illustrative Discretionary Spending Policy Options
Reduce Federal Subsidies for Amtrak. Consistent with
President Trump's budget request, the budget also assumes
reduced Federal subsidies for Amtrak's operations. Federal
subsidies have insulated the National Railroad Passenger
Corporation [Amtrak] from becoming self-sufficient, and they
unfairly commit taxpayers nationwide to underwriting the
commutes, recreation, and other trips for a fraction of the
traveling public. Generally, routes in the Northeast Corridor
operate at a profit but have high capital costs, while long-
distance routes in the National Network tend to operate at a
loss but have low capital costs. The 1997 Amtrak authorization
law required Amtrak to operate free of subsidies by 2002. Yet
taxpayers continue subsidizing approximately $44 of the cost of
the average Amtrak ticket sold.\213\
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\213\Based on fiscal year 2016 ridership of approximately 31.3
million customers and a $1.4 billion total appropriation.
---------------------------------------------------------------------------
The budget envisions policies that would allow Amtrak's
management to make judicious business decisions in an operating
environment with reduced Federal subsidies. For example,
Amtrak's management, in coordination with stakeholders, could
be empowered to eliminate food and beverage service losses;
lower its per-employee labor costs and administrative expenses;
and discontinue or restructure unprofitable lines. Short of
phasing out subsidies, Congress could make future
appropriations contingent on Amtrak competitively contracting
out the operation of its lines, as other commuter rail lines in
the U.S. have done successfully.\214\ Amtrak could participate
in such competitive bids. The anticipated benefits of these
changes would be lower operating costs for Amtrak and high-
quality service for passengers.
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\214\The VRE and MARC train are two such lines that have contracted
out certain aspects of their operations.
Prohibit Funding for High-Speed Rail. Only two high-speed
rail lines in the world are profitable: one in France and
another in Japan.\215\ They serve densely populated areas where
gasoline is expensive. Similar success is far from certain in
the U.S., which has low population densities relative to high-
speed rail markets in Europe and Asia. American travelers also
have widespread access to personal vehicles and competitively
priced air and bus transportation, plus commuter rail and
intercity passenger rail service. Both factors mean high-speed
rail cannot currently attract enough riders, which in turn
makes it challenging to meet revenue targets. Several governors
across the country rejected Federal high-speed rail funding in
recent years, because they recognized the risk to their
taxpayers, who would have had to subsidize the proposed lines
in perpetuity. Backing such risky, local projects, likewise, is
not within the purview of the Federal Government but rather, it
is more suited to the discretion of localities and the private
sector.
---------------------------------------------------------------------------
\215\See the Reason Foundation, High-Speed Rail in Europe and Asia:
Lessons for the United States, May 2013: http://reason.org/files/
high_speed_rail_lessons.pdf.
Phase Out Future Capital Investment Program Grants. Often
called New Starts, this program awards grants for new fixed-
guideway mass transit projects and the expansion of existing
ones. Streetcars, ferries, bus rapid transit, and other types
of rail transit are examples of eligible projects. Such
transportation systems produce local, not national, benefits.
The budget supports fulfilling current commitments and then
phasing out new grants, giving States and cities time to plan
their future transportation priorities and budgets accordingly.
This Federal grant program can have the perverse consequence of
distorting local decisions about which types of transit
projects to build, in favor of more costly projects. For
example, a city may opt for a new rail transit project in one
area at the expense of expanding comparatively cost-effective,
flexible bus service in an area where that service is already
in demand. Moreover, if a taxpayer-backed New Starts project
fails to attract enough riders and generate expected revenue
levels, local citizens must make up the revenue to cover future
---------------------------------------------------------------------------
operating and capital costs.
Eliminate TIGER Grants. The Transportation Investment
Generating Economic Recovery [TIGER] Program was a 2009
stimulus bill measure established as a competitive grant
program. Congress and the President created this program to
drive funding to critical national transportation needs for the
country, yet more than 60 percent of the grants support local
transit or so-called ``enhancement'' projects. With grantee
selection based on vague metrics, including ``livability,'' the
Department of Transportation has failed to provide more
information regarding documentation of its review process as
requested by the Government Accountability Office.\216\ The
Trump Administration's preliminary budget proposal recommends
ending this unauthorized program, in favor of supporting
Nationally Significant Freight and Highway Projects grants,
which more reasonably will produce national, not local,
benefits.
---------------------------------------------------------------------------
\216\See the Reason Foundation, ``Eliminate TIGER Program,'' 17
February 2015: http://reason.org/news/show/eliminate-tiger-program.
Encourage Improved Performance and Safety at Washington
Metropolitan Area Transit Authority [WMATA]. WMATA, commonly
called ``Metro,'' is a local transit authority that operates
rail, bus, and paratransit services in the Nation's capital and
nearby communities. In addition to fare box and advertising
revenue, it receives Federal aid through annual appropriations
acts. Specifically, it receives Federal Transit Administration
formula grants and a line-item appropriation. The District of
Columbia, Maryland, and Virginia also raise matching funds
through dedicated sources to pay for Metro's services.
Congress, in a line-item appropriation, directed $150 million
to Metro in fiscal year 2016. Approximately 40 percent of
Metro's rush hour passengers are Federal Government employees.
The transit agency has been characterized by poor performance
in several areas: low on-time performance, weekly service
disruptions, maintenance backlogs, smoky rail tunnels, high
operating costs, and a tragically fatal rail accident in early
2015. In October 2015, U.S. Federal Transit Administration
officials assumed direct safety supervision of Metro's rail
system. Customer satisfaction has dropped.\217\ Decreased
reliability along with reduced service and hours of operation
to accommodate SafeTrack repairs have led to lower ridership.
---------------------------------------------------------------------------
\217\Washington Metropolitan Area Transit Authority [WMATA],
``Vital Signs,'' November 2015: p. 5, http://www.wmata.com/about_metro/
scorecard/documents/Vital_Signs_Q3_2015.pdf.
---------------------------------------------------------------------------
In recent months, however, the new Metro General Manager,
Paul Wiedefeld, has taken steps to control costs, conduct
emergency repairs, and restore safety to the system--all
without increased Federal subsidies. In his fiscal year 2018
``Reality Check'' budget, he proposed broad-ranging reforms,
including eliminating 1,000 nonessential or duplicative
positions; increased funding from Maryland, Virginia, and the
District of Columbia; and fare increases for bus and rail
passengers.\218\ In total, the budget would close a $290
million gap between revenue and expenses. His proposed budget
does not rely on increased Federal subsidies. This budget
resolution supports legislative reforms that encourage Metro to
contain costs and operate more like a business, rather than
reward the system with greater taxpayer-funded subsidies. Metro
customers would benefit from more reliable, safer service.
---------------------------------------------------------------------------
\218\FY 2018 Proposed Budget, https://www.wmata.com/about/records/
public_docs/upload/Metro_FY2018_Proposed_Budget_15Dec16_v4.pdf.
Continue Reforms at the Transportation Security
Administration [TSA]. In the wake of the September 11, 2001
terrorist attacks on the country, which exposed major security
gaps in airport screening and security, Congress and the
Executive Branch took decisive action to assume control over
aviation security. The Transportation Security Administration
[TSA] was created to protect the nation's transportation
systems by providing screening and setting security standards
for major transportation sectors.
TSA continues to face many challenges. Given low employee
morale and high leadership turnover to prolonged airport wait
times and failed internal investigations, reform and
improvement at the agency must remain a top priority.
Fortunately, Congress has made major efforts to reform and
improve TSA through legislative action and oversight. In the
114th Congress, six pieces of legislation were signed into law
that sought reforms of airport checkpoint wait times, last
point of departure airport security, TSA PreCheck, and domestic
airport security. Additional bills passed the House in the
114th Congress seeking to improve vetting of TSA and airport
employees and establish comprehensive reforms for both aviation
and surface transportation security.
While the problems at TSA are great, it is important that
Congress and the Executive Branch continue to build upon
previous reforms. The committees of jurisdiction over aviation
security, as well as TSA itself, must continue to emphasize
risk-based security procedures, innovative screening
capabilities and equipment, improvements in the workforce, and
removal of all insider threats and corruption. Close
relationships with other security agencies, law enforcement,
airports, and airlines will enable TSA to maintain these
priorities and conduct ongoing analysis of innovative
approaches to carrying out its mission. Continued efforts in
these areas, along with rigorous oversight of TSA, will ensure
that the proper improvements are made. This budget recommends
that TSA funding focus on the aforementioned priorities, with
the expectation that the authorizing and appropriating
committees of jurisdiction will continue their responsibility
of directing substantive reforms, to ensure that funding is
meeting taxpayers' expectations.
COMMUNITY AND REGIONAL DEVELOPMENT
Function Summary: Discretionary Spending
The Federal Government continues to support many local,
regional, and community-based activities. While both State and
local governments maintain the bulk of programs in this
purview, a variety of federally structured actions are required
to be addressed at a community level. Federal funding for
economic and community development in both urban and rural
areas appears in this category. It includes Community
Development Block Grants; the non-power activities of the
Tennessee Valley Authority; the regional commissions, including
the Appalachian Regional Commission; the Economic Development
Administration; and partial funding for the Bureau of Indian
Affairs. Homeland Security spending in this function includes
the State- and local-government grant programs of the
Department of Homeland Security, as well as a majority of the
funding for the Federal Emergency Management Agency.
While supporting these programs related to emergency
preparedness and critical needs, this resolution urges
streamlining non-essential community and regional initiatives
that are not core functions of the Federal Government.
The majority of this category's funding is discretionary
and provided by the Appropriations Subcommittees on Financial
Services; Energy and Water; Agriculture; Interior, Environment,
and Related Agencies; and Homeland Security. Relevant
authorizing committees for this category include the Committee
on Financial Services, the Committee on Transportation and
Infrastructure, and the Committee on Homeland Security.
The resolution calls for $5.1 billion in discretionary
budget authority and $19.6 billion in outlays in fiscal year
2018. The 10-year totals for discretionary budget authority and
outlays are $56.4 billion and $98.0 billion, respectively. The
figures appear in Function 450 of Table 2.
Illustrative Discretionary Spending Policy Options
As elsewhere, the committees of jurisdiction will make
final policy determinations. None of the policy discussions in
this report is intended to bind the committees of jurisdiction
to any particular policy direction. The committees retain full
authority and flexibility in determining the policies to be
adopted. The proposals below indicate policy options that might
be considered.
Eliminate Non-Core Programs. At a time when reducing
spending is imperative for the government's fiscal well-being,
this resolution recommends a hard look at community and
regional programs, especially scrutinizing those that deliver
funds for non-core Federal Government functions, and
consolidating and streamlining programs wherever possible. A
particular example is the Community Development Fund [CDF].
Historically, about 80 percent to 90 percent of funding for the
CDF is spent on the Community Development Block Grant program
[CDBG], a program that dates to the 1974 Housing and Community
Development Act of 1974. CDBG is an annual formula grant
directed to State and local governments. In 2016, Congress
appropriated $3.0 billion for CDBG. A vast range of activities
are eligible for funds, such as home water and energy
efficiency activities, historic preservation, demolishing
blighted properties, street and sidewalk repairs, job training,
grants to local businesses, and community planning. Local
organizations, private business, and sometimes local
communities at-large are the ultimate recipients of CDBG funds.
Likewise, the benefits are enjoyed locally, not nationally. The
program's effectiveness has been compromised over the decades
by debates over formulas, which have allowed wealthier
communities to receive funding at the expense of lower-income
communities; currently there is no maximum community poverty
rate to determine eligibility for funds, nor are communities
with high average income limited or excluded. Further, wasteful
and inefficient projects have received grants, and the program
has been criticized for incurring unnecessarily high
administrative costs, which drain funding for actual projects.
Recognizing the waste and abuse in the CDBG program, President
Trump's fiscal year 2018 budget recommends eliminating it.
Focus Department of Homeland Security Urban Area Security
Initiative Grants. Urban Area Security Initiative grants to
more than 30 cities have not produced measurable results for
the most critical municipalities. This option would limit the
grants on a risk-based formula basis.
Reform the Federal Emergency Management Agency. The budget
supports implementation of reforms at the Federal Emergency
Management Agency [FEMA] passed by Congress to improve service
delivery and efficacy in disaster assistance, while at the same
time proposing further steps to eliminate overlap and
inefficiencies. The budget also acknowledges the need to
consider reforms in disaster-relief assistance to ensure those
State and local governments most in need are receiving the
assistance required. The disaster declaration is intended as a
process to help State and local governments receive Federal
assistance when the severity and magnitude of the disaster
exceeds State and local resources, and when Federal assistance
is absolutely necessary. Nevertheless, the recent precedent set
by Congress regarding Federal emergency and disaster assistance
has focused on providing designated emergency CDBG funding
instead of using the FEMA Disaster Relief Fund. As a result,
FEMA has pivoted to a variety of grant programs that exceed the
purview of Federal funding and should be provided by individual
states and localities themselves. This budget calls for a
thorough review of the scope and funding levels of the
following FEMA grant programs to determine whether overlap and
duplication exists.
Preparedness (Non-Disaster) Grants. This category
of grants comprises a variety of security-related programs
attempting to ``enhance the capacity of state and local
emergency responders.''\219\ This includes the Homeland
Security Grant Program; the Intercity Bus Security Grant
Program; the Intercity Passenger Rail Security Grant Program;
the Nonprofit Security Grant Program; the Port Security Grant
Program; the Tribal Homeland Security Grant Program; and the
Transit Security Grant Program.
---------------------------------------------------------------------------
\219\Federal Emergency Management Agency [FEMA], ``Preparedness
(Non-Disaster) Grants'': https://www.fema.gov/preparedness-non-
disaster-grants.
Hazard Mitigation Assistance Grant Programs. This
category of grants includes the Flood Mitigation Assistance
Program, the Hazard Mitigation Grant Program, and the Pre-
Disaster Mitigation Grants. These non-emergency disaster
assistance programs hope to ``reduce overall risk to the
population and structures from hazard events, while also
reducing reliance on Federal funding for future
disasters.''\220\
---------------------------------------------------------------------------
\220\FEMA, ``Pre-Disaster Mitigation Grant Program: General Program
Information'': https://www.fema.gov/pre-disaster-mitigation-grant-
program.
Assistance to Firefighters Grant Programs. This
collection of grants includes the Assistance to Firefighters
Grants [AFG], Fire Prevention and Safety [FP&S;], and Staffing
for Adequate Fire and Emergency Response [SAFER]. These grants
subsidize local and volunteer fire departments, and provide
Federal funds to increase the staffing levels of specific
community fire departments.
EDUCATION, TRAINING, EMPLOYMENT,
AND SOCIAL SERVICES
Function Summary: Discretionary Spending
Creating and supporting an environment of opportunity for
all Americans is a national goal and a focus of Federal
policymakers. Access to high-quality education is key to
achieving this goal. Education can end the cycle of poverty in
families and offer a path to the middle class. It equips
students to pursue their academic and professional goals, makes
American workers more competitive, and increases the Nation's
economic strength.
The question, however, is how best to advance the cause of
high-quality education. One approach has crept toward ever-
greater centralization, creating Federal programs, spending
more money, and piling on regulation. This approach has
stripped local entities of opportunities to decide how to
measure their educational systems and programs, and it ``has
limited the ability of teachers, parents, faculty, and
education leaders to do what's best for students and local
communities.''\221\ The approach favors programs that spend
more but gives insufficient attention to outcomes for students.
Higher spending has not led to higher achievement. ``Since
World War II, inflation-adjusted spending per student in
American public schools has increased by 663 percent,'' yet
student achievement has not followed suit.\222\ For example,
``public school national math scores have been flat (and
national reading scores declined slightly) for 17-year-olds
since 1992,'' as analysis of Federal data show.\223\ Graduation
rates at public high schools have not improved considerably
since 1970.\224\
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\221\Committee on Education and the Workforce, FY 2018 Views and
Estimates.
\222\Gerard Robinson and Benjamin Scafidi, ``More Money, Same
Problems,'' U.S. News and World Report, 20 September 2016: https://
www.usnews.com/opinion/articles/2016-09-20/more-money-wont-fix-failing-
public-schools.
\223\Ibid.
\224\Ibid.
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K-12 EDUCATION
Principally, Federal funds for K-12 education (Function 500
in Table 2 of this report) should aim to support State and
local entities and empower them to produce good outcomes for
students. It should not seize control from States and
localities. Real gains in education result from the diversity
and creativity of State and local educators. Centralizing rules
and standards in Washington risks dampening their effectiveness
and innovation. The Federal Government has an interest in
education, but that interest is chiefly in promoting the
initiatives of local educators, not dictating them. To this
end, Congress continues to oversee the implementation of the
``Every Student Succeeds Act'', a law governing major K-12
education programs, aimed at reducing Federal overreach.
Promoting choice is another way to expand access to
quality, affordable education. When parents have choices, they
are empowered to help their children attend excellent schools
and receive a first-rate education. States and local districts
across the country are experimenting with the many forms of
school choice, which include vouchers, charter schools, magnet
schools, Education Savings Accounts, education-related tax
credits, homeschooling, online learning programs, and
others.\225\ For example, 43 States and the District of
Columbia have laws governing charter schools, which now serve
approximately 3 million students across the country.\226\ As
the Education and the Workforce Committee notes in its Views
and Estimates: ``[T]he D.C. Opportunity Scholarship program * *
* has allowed thousands of students to attend private schools
of their choice''\227\ as an alternative to staying at a poorly
performing school. Four States--Arizona, Florida, Tennessee,
and Mississippi--have active Education Savings Accounts
programs serving an estimated 11,300 students combined.\228\
The 115th Congress may consider appropriate Federal solutions
that advance the mission of school choice, alongside efforts to
improve children's experiences and educational outcomes in the
Nation's public schools.
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\225\See ``Types of School Choice,'' database at edchoice.org,
https://www.edchoice.org/school-choice/types-of-school-choice/.
\226\Education and Workforce Committee, ``Helping Students Succeed
Through the Power of School Choice,'' Rep. Rokita opening statement, 2
February 2017: http://edworkforce.house.gov/news/
documentsingle.aspx?DocumentID=401246.
\227\Committee on Education and the Workforce, FY 2018 Views and
Estimates
\228\``Fast Facts on School Choice,'' EdChoice.org, https://
www.edchoice.org/resource-hub/fast-facts/.
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CAREER AND TECHNICAL EDUCATION
While in middle and high school and in college, some
students also pursue their academic and professional goals
through a set of educational institutions referred to as career
and technical education. Career and technical education [CTE]
refers to programs that prepare students with academic and
technical knowledge and skills to succeed in a specific field,
whether health care, hospitality, manufacturing, information
technology, and more. These capabilities are indispensable for
maintaining the foundation of the Nation's economy, and
equipping students with such in-demand skills is a national
priority. This is especially so given gaps between jobs
available in certain industries and the number of workers
qualified for those jobs (often called the skills gap).\229\
Likewise, both traditional high-school graduates and older,
contemporary students can enjoy the job-readiness benefits of
CTE without taking on the costs--and debt often required--for
four-year degree programs.\230\ As with K-12 education
programs, there are opportunities for Congress to ensure
Federal laws governing CTE programs are not overly prescriptive
but instead empower State and local leaders to design
innovative ways to educate students for high-demand, high-skill
jobs.
---------------------------------------------------------------------------
\229\See Testimony of Mike Rowe, House Committee on Education and
the Workforce, 28 February 2017: https://edworkforce.house.gov/
uploadedfiles/rowe_-_written_testimony.pdf
\230\A Better Way, ``Poverty, Opportunity, and Upward Mobility,''
p. 28, https://abetterway.speaker.gov/_assets/pdf/ABetterWay-Poverty-
PolicyPaper.pdf.
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JOB TRAINING
In addition to high-quality educational opportunities,
Americans of all ages should have access to skills and job
training that will equip them to compete in the rapidly
changing global economy. Federal training programs--also a
major component of discretionary funding in this function--are
notorious for their failure and duplication. As described
further below, 42 training programs--administered by nine
Federal agencies--have created a labyrinth of bureaucracy that
consistently fail to produce a substantial number of job
placements. In addition to reforming training programs so they
serve Americans more effectively, Congress must make every
dollar count by eliminating wasteful, duplicative, and
ineffective programs.
For fiscal 2018 the budget resolution in this category
provides $80.4 billion in discretionary budget authority and
$91.3 billion in outlays, which primarily goes to the
Departments of Education, Labor, and Health and Human Services.
Illustrative Discretionary Spending Policy Options
The main committees responsible for funding programs in
this area are the Committee on Education and the Workforce and
the Appropriations Subcommittee on Labor, Health and Human
Services, Education, and Related Agencies. They will make final
decisions about what policies to develop to achieve their
budgetary targets. Policy options for consideration include the
following:
Reform Job-Training Programs. The Bureau of Labor
Statistics' February 2017 report found that 7.5 million
Americans are unemployed. Yet the bureau also reports 5.6
million job openings. This gap is due in part to the failure of
the Nation's workforce-development programs to successfully
match workers' skills with employers' needs.
This budget builds on the reforms made possible by the
``Workforce Innovation and Opportunity Act'' [WIOA], signed
into law in 2014. This budget calls for further consolidation
of duplicative Federal job training programs and improved
coordination with the reformed workforce development system. A
streamlined approach with increased oversight and
accountability will not only provide administrative savings,
but will improve access, choice, and flexibility, enabling
workers and job seekers to respond quickly and effectively to
whatever specific career challenges they face.
The GAO last reviewed Federal job training programs in
2011, three years before WIOA was enacted. This budget
recommends that GAO conduct a study to examine the
effectiveness of current Federal job training programs, and
identify ways to better measure program success.
Make the Pell Grant Program Sustainable. The Pell Grant
program is the foundation of Federal student aid, a portable
grant to help low-income students afford a college education.
After years of decisions to raise the Pell Grant award levels,
however, the program is on unstable financial ground, with real
consequences for future students. Pell Grant discretionary
costs ballooned from $12.8 billion to $22.2 billion between
fiscal years 2006 and 2016 (most recent data available). During
this period, the funding required to support the discretionary
portion of the grant award fluctuated considerably. In fiscal
years 2011 and 2012, for example, Congress provided $36.5
billion each year to sustain the program. CBO estimates Pell
Grant program costs will increase over the coming decade.
Instead of confronting some of the factors driving the
program's costs, previous Congresses increasingly relied on
mandatory spending to make up for discretionary funding
deficiencies. Instead of implementing necessary, structural
reforms to set up the program for long-term success, lawmakers
repeatedly resorted to short-term funding patches--a temporary
answer that will not prevent a severe funding cliff for the
program in the future. Any reforms to Pell Grants should aim to
help students with lower incomes access higher education and
complete in a timely manner. The budget envisions responsible
adjustments so that Pell Grants will continue to remain
available for future students. These include the following:
Provide flexibility and ensure on-time
completion. The fiscal year 2017 omnibus appropriations act
provides for year-round Pell Grants, which allow eligible
students to draw down their overall maximum grant eligibility
and continue their studies in the summer. Such a statutory
change could be a way to give students more flexibility in
earning their degree. It will likely lead to higher program
costs. It is therefore important that students accelerate
through their studies and complete their degrees on time. The
committee of jurisdiction could consider, in future
legislation, ways to encourage on-time completion. Policies
could include changing the Federal definition of ``full-time''
attendance for financial aid to one that would align with on-
time completion, or explicitly requiring students participating
in year-round Pell to accelerate their progress to completion.
Roll back certain recent expansions to the needs
analysis to ensure aid is available to students with the most
need. The Department of Education attributed 14 percent of
program growth between 2008 and 2011 to recent legislative
expansions to the needs-analysis formula. The biggest cost
drivers come from changes made in the ``College Cost Reduction
and Access Act'' [CCRAA] of 2007, such as the expansions of the
level at which a student qualifies for an automatic zero
Expected Family Contribution and the income-protection
allowance. One option is to return to these pre-CCRAA levels.
Eliminate administrative fees paid to
participating institutions. The government pays participating
schools $5 per grant to administer and distribute Pell awards.
Schools already benefit from the Pell program, because the aid
makes attendance at those schools more affordable.
Consider setting a maximum-income cap. Currently
there is no fixed upper-income limit for a student to qualify
for Pell. Figures go into a formula, which is used to calculate
the grant amount for which the student qualifies. The higher
the income level of the student and the student's family (and
therefore expected family contribution to the student's
education), the smaller the grant he or she receives.
Eliminate eligibility for less-than-half-time
students. Some students eligible for Pell grants may be
balancing a job and college courses, and even family
responsibilities. Timely completion of required course credits
is important, so that students do not borrow more in loans than
necessary to cover tuition and living costs; so that they can
graduate, secure a job, and be financially able to start
repaying any student loans; and so that grant aid can be made
available to more students. One option for encouraging timely
completion would be reserving funding for students enrolled on
no less than a half-time basis. This policy would retain
flexibility for contemporary students balancing school, work,
and family commitments.
Adopt a sustainable maximum-award level. The
Department of Education attributed 25 percent of recent program
growth to the stimulus bill's $619 increase in the maximum
award, which took effect in the 2009-2010 academic year. To
make Pell Grant program funding more stable and sustainable,
the budget recommends maintaining the maximum award for the
2017-2018 award year, of $5,920, in each year of the budget
window. Discretionary appropriations would fund this award.
Consider reforms to Return of Title IV Funds
regulations. Simple changes to this policy, such as increasing
the amount of time a student must attend class to withdraw
without debt owed for back assistance, will increase the
likelihood of students completing their courses and reduce
incentives for fraud.
Encourage Innovation in Higher Education. Federal higher-
education policy should focus not solely on financial aid but
on policies that maximize innovation and ensure a robust menu
of institutional options for students and their families. Such
policies should include reexamining the data made available to
students, to make certain they have information to assist them
in making decisions about where to go to college and how to pay
for it. Additionally, the Federal Government should remove
regulatory barriers in higher education that act to restrict
flexibility and innovative teaching, particularly as it relates
to contemporary models, such as online coursework.
Eliminate Administrative Fees Paid to Schools in the
Campus-Based Student-Aid Programs. Under current law,
participating higher-education institutions can use a
percentage of Federal program funds for administrative
purposes. One option would be to prohibit this practice.
Schools benefit significantly from participating in Federal
student-aid programs.
Ensure Federal Early Childhood Programs Work for Children
and Families. Recently enacted legislation, the Every Student
Succeeds Act, intends to scale back Federal overreach into
local education decisions and empower States to streamline many
early childhood programs. In short, it aims to better target
resources and shrink bureaucracy, and it gives States and
localities the opportunity to innovate and pursue programs with
demonstrated success. The budget supports future reforms, by
committees of jurisdiction, to programs and activities that are
not improving outcomes for participating children and parents.
For example, a study released in 2010 by the Department of
Health and Human Services found the Head Start program that
serves children across the country was not producing lasting
improvements in participating children's math, language, and
literacy skills. Nor was it improving parenting practices.\231\
Yet taxpayers fund this program at $9 billion annually. The
Obama Administration took regulatory action aimed at correcting
the program's course, but without engaging Congress in
discussions about how best to do so. Parents and their children
deserve better. The budget supports efforts by the committees
of jurisdiction to ensure that programs such as Head Start
support working parents, expand parental choice, are not mired
in regulation, and result in lasting gains for low-income
children and their parents. Congress and the new administration
have the responsibility to ensure existing early childhood
programs are producing desired outcomes before establishing and
funding new initiatives.
---------------------------------------------------------------------------
\231\See U.S. Department of Health and Human Services, Head Start
Impact Study, 15 January 2010: http://www.acf.hhs.gov/sites/default/
files/opre/executive_summary_final.pdf.
Empower Parents and Ensure High Quality in Federal Primary
and Secondary Education Programs. Certain provisions in the
``Every Student Succeeds Act'' prevent the Federal Government
from coercing States into adopting specific sets of academic
standards, such as Common Core. Setting standards, devising
curricula, and conducting related activities are not Federal
duties; they are of State and local concern. The budget
supports work to implement these provisions as well as future
efforts that stop Federal edicts and instead empower States,
local communities, and parents.
The structure for K-12 programs at the Department of
Education is fragmented and ineffective. Many programs are
duplicative, not working as intended, or are highly restricted,
serving only a small number of students. Given budget
constraints, Congress must focus resources on programs that
truly help students. The ``Every Student Succeeds Act''
provided for the elimination or consolidation of 49 of these
programs and replaced them with a single Student Support and
Academic Enrichment Grant.\232\ The budget encourages the
timely transition from an array of K-12 programs to the new
streamlined system, which will increase efficiency, limit the
Federal role, and make way for innovative practices in States
and localities. Downsizing the number and scope of programs,
and making more Federal aid dollars portable will make that
possible. Federal dollars should go to efforts that improve
academic outcomes, not add to the bureaucracy.
---------------------------------------------------------------------------
\232\Became Public Law 114-95.
---------------------------------------------------------------------------
The budget recommends that, as efforts to consolidate and
streamline are undertaken, the committees of jurisdiction
continue giving priority to discretionary funding for students
with disabilities provided under the ``Individuals with
Disabilities Education Act'' [IDEA]. IDEA funding has
consistently fallen short of the 40-percent Federal
contribution threshold established in statute. Congress should
refocus efforts to support this existing commitment before it
entertains new education programs or initiatives.
Encourage Private Funding for Cultural Agencies. The
activities and content funded by cultural agencies, such as the
Corporation for Public Broadcasting, National Endowment for the
Arts, and National Endowment for the Humanities, go beyond the
core mission of the Federal Government. The country has robust
offerings in the arts and media, which cater to the spectrum of
preferences and perspectives held by people across the country,
from small towns to dense urban cores. Federal cultural
agencies can generate additional financial support from
private-sector patrons, which will also alleviate risks of
political interference and perennial funding uncertainty that
come with Federal subsidies.
Make Way for Increased State, Local, and Private Financial
Support for Museums and Libraries. State and local governments
are in a position to manage and invest in museums and
libraries. Charitable contributions from private-sector
businesses, organizations, and individuals in civil society can
augment this funding.
Promote More Private Support for the Smithsonian
Institution. The Smithsonian Institution consists of 19 museums
and galleries, a zoological park, and research and supporting
facilities. Approximately 29 million visitors enjoyed the
Smithsonian complex in person in fiscal year 2016 (the last
full fiscal year), and the Institution can connect with
millions through its website, podcast, and social media.\233\
In fiscal year 2016, for example, the Smithsonian raised $326
million in private funds.\234\ Through Federal grants and
appropriated funds, general taxpayers contribute about 60
percent of its annual budget. The remaining 40 percent comes
from trust fund sources and non-federal funds, including
private gifts, endowment disbursements, membership
contributions, external grants, and business income.\235\ The
budget supports continued efforts by the Smithsonian to
generate non-federal revenue. Given the current Federal fiscal
environment, increased private funding can better enable
Smithsonian to expand its collections, improve existing
facilities, and make business decisions.
---------------------------------------------------------------------------
\233\Smithsonian Institution Fiscal Year 2018 Budget Justification
to Congress, May 2017: p. 1, https://www.si.edu/sites/default/files/
about/fy_2018_cjb_linked_table_of_contents.pdf.
\234\Ibid., p. 251.
\235\See Smithsonian Dashboard, Finances: http://dashboard.si.edu/
finances.
Eliminate the Corporation for National and Community
Service. Programs administered out of this agency provide
funding to students and others who work in certain areas of
public service. Participation in these programs is not need-
based. The United States has a long history of robust volunteer
work and other efforts that provide services to communities and
individuals. Americans' generosity in contributing their time
and money to these efforts is extraordinary and should be
encouraged. The Federal Government already has aid programs
focused on low-income students, and the oxymoronic act of
paying ``volunteers'' is not a core Federal responsibility,
especially in times of high deficits and debt. Further, it is
much more efficient to have such efforts operate at the State
and local level by the community that receives the benefit of
the service.
HEALTH
Function Summary: Discretionary Spending
For decades, the United States has been the biomedical
innovation capital of the world. This comes from the Nation's
commitment to the discovery, development, and delivery of new
treatments and cures. America should maintain its world
leadership in medical science by encouraging competitive forces
to work through the marketplace in delivering cures and
therapies to patients. Federal policies should foster
innovation in health care and promote medical ingenuity, not
stifle it. Bureaucracy and red tape in Washington have held
back medical innovation and prevented new lifesaving treatments
from reaching patients. Removing these burdens will allow the
Nation to maintain its lead in the production of medical
devices, the creation of new vaccines, and the pharmaceutical
research that saves and enhances millions of lives. This
resolution recognizes the valuable role of government support
for research agencies, such as the National Institutes of
Health [NIH], but also encourages the indispensable
contributions to medical research coming from outside
Washington.
In addition to the NIH and the Centers for Disease Control
and Prevention [CDC], programs and agencies that receive
discretionary funding in this category (Function 550 in Table
2) include Project Bioshield, the Food Safety and Inspection
Service, and the Food and Drug Administration [FDA]. The
resolution's discretionary totals for fiscal year 2018 are
$61.6 billion in budget authority and $61.3 billion in outlays.
The 10-year discretionary totals are $638.1 billion in budget
authority and $624.7 billion in outlays.
Illustrative Discretionary Spending Policy Options
The principal authorizing committees in this category are
the Committee on Energy and Commerce and the Committee on
Oversight and Government Reform. Funding is provided by the
Appropriations Subcommittees on Labor, Health and Human
Services, Education, and Related Agencies; Agriculture, Rural
Development, Food and Drug Administration, and Related
Agencies; and the Legislative Branch. These panels have sole
authority and maximum flexibility in determining the policy
choices to meet the fiscal parameters of this resolution.
Nevertheless, they might wish to consider the principles and
illustrative policy options described below.
Support Global Health Responses. The Nation must remain
prepared to address threats to public health in a timely
fashion. The budget protects funding for the NIH and the CDC,
the first line of defense for the American people. The
resolution recognizes the importance of resources to combat
infectious diseases and respond to global health crises,
ensuring the Nation's capability to prepare and act upon
emerging health threats, such as the recent Ebola and Zika
outbreaks. At the time of this resolution's consideration, the
NIH is advancing clinical trials in the human testing phase for
a new vaccine to combat the Zika virus.
Defend Against Bioterrorism. The Constitution requires the
Federal Government to provide for the common defense--a
function that has implications for health care in a global
environment fraught with chemical, biological, radiological,
and nuclear [CBRN] weapons. In following this commitment, the
budget supports funding to guard against bioterrorism, such as
the countermeasure procurement and development activities of
the Secretary of Health and Human Services.
The Federal Government operates a pathway for medical
countermeasures [MCM] to bioterrorism events. When the
Department of Homeland Security, in collaboration with the U.S.
intelligence community, identifies a CBRN threat, it begins the
MCM development and stockpiling process. The linchpin of the
process is Project BioShield. Project BioShield uses the
Special Reserve Fund to procure and stockpile MCMs that are
approved only for emergency use, following their research and
development by NIH and the Biomedical Advanced Research and
Development Authority [BARDA]. Upon approval by the Food and
Drug Administration [FDA], MCMs are shifted to the CDC-managed
Strategic National Stockpile. This budget recognizes the
collaborative effort in developing MCMs is vital to
safeguarding Americans against a bioterrorism attack. As such,
it supports adequate, consistent, and advance funding for these
activities.
Foster Medical Research, Innovation, and Development.
Medical breakthroughs and discoveries are made every day, and
the pace of medical innovation will continue to quicken due to
advancements in groundbreaking fields such as genomic medicine,
molecular medicine, and biomedical research. The NIH and the
CDC foster fundamental creative discoveries, cures, and
therapies. The Health and Human Service Laboratories housed in
these agencies rank first in the 2017 list of the world's most
innovative research institutions.\236\ The budget resolution
supports a level of funding for these agencies that enables
them to continue their critical work. The budget also
encourages the continuation of work started under the ``21st
Century Cures Act'', which provided funds through the NIH and
the Cures Innovation Fund for biomedical research, particularly
early-stage, ``high-risk, high-reward'' research.\237\
---------------------------------------------------------------------------
\236\David Ewalt, ``The World's Most Innovative Research
Institutions,'' Reuters, 1 March 2017: http://www.reuters.com/article/
innovative-institutions-ranking-idUSL2N1GC1NG.
\237\H.R. 6, the ``21st Century Cures Act,'' 114th Congress: 1st
Session, 19 May 2015.
---------------------------------------------------------------------------
Regrettably, much of this innovation has faced significant
hurdles due to the Federal overregulation pushed by the Obama
Administration. For example, a recent report from the Mercatus
Center at George Mason University highlights the proper role
the FDA should have in the 21st Century.\238\ It should not be
an organization that holds up products for nine years before
approving them.\239\ It should not cost innovators close to $20
million to deal with the FDA's myriad requirements.\240\ Most
important, patients should not be left to suffer the true costs
of delaying life-saving devices. This resolution calls for a
complete examination of the FDA approval process to promote a
more effective, efficient system that truly safeguards
Americans' access to innovative cures and therapies. The Trump
Administration has signaled its intention to expedite review of
potentially life-saving medicines and devices, and this budget
supports those efforts.
---------------------------------------------------------------------------
\238\Jason Briggeman, Joseph V. Gulfo, and Ethan C. Roberts, The
Proper Role of the FDA for the 21st Century, the Mercatus Center at
George Mason University, February 2016: http://mercatus.org/sites/
default/files/Gulfo-Proper-Role-FDA-v1.pdf.
\239\Emergo, ``How long it has historically taken the FDA to clear
510(k) submissions,'' retrieved 1 February 2016: http://
www.emergogroup.com/resources/research/fda-510k-review-times-research.
\240\AdvaMed, FDA Impact on U.S. Medical Technology Innovation,
November 2010: http://www.advamed.org/sites/default/files/resource/
30_10_11_10_2010_Study_CAgenda_makowerreportfinal.pdf.
Strengthen Oversight and Program Integrity Measures.
Federal grant programs fund a variety of health care services
provided by State and local governments. Every dollar made
available through these programs should be used transparently,
and in the most effective manner possible, for its intended
purpose. This budget resolution supports increased program
integrity measures to prevent fraud and abuse in health care
programs, particularly in the realms of improper payments and
inappropriate expenditures.
The resolution promotes scientific integrity, particularly
when taxpayer dollars are funding research. International
research entities should be subject to the same strict
transparency and reproducibility requirements that U.S.
institutions must follow to receive the same grant money. If
these standards are violated--or worse, never put into place--
the findings of the research are questionable at best.
Regrettably, the government does not maintain these same
protections when transferring taxpayer money overseas through
international grant projects. This lack of transparency allows
for results-shopping to fit a particular ideology, the
intentional misdirection of taxpayer dollars away from
institutions that value the scientific method, and the
deliberate misinformation of the public. At the time of this
report's writing, the House Committee on Science, Space, and
Technology is conducting an investigation into just such an
egregious use of taxpayer dollars.\241\
---------------------------------------------------------------------------
\241\Letter from Chairman Lamar Smith, Chairman, House Committee on
Science, Space, and Technology, and Chairman Darin LaHood, Science,
Space, and Technology Subcommittee on Oversight, to Thomas E. Price,
Secretary, U.S. Department of Health and Human Services, 24 March 2017:
https://science.house.gov/sites/republicans.science.house.gov/files/
documents/03_24_2017%20SST%20to%20Price%20HHS%20Re%20NIEHS.pdf.
---------------------------------------------------------------------------
This budget supports the ongoing investigative efforts of
the House Committee on Science, Space, and Technology.
Furthermore, it asserts that future grants to study health
safety should be awarded only to those intuitions subject to
the same scientific standards as U.S. researchers.
Limit Federal Health Coverage Funding for Members of
Congress and Their Staffs. Currently, Federal contributions to
the Federal Employee Health Benefits Program grow by the
average weighted rate of change in these programs. This budget
supports restricting the growth in these plans to inflation. It
also proposes restricting Federal employees' retirement
benefits based on length of service, which would bring Federal
benefits in line with the private sector model.
Reduce Wasteful Spending. This budget repeals funding for
certain offices that waste taxpayer resources on nonessential
projects, particularly projects that are only tangential to
improving Americans' health. The NIH operates the National
Center for Complementary and Integrative Health, which receives
funding for research on alternative health care. Some of its
recent grant awardees include studies on the effectiveness of
cranberry juice in treating urinary tract infections; the
potential use of yoga to improve low metabolism; and the
benefits of chamomile tea in treating anxiety. The CDC operates
the Division of Community Health, which provides grants to
programs that fund sidewalks and smoke-free housing options.
The CDC and NIH do excellent work on early detection,
prevention, and treatment for breast and cervical cancer, as
well as on immunizations, flu vaccines, and many other worthy
efforts. The agency should receive sufficient funding for these
activities, but they should not be spending American taxpayer
dollars on unsubstantiated research and community enhancement
that would be best conducted by local governments.
Target Resources, Improve Outcomes. The budget supports
better targeting of Federal spending to achieve the country's
health care goals. For example, the budget calls for
eliminating duplicative programs at the Department of Health
and Human Services [HHS]. The budget supports the consolidation
of the Agency for Healthcare Research and Quality [AHRQ] into
existing HHS agencies. The AHRQ's mission and areas of research
exist within other HHS agencies and are therefore duplicative
and unnecessary.
The budget also supports prudent investments to improve
mental health care and awareness. In 2015, according to NIH,
nearly 10 million adults in the U.S. lived with severe mental
illness,\242\ and it is important that the Federal Government
give priority to treatment of the sickest and most vulnerable
patients. The Government Accountability Office recently
conducted a study that identified more than 100 distinct
programs supporting individuals with serious mental illness,
and found interagency coordination for programs severely
lacking.\243\ Federal dollars should not be squandered on
antiquated programs that fail to meet patients' needs. The
budget calls for Federal programs to be reoriented to advance
treatment for those facing serious mental illness. Any research
conducted and grants awarded by the Federal Government should
be firmly rooted in evidence-based practice. Programs and
resources in this area should focus on psychiatric care for
patients and families most in need of services.
---------------------------------------------------------------------------
\242\National Institute of Mental Health, ``Director's Blog: Mental
Health Awareness Month: By the Numbers,'' 15 May 2015: http://
www.nimh.nih.gov/about/director/2015/mental-health-awareness-month-by-
the-numbers.shtml.
\243\Government Accountability Office, HHS Leadership Needed to
Coordinate Federal Efforts Related to Serious Mental Illness, report to
the Energy and Commerce Subcommittee on Oversight and Investigations,
December 2014: http://energycommerce.house.gov/sites/
republicans.energycommerce.house.gov/files/114/Analysis/
20150205GAOReport.pdf.
---------------------------------------------------------------------------
This budget supports initiatives aimed at modernizing the
health care system, such as advancing telemedicine. This
practice utilizes technology allowing providers to interact
with patients from a distance. It can offer access to care for
patients who may otherwise not receive regular care,
particularly those in rural areas. It also gives patients
greater control over their own health care while reducing
costs.\244\ At the same time, this budget recognizes the
government must not leave behind patients who rely on more
traditional medical practices. Patient-centered care requires
the budget to look forward as it fosters private-sector
innovation, without abandoning currently available care models
that patients require.
---------------------------------------------------------------------------
\244\Bill Frist, ``Telemedicine: A Solution to Address the Problems
of Cost, Access, and Quality,'' Health Affairs, 23 July 2015: http://
healthaffairs.org/blog/2015/07/23/telemedicine-a-solution-to-address-
the-problems-of-cost-access-and-quality/.
---------------------------------------------------------------------------
One such model is the Federal Black Lung Program, which
provides compensation to coal miners disabled by pneumoconiosis
that resulted from their work in coal mining. The Black Lung
Benefits Act provides eligible miners with medical coverage to
treat related lung disease through benefits and clinic funding.
This budget allows for continued support of those who risked
their health to power the Nation.
Combat the Opioid Epidemic. Finally, the budget recognizes
that the United States is in the midst of a deadly battle with
opioid and heroin abuse. According to the CDC, an average of 91
Americans die each day from an opioid overdose.\245\ In the
State of Tennessee, there are more opioid prescriptions than
people. In 2015, Tennessee health care professionals wrote
nearly 8 million prescriptions for opioids, producing enough
for 1.18 prescription per Tennessean.\246\ Nearly 5 percent of
Tennesseans suffer from opioid abuse.\247\ This reflects a
larger challenge faced by Americans nationwide.
---------------------------------------------------------------------------
\245\Centers for Disease Control and Prevention, ``Opioid Basics:
Understanding the Epidemic,'' 16 December 2016: https://www.cdc.gov/
drugoverdose/epidemic/index.html.
\246\Holly Fletcher, ``There Are More Opioid Prescriptions than
People in Tennessee,'' The Tennessean, 19 September 2016: http://
www.tennessean.com/story/news/health/2016/09/19/there-more-opioid-
prescriptions-than-people-tennessee/90358404/.
\247\Jake Lowary, ``Tennessee Lawmakers Still Wrangling with Opioid
Epidemic,'' The Tennessean, 26 March 2017: http://www.tennessean.com/
story/news/politics/2017/03/26/tennessee-lawmakers-still-wrangling-
opioid-epidemic/98487640/.
---------------------------------------------------------------------------
The Committee on Energy and Commerce has led an ongoing
effort to ascertain which Federal programs have been effective
in combatting opioid abuse, and which have not--and why the
latter failed.\248\ The budget resolution supports a
continuation of these efforts. It calls for a complete
examination of the Federal response to the crisis. The
government should implement prevention activities, and evaluate
them to identify effective strategies for preventing substance
abuse. The budget resolution includes a policy statement that
describes in greater detail the contours of how the Federal
Government should respond to the ongoing substance abuse
crisis.
---------------------------------------------------------------------------
\248\Press Release, Committee on Energy and Commerce, U.S. House of
Representatives, 29 March 2017: https://energycommerce.house.gov/news-
center/press-releases/ec-leaders-comment-president-trump-s-executive-
action-address-opioid.
---------------------------------------------------------------------------
INCOME SECURITY
Function Summary: Discretionary Spending
The aim of potential reforms described here is to make more
judicious use of limited resources. In addition, these reforms
seek to target funds on the most needy while encouraging self-
sufficiency for those who can achieve it. Programs that
subsidize food and housing for low-income Americans remain
largely unreformed, nearly two decades after the success of the
``Personal Responsibility and Work Opportunity Act''--the major
welfare reform bill enacted in 1996. This budget proposes to
improve work incentives for these programs and increase State
flexibility.
Discretionary spending components of this category
(Function 600 in Table 2) include the Special Supplemental
Nutrition Program for Women, Infants, and Children; the Low
Income Housing Energy Assistance Program; housing assistance
programs; and the Child Care and Development Block Grant. For
these programs the budget resolution provides $68.1 billion in
budget authority in fiscal year 2018, and $67.6 billion in
outlays. The budget assumes discretionary spending of $712.8
billion in budget authority and $710.3 billion in outlays in
this area over the 2018-2027 period.
Illustrative Discretionary Spending Policy Options
The main committees responsible for funding these programs
are the Committee on Agriculture; the Committee on Financial
Services; and the Appropriations Subcommittees on Labor, Health
and Human Services, Education, and Related Agencies, and on
Agriculture, Rural Development, Food and Drug Administration,
and Related Agencies. They will make final policy
determinations for discretionary funding and should aim to
provide State flexibility and to expand work incentives. The
options below are potential policy proposals that follow such
guidelines.
The committees of jurisdiction are not bound by any of the
illustrative policy discussions in this report. The options are
presented to demonstrate the credibility of the budgetary
assumptions of the resolution, but the authorizing and
appropriating committees retain full authority and maximum
flexibility in determining the policies to be adopted.
Make Responsible Reforms to Housing-Assistance Programs.
This resolution supports taking actions that would make
housing-assistance programs more sustainable and direct Federal
dollars to serve those most in need. In past budgets,
illustrative policy options have attempted to impose a Federal
solution to housing policy to aid those most in need. The
Committee on Financial Services says: ``Current federal housing
policy is fractured, costly, and inefficient * * *. In
particular, the Department of Housing and Urban Development has
received more than $1.655 trillion in real (2014) dollars in
appropriations over its 50 year existence and today spends $45
billion annually on at least 85 active programs.''\249\ The
Committee on Financial Services also reports current federal
programs for providing housing assistance are fragmented and
outdated. As a result, ``[t]his fragmented national system * *
*. may further constrain individual choice and economic
mobility.\250\
---------------------------------------------------------------------------
\249\Committee on Financial Services, U.S. House of
Representatives, Views and Estimates, 3 March 2017.
\250\Ibid.
---------------------------------------------------------------------------
There is nothing more local than housing assistance. For
fiscal year 2018, the resolution calls for block granting all
discretionary housing assistance programs at the Department of
Housing and Urban Development. Local communities are better
prepared to address the housing needs of their citizens. Some
communities have a large homeless population, while others may
struggle to assist working age adults in unstable housing
situations. Communities must be able to set their own
priorities to address these local needs. Building off of the
successful reforms to the Temporary Assistance for Needy
Families [TANF] program, the fiscal year 2018 policy option
would provide a base level of funding to each state and allow
States to determine the best programs to provide housing for
their citizens.
Reform Supplemental Nutrition Assistance Program Outreach
Funding. This budget assumes that outreach funding for
Supplemental Nutrition Assistance Program (formerly food
stamps) is reduced, and funds are shifted toward programs that
facilitate upward mobility, such as properly reformed job-
training programs.
Enforce Eligibility Requirements For WIC Program. The
Women, Infants, and Children [WIC] Program is intended to serve
individuals with incomes below 185 percent of the Federal
Poverty Level. Adjunctive eligibility allows individuals to
demonstrate eligibility for the program if they are enrolled in
Medicaid. Since Medicaid serves families with incomes above 185
percent of the Federal Poverty Level, adjunctive eligibility
not only simplifies program administration, but also expands
eligibility. The budget would limit WIC eligibility to 185
percent of the Federal Poverty Level.
OTHER DISCRETIONARY SPENDING
Discretionary spending under the Medicare Program consists
primarily of administration and management costs. The budget
resolution totals for fiscal year 2018 are $6.6 billion in
discretionary budget authority, with $6.6 billion in outlays.
The 10-year totals in the budget resolution are $82.6 billion
in discretionary budget authority and $82.1 billion in outlays
(Function 570 in Table 2). This also includes the budget for
the Medicare Payment Advisory Commission, a non-partisan,
independent agency established by the Balanced Budget Act of
1997 to advise Congress on Medicare payment policies and
analyze issues affecting beneficiaries, such as access to care,
quality of care, health care outcomes, and so on.
For administering Social Security, the budget assumes $5.4
billion in discretionary budget authority and $5.4 billion in
outlays for fiscal year 2018. The 10-year totals for
discretionary budget authority and outlays are $61.5 billion
and $61.3 billion, respectively (Function 650 in Table 2). All
the budget authority and all but a sliver of residual outlays
are off budget. The Social Security Administration oversees the
program.
Direct Spending
----------
Uncontrolled automatic spending, formally called ``direct''
or ``mandatory'' spending,\251\ has come to dominate the
Federal budget, and its share of total outlays continues to
increase. As noted previously, this form of spending is largely
open-ended and flows from effectively permanent authorizations.
Most of the programs funded this way pay benefits directly to
groups or individuals without an intervening appropriation.
They spend without limit, and their totals are determined by
numerous factors outside the control of Congress: caseloads,
the growth or contraction of gross domestic product, inflation,
and many others.
---------------------------------------------------------------------------
\251\The Balanced Budget and Emergency Deficit Control Act (Public
Law 99-177) defines ``direct spending'' as budget authority provided in
law other than appropriations acts; entitlement authority; and the
Supplemental Nutrition Assistance Program (formerly food stamps).
---------------------------------------------------------------------------
The majority of this spending goes toward the government's
health programs--mainly Medicare, Medicaid, and the Affordable
Care Act. Social Security represents another major component.
Apart from these, however, there are numerous other benefit
programs financed with direct spending. These include farm
assistance, food stamps, a range of income support programs,
tuition assistance for college students, and many others. This
section discusses solely the direct spending in these areas to
reinforce the urgency of getting this spending under control.
SOCIAL SECURITY
Function Summary: Direct Spending
Following the outbreak of the Great Depression, rates of
unemployment and poverty increased dramatically, and nearly
half of elderly Americans lacked the means to be self-
supporting. Many lived in poverty and also had no access to
viable retirement security options. Americans at the time were
reluctant to expand welfare programs. They believed in the
virtue of self-sufficiency, and the strength of character that
emerges in striving for it. What President Roosevelt proposed
in the midst of America's economic crisis, however, was not
welfare; it was retirement security through social insurance.
``[S]ecurity was attained in the earlier days through the
interdependence of members of families upon each other and of
the families within a small community upon each other,'' the
President told Congress. ``The complexities of great
communities and of organized industry make less real these
simple means of security. Therefore, we are compelled to employ
the active interest of the Nation as a whole through government
in order to encourage a greater security for each individual
who composes it * * * a right which belongs to every individual
and every family willing to work.''\252\
---------------------------------------------------------------------------
\252\President Franklin D. Roosevelt, Message to Congress Reviewing
the Broad Objectives and Accomplishments of the Administration, 8 June
1934: https://www.ssa.gov/history/fdrcon34.html.
---------------------------------------------------------------------------
The result was the creation of the Old-Age and Survivors
Insurance [OASI] program, commonly known today as Social
Security, which established a work-based contribution system to
insure against old-age and provide lifetime benefits to retired
workers. The 1939 Amendments added Social Security benefits for
the spouse and minor children of retired workers. Twenty years
later, Social Security was expanded to provide disability
benefits to workers and their dependents.
Before the passage of the Social Security Act in 1935, the
Federal Government played a limited role in poverty relief. In
the 1920s, there were between five million and six million
seniors, or 5 percent of the population. For male seniors, work
provided the primary source of support. If a senior was unable
to work and care for himself, the ``safety net'' was his
family.\253\ Following the Great Depression, Social Security
and other Federal poverty programs provided a floor of support
for senior citizens during old age.
---------------------------------------------------------------------------
\253\Carolyn L. Weaver, ``Support of the Elderly Before the
Depression: Individual and Collective Arrangements,'' Cato Journal, Vol
1, No. 2, Fall 1986: http://object.cato.org/sites/cato.org/files/
serials/files/cato-journal/1987/11/cj7n2-15.pdf.
---------------------------------------------------------------------------
Success, Popularity, and Expansion
Social Security is the largest program in the Federal
Government's budget. Program benefits are reflected in the
direct spending of budget Function 650 (Table 3 in the summary
tables). Under this budget, these benefits total $995 billion
in outlays in fiscal year 2018. Over 10 years, total outlays
will be $13.2 trillion. With respect to the budget resolution,
these benefits are treated as off budget and do not appear in
the legislative text. The retirement program, Old-Age and
Survivors Insurance, is projected to spend $847 billion in
benefits in 2018, and $11.4 trillion for the period of 2018
through 2027. The Disability Insurance [DI] program has
projected outlays of $148 billion for 2018 and $1.8 trillion
for 2018-2027.\254\
---------------------------------------------------------------------------
\254\Congressional Budget Office, The Budget and Economic Outlook:
2017 to 2027, January 2017, Table 1-2: https://www.cbo.gov/sites/
default/files/115th-congress-2017-2018/reports/52370-
budeconoutlook.pdf.
---------------------------------------------------------------------------
OASI was created in 1935\255\ as a self-financed program--
funded through a payroll tax on employers and employees--that
provides a monthly cash benefit to retired workers, based on
the worker's lifetime average earnings in covered employment.
The program furnishes benefits to workers who spend at least 10
years (40 quarters) in jobs in which they pay Social Security
taxes. OASI has a progressive benefit structure so lower-income
beneficiaries generally receive a monthly benefit that replaces
a higher percentage of their pre-retirement income than do
higher-income beneficiaries.
---------------------------------------------------------------------------
\255\Public Law 74-271, 74th Congress.
---------------------------------------------------------------------------
From the outset, however, Social Security benefits were
never intended to be the sole source of income for seniors in
retirement, but rather a floor so a senior citizen would not
become destitute. Personal savings, pensions, family support,
and continuing to work into old age were to provide additional
support to seniors above a person's Social Security benefit.
From 1935 through 1975, Congress expanded the number of
people covered by the program, increased benefits and the taxes
that support it, created the DI Program (in 1956),\256\ and
established a cost-of-living adjustment [COLA] (in 1975).\257\
Since then, Congress has focused on ensuring the long-term
solvency of the program. In 1983, Congress passed substantial
reforms to Social Security, including increasing the full
retirement age from 65 to 67.
---------------------------------------------------------------------------
\256\Public Law 84-880, 84th Congress.
\257\Public Law 92-603, 92nd Congress.
---------------------------------------------------------------------------
By almost every measure, U.S. senior citizens today are
healthier and wealthier than at any point in U.S. history.
Social Security, along with Medicare, has played a significant
role in improving quality of life for America's seniors.
Americans also are living longer, largely due to medical
innovation and healthier lifestyles. In 1935, when Social
Security was created, the average life expectancy from birth
was 60 years. Today, it is 78.8 years.
A 2011 study using both income and consumption data found
seniors over 65 have much lower poverty rates than almost any
other demographic group.\258\ According to one of its authors:
``Even over the past 10 years, those 65 and older with the
lowest income are now living in bigger houses that are much
more likely to be air conditioned and have appliances like a
dishwasher and clothes dryer. Few other groups have enjoyed as
much improvement in living standards over the past three
decades.''\259\
---------------------------------------------------------------------------
\258\Bruce D. Meyer, University of Chicago, and James X. Sullivan,
University of Notre Dame, The Material Well-Being of the Poor and
Middle Class Since 1980, American Enterprise Institute, 22 September
2011: http://www3.nd.edu/ jsulliv4/well_being_middle_class_poor4.3.pdf.
\259\Bruce D. Meyer, ``Using Consumption to Study Older Americans'
Poverty,'' The New York Times, 9 November 2011: http://www.nytimes.com/
roomfordebate/2011/11/09/are-older-americans-better-off/using-
consumption-to-study-older-americans-poverty.
---------------------------------------------------------------------------
Social Security enjoys widespread support. It continues to
represent a bond, a compact, among generations of Americans.
The program currently serves some 60 million beneficiaries, but
with 10,000 baby boomers now retiring daily, by 2040 Social
Security will cover 100 million beneficiaries. Today and in the
future, Social Security beneficiaries deserve a program that is
sound and reliable--one responsive to the 21st century economy.
Social Security is threatened, however, by demographic,
financial, and structural challenges. It is on an unsustainable
financial trajectory and will not be able to pay promised
benefits within the next two decades.
Fragile Financial Prospects
Social Security payroll taxes are credited to two trust
funds: one for OASI and one for DI. The Social Security Trust
Funds also hold additional assets, including interest on
Treasury securities from previous cash surpluses. From 1983
through 2010, more tax revenues were collected by the Trust
Funds than what was paid out in Social Security benefits, so
Social Security ran annual cash-flow surpluses. Because the
government subsequently borrowed these surplus funds for other
activities, critics declared a ``raid'' on Social Security that
threatened retirees' future benefits. It was not. All the
borrowed funds were replaced with interest-bearing Treasury
securities--the only kind of resources the Trust Funds hold--
that can be redeemed as needed.
In 2010, Social Security began running a cash-flow deficit,
meaning non-interest income (mainly payroll tax revenue) could
no longer pay all the benefits to current retirees. If not for
balances of Treasury securities in the Trust Funds, built up
from previous surpluses, the program would already be unable to
pay promised benefits. The ability to redeem these securities,
however, depends entirely on the Treasury's ability to raise
money through taxes or borrowing.
To make matters worse, both Trust Funds face insolvency
within the next 20 years--2028 for DI and 2035 for OASI--
depleting their capacity to pay full benefits. With each year
Congress delays, the policy changes needed to correct the
program's fiscal trajectory will become too large and wrenching
to adopt. That will lead to sudden, steep reductions in
benefits.
Those who doggedly oppose reform, however, only ensure
these automatic benefit cuts will occur. ``The Social Security
program is kept solvent on the government's books by
`planning'--it's the law of the land--to cut benefits 25
percent across the board in under two decades. It's a horrible
way to run a pension program and no one should be proud of that
and so we need a better Social Security program. It's not a
matter of just cutting because [we] want to have the numbers
line up. It's about having programs that are serving the
beneficiaries well.''\260\
---------------------------------------------------------------------------
\260\Douglas J. Holtz-Eakin, The Need for Fiscal Goals, testimony
to the Committee on the Budget, U.S. House of Representatives, 15 June
2016: https://www.youtube.com/watch?v=CW5sA9-ikg0.
---------------------------------------------------------------------------
For these reasons, the House adopted a rule for the 114th
Congress prohibiting legislation that improves the financial
condition of DI at the expense of the OASI Trust Fund. The rule
provides an exemption, however, for legislation that improves
the financial condition of both Social Security Trust Funds.
The rule has been continued in the 115th Congress.\261\
---------------------------------------------------------------------------
\261\Section 3(o) of H. Res. 5, Rules of the House of
Representatives: One Hundred Fifteenth Congress.
---------------------------------------------------------------------------
The lack of bipartisan congressional action on a long-term
solution to the problem facing Social Security has resulted in
many Members of Congress offering their own. One such proposal
would be a bipartisan commission that would study the
structural deficiencies within the current Social Security
system and report back with specific legislative proposals for
Congress and the President to consider.
Social Security's fiscal condition warrants a long-term
solution that keeps the promise made to the Nation's current
and future retirees.
This budget calls for a bipartisan path forward in
addressing the long-term structural problems within Social
Security. The path will require all parties to first
acknowledge the fiscal realities of this critical program.
Short-term policy proposals that merely delay addressing Social
Security's long-term fiscal challenges are no longer
acceptable. Neither borrowing between the OASI and DI Trust
Funds, nor reallocating the apportionment of payroll tax
revenues to each Fund, is a long-term solution to Social
Security's fiscal challenges. ``If you want to help both
programs you're not going to accomplish that by moving money
around just between them.''\262\
---------------------------------------------------------------------------
\262\Holtz-Eakin, op. cit.
---------------------------------------------------------------------------
Former President Obama's Fiscal Commission made an
important contribution to the debate about addressing Social
Security's financial shortfall. The Commission acknowledged the
reality of increasing longevity and proposed reforms to
alleviate the demographic problems that are undermining Social
Security's finances.
This budget seeks to build on the Fiscal Commission by
requiring the President to put forward specific solutions to
fix Social Security's long-term fiscal problem. The budget also
puts the onus on Congress to offer legislation ensuring the
long-term solvency of this program. Any policy proposal offered
regarding the Disability Insurance program should first and
foremost strengthen the long-term integrity of the program for
Americans with disabilities (see further discussion below).
The Committee on Ways and Means will determine actual
policies in Social Security. The committee's members have
maximum flexibility in determining the appropriate legislative
course for meeting the budget resolution's parameters. The
discussion below offers some guiding principles to include in
the debate.
Starting the Process
This budget requires the President and Congress to begin
the process of reforming Social Security by altering a current-
law trigger that, in the event the Social Security program is
not sustainable, requires the President, in conjunction with
the Social Security Board of Trustees, to submit a plan for
restoring the balance to the Trust Funds. This provision would
then require congressional leaders to put forward their
positive solutions to ensure the long-term solvency of Social
Security. While the Committee on Ways and Means would make the
final policy decisions, this provision would require the
following:
If in any year the Board of Trustees of the
Federal Old-Age and Survivors Insurance Trust Fund and the
Disability Insurance Trust Fund, in its annual Trustees'
Report, determine that the 75-year actuarial balance of the
Social Security Trust Funds in the 75th year is in deficit, the
Board of Trustees should, no later than the 30th of September
of the same calendar year, submit to the President
recommendations for statutory reforms necessary to achieve a
positive 75-year actuarial balance and a positive annual
balance in the 75th year.
No later than the 1st of December of the same
calendar year in which the Board of Trustees submits its
recommendations, the President shall promptly submit
implementing legislation to both Houses of Congress, including
recommendations necessary to achieve a positive 75-year
actuarial balance and a positive annual balance in the 75th
year.
Within 60 days of the President's submission, the
committees of jurisdiction to which the legislation has been
referred shall report the bill, which shall be considered by
the full House and Senate under expedited procedures.
Disability Insurance
The Disability Insurance program provides essential income
support for persons with disabilities and their families. Due
in large part to the predictable consequence of demographic
factors and policy decisions, however, DI program revenues will
be unable to cover the full costs of benefits in 2028,
according to the Social Security Trustees, unless Congress
acts.
In 2015 Congress took the first step toward comprehensive
Disability Insurance reform that would solve the Trust Fund's
long-term financing troubles. The Bipartisan Budget Act of 2015
included a number of provisions to reduce fraud, increase
program integrity, and encourage DI beneficiaries to return to
work. These provisions strengthened the DI program and extended
its solvency date to 2022.\263\
---------------------------------------------------------------------------
\263\Public Law 114-74.
---------------------------------------------------------------------------
Despite this recent legislation, the structural problems
facing the DI program remain the same. Under current law, its
Trust Fund is expected to be exhausted in 2028. If lawmakers do
not enact reforms to ensure the long-term solvency of the
Disability Insurance program, an immediate 7-percent reduction
in benefits will be required when the Trust Fund becomes
exhausted.\264\
---------------------------------------------------------------------------
\264\Congressional Budget Office, Estimate of the Effects on the
OASI and DI Trust Fund of enacting H.R. 1314, the Bipartisan Budget Act
of 2015, introduced 27 September 2015.
---------------------------------------------------------------------------
The huge growth in the number of individuals receiving DI,
and the benefits paid to each, have contributed heavily to the
worsening financial condition of the DI Trust Fund. In 2016,
the Congressional Budget Office reported that the share of
working-age adults receiving DI benefits rose from 1.3 percent
in 1970 to 4.5 percent in 2014.\265\ Between 1990 and 2015, the
total number of individuals receiving DI benefits increased
from 4.3 million to 10.9 million.\266\ Average DI benefits per
person have also increased significantly from $5,100 in 1970 to
$12,200 in 2015 (as measured in 2015 dollars). Legislated
changes to the formula used to compute benefits contributed to
the increase in spending.\267\ Meanwhile, tax revenues paid
into the DI Trust Fund have remained relatively flat as a share
of taxable payroll.
---------------------------------------------------------------------------
\265\Congressional Budget Office, Social Security Disability
Insurance: Participation and Spending, June 2016, p. 1.
\266\Ibid., p. 6.
\267\Ibid., p. 9-10.
---------------------------------------------------------------------------
The demographic factors contributing to the problem include
the aging of the baby boomers into their most disability-prone
years and the increased number of women in the workforce now
eligible for benefits should they become severely disabled. In
addition, policymakers have expanded the ways in which
applicants may qualify for benefits. At the same time, those
receiving DI are in many ways prevented from improving their
situations. If they work too much, they see their benefits
reduced or eliminated. While about 40 percent of disability
beneficiaries indicate an interest in working, less than one-
half of one percent leave the rolls each year due to earnings
from work.\268\
---------------------------------------------------------------------------
\268\Debra Wright, Gina Livermore, Denise Hoffman, Eric Grau, and
Maura Bardos, 2010 National Beneficiary Survey: Methodology and
Descriptive Statistics, Mathematica, 2 April 2012.
---------------------------------------------------------------------------
Principles for Disability Insurance Reform
Congress and the President should develop bipartisan
legislation to secure the future of the DI program. This
legislation should be rooted in principles that do the
following:
Promote opportunity for those trying to return to
work;
Ensure benefits continue to be paid to
individuals with disabilities and their family members who rely
on them;
Prevent an 7-percent across the board benefit
cut; and
Make the Disability Insurance program work
better.
Consistent with the House rule, reforms should begin to
improve the financial situation of Social Security.
Illustrative Policy Option
Eliminate the Ability to Receive Both Unemployment
Insurance and Disability Insurance. This option would eliminate
concurrent receipt of unemployment and disability insurance, a
clear example of duplication in the Federal budget. The
proposal would give the Social Security Administration the
authority to identify fraud and prevent individuals from
obtaining benefits from both programs. It is consistent with a
similar policy proposal President Trump and former President
Obama made in their budget requests. This budget takes the
first step in preventing across the board benefit reductions to
the Social Security program. This policy option could save up
to $4.4 billion.
MEDICARE
Function Summary: Direct Spending
The Medicare and Medicaid Programs reached their 50th
anniversary in July 2015. By many measures, Medicare has seen
remarkable successes, such as providing access to health care
for millions of seniors, and contributing to increased life
expectancies and reduced rates of poverty among seniors. At the
same time, however, it has become an immensely expensive
program that actually limits retirees' choices, imposes heavy
burdens on medical providers, and--through its myriad billing
rules--effectively makes Washington bureaucrats the decision-
makers for retirees' health care services.
The aims of Medicare are not in question. Retirees need
health care and it has to be paid for somehow--without
burdening seniors themselves with crippling costs. That was the
goal of the program's creation in 1965. The problem has been
the attempt to deliver Medicare's vast promises through a
centrally managed government financing arrangement. In the 21st
century American health care market, there is a far better way
to achieve Medicare's worthy goals. It should be built on the
same principles that apply to health care reform generally.
Retirees should be able to choose the coverage plan best suited
to their particular needs, rather than accept a set of benefits
dictated by Washington. The program should ensure doctors and
patients make health care decisions for themselves. It also
should encourage competition among insurers to expand choices
of coverage and restrain costs.
The benefits of this approach have already been
demonstrated in certain existing components of Medicare.
Medicare Advantage and Medicare Part D, an optional
prescription drug benefit, provide seniors with the opportunity
to choose, from an array of private plan options, the coverage
that best suits their needs. These programs, described further
below, offer lessons that can be applied more broadly through
Medicare, creating a more responsive and resilient program.
They are a model for the proposals envisioned in this budget
resolution.
Looking to these examples, as well as the private sector,
positive solutions can be discovered that maintain access to
high-quality care through patient-centered reforms fostering
competition, restoring market forces, expanding choices and
empowering individuals, promoting innovation, and providing
flexibility for patients and providers.
Such reforms, worthwhile in themselves, have another
significant benefit: They can help Congress balance the budget,
and bolster Medicare's collapsing financial structure. On its
present course, the so-called Medicare ``guarantee'' is in fact
a promise of shrinking benefits. Yet those who doggedly oppose
reform only ensure this unacceptable outcome.
INCREASING COMPLEXITY: MEDICARE'S EVOLUTION
When the Medicare Program was created in 1965, it consisted
of just two essential parts: Part A, coverage for hospital
services, or hospital insurance [HI]; and Part B, or
supplementary medical insurance [SMI]. The HI Trust Fund is
funded primarily through a designated payroll tax of 2.9
percent that is shared equally by employer and employee. The
SMI Trust Fund is supported much differently; revenues consist
of beneficiary premiums, which must account for 25 percent of
all Part B costs on an annual basis, and transfers from the
U.S. Treasury's general revenues.
During the late 1990s, Congress created Medicare Part C, or
Medicare Advantage [MA]. The MA program offers beneficiaries
private plan options that cover services provided under Part A,
Part B, and often Part D benefits. The Federal Government
determines the level of spending per enrollee that will be
provided to MA plans (with funds from the appropriate trust
funds used to offset the Part A, Part B, and Part D costs), and
beneficiaries pay a monthly premium as they do under Parts B
and D. Not surprisingly, with the adjustment of payment rates
to make MA plans comparable to traditional Medicare, use of
this program dramatically expanded. In 2016, 31 percent of all
Medicare beneficiaries chose a MA plan, as opposed to just 13
percent in 2003.\269\
---------------------------------------------------------------------------
\269\Gretchen Jacobson, Giselle Casillas, Anthony Damico, Tricia
Neuman, and Marsha Gold, Medicare Advantage 2016 Spotlight: Enrollment
Market Update, The Kaiser Family Foundation, 11 May 2016: http://
kff.org/medicare/issue-brief/medicare-advantage-2016-spotlight-
enrollment-market-update/.
---------------------------------------------------------------------------
Finally, Medicare Part D, Prescription Drug Coverage, was
established in 2003. Part D is structured similarly to Part B
and is a separate account within the SMI Trust Fund.
Beneficiary premiums account for approximately 25.5 percent of
costs, with the remaining 74.5 percent funded through general
revenues.\270\ Unlike any other program in Medicare, however,
Part D relies on market forces and competition among private
plans to drive down costs. As a result, year after year Part D
reports costs millions of dollars lower than projected, while
still maintaining high quality and beneficiary satisfaction.
These lessons ought to be applied throughout the Medicare
Program.
---------------------------------------------------------------------------
\270\Part D also receives payments from States for dually enrolled
beneficiaries in the program.
---------------------------------------------------------------------------
Medicare's evolution brought growing complexity, making
benefits difficult for retirees to navigate. This conflicts
with the experience the majority of beneficiaries enjoyed for a
lifetime in the private health insurance market prior to
entering the program. Notwithstanding the program's successes,
Medicare's complicated benefit structure, along with a
multitude of rules and regulations, make the program a
bureaucratic quagmire for both beneficiaries and providers.
Medicare's current benefit design is overly complex, with
various cost-sharing structures for each part. Currently,
beneficiaries must enroll in three separate programs to get the
same comprehensive coverage. Seniors are required to enroll in
Part A for hospitalization; coverage is provided separately for
outpatient physician services and prescription medications,
through the optional Parts B and D, respectively. Medicare also
fails to offer financial protections for seniors, such as
annual or lifetime limits. Many must sign up for an additional
supplemental insurance policy called MediGap to obtain a fully
comprehensive coverage package.
Several fundamental program design problems add costs to
the system and inhibit innovation. First, Medicare allows
government bureaucrats to determine what benefits enrollees are
entitled to, and the program's administrative pricing system
distorts costs and services throughout the entire health care
sector. Medicare keeps restricting the medical sector because
its savings mechanisms are largely price controls, not cost
controls. The Centers for Medicare and Medicaid Services [CMS]
often fails to reimburse for new therapies and medical
technology, limiting patient access to more advanced cures.
This effectively stymies innovation throughout the health care
delivery model.
Additionally, CMS acts as the clinical arbiter of access to
medical goods and services with full authority to deny coverage
of items. Unfortunately for patients, CMS is often abysmally
wrong when it comes to coverage determinations, and in some
cases appears to be working toward a certain bottom line rather
than ensuring patients have access to the safest and most up-
to-date medical technologies and therapies. For example,
transcatheter aortic valve replacement [TAVR] is a minimally
invasive surgical procedure used to repair heart valves--which
previously required open heart surgery. Today, a small implant
can be inserted through a catheter to the affected valve and
requires only very small openings that leave all the chest
bones in place. While no procedure is completely without risk,
TAVR provided options to previously non-viable surgical
candidates and offers a faster recovery period. Despite these
advances, CMS created coverage and procedural requirements to
limit the procedure's use.
Finally, Medicare's billing and reporting regulatory regime
force providers to spend more time filling out paperwork than
actually seeing patients.\271\ A recent Health Affairs article
reported that today physician practices spend more than 785
hours per physician and $15 billion annually to report quality
measures.\272\ While everyone benefits from quality health
care, the current reporting requirements are highly burdensome
and add unnecessary costs to the health care system.
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\271\Christine Sinsky, Lacey Colligan, Ling Li, Mirela Prgomet, Sam
Reynolds, Lindsey Goeders, Johanna Westbrook, Michael Tutty, and George
Blike, ``Allocation of Physician Time in Ambulatory Practice: A Time
and Motion Study in 4 Specialties,'' Annals of Internal Medicine, 6
December 2016: http://annals.org/aim/article/2546704/allocation-
physician-time-ambulatory-practice-time-motion-study-4-specialties.
\272\Lawrence P. Casalino, David Gans, Rachel Weber, Meagan
Cea,Amber Tuchovsky, Tara F. Bishop, Yesenia Miranda, Brittany A.
Frankel, Kristina B. Ziehler, Meghan M. Wong and Todd B. Evenson, ``US
Physician Practices Spend More Than $15.4 Billion Annually To Report
Quality Measures,'' Health Affairs, March 2016: http://
content.healthaffairs.org/content/35/3/401.abstract.
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Many of these difficulties could be addressed by expanding
retirees' choices of insurance plans and promoting competition
among insurers. As noted, such approaches are already working
in Medicare Parts C and D. They should apply to the program
more broadly.
FORTHCOMING FINANCIAL COLLAPSE
In addition to its structural problems, Medicare suffers
from a failing financial arrangement and ever-rising costs.
Correcting these problems is indispensable for making the
program sustainable for the long term. They also contribute
immensely to the important task of balancing the Federal
budget.
Medicare and the other major health care programs are
projected to consume an ever-increasing portion of the Federal
budget over time.\273\ In the next decade, annual spending on
these programs will double, from $1.1 trillion to $2.2
trillion, according to estimates by the Congressional Budget
Office [CBO].\274\ Medicare currently serves more than 57
million beneficiaries, and is the second largest direct, or
automatic, spending program after Social Security.\275\ In
2016, Medicare Program costs totaled $692 billion, and CBO
projects spending to more than double by 2027, reaching $1.4
trillion that year. Congress cannot balance the budget without
addressing these rapid cost increases.
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\273\Using CBO's descriptions, the major health care programs are
Medicare, Medicaid, the State Children's Health Insurance Program, and
the Affordable Care Act's exchanges and associated credits and
subsidies.
\274\Congressional Budget Office, The Budget and Economic Outlook:
2017 to 2027, January 2017.
\275\CMS.gov: https://www.cms.gov/fastfacts/.
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Several factors contribute to the growth in program
spending over the next decade. Foremost is the aging of the
population. In 2011, the first baby boomer enrolled in
Medicare. This generation will continue to age into the program
over the next two decades at a rate of approximately 10,000
beneficiaries per day. By the time the baby-boom generation has
fully aged into Medicare in 2030, the program will cover more
than 75 million beneficiaries. Such an increase in the
Medicare-covered population naturally corresponds with an
increase in program costs, but this effect is exacerbated by a
number of additional factors. Since the beginning of the
program, the average life expectancy has increased dramatically
while the Medicare eligibility age has remained unchanged. In
1965, the average life expectancy was 70 years, meaning
Medicare provided 5 years of health care coverage on average.
Today, life expectancy is almost 80 years, and the average
Medicare beneficiary remains in the program roughly three times
longer than those enrolled at its inception.
Additionally, revenues for Part A--supporting the HI Trust
Fund--cannot meet the costs of the program due to a shrinking
working-age population. When Medicare was created, there were
4.5 workers for every beneficiary enrolled in the program,
which easily sustained the pay-as-you-go funding structure.
Today, the ratio has declined with approximately three workers
per beneficiary. By 2030, when the baby-boom generation has
fully aged into Medicare, the ratio will be closer to two
workers per beneficiary, meaning fewer revenues will be
available to offset ever-increasing program costs. Finally,
although most beneficiaries pay into the Medicare Program
throughout their working years, the Medicare benefit the
average person receives far exceeds his or her contribution to
the program through payroll taxes. For example, the present
value of lifetime Medicare taxes for a married couple earning
the average wage and retiring at age 65 in 2015 equaled
approximately $140,000 contributed through payroll taxes, but
the anticipated lifetime Medicare benefit is estimated to be
$422,000--roughly three times the lifetime contribution.\276\
By 2050, the anticipated lifetime Medicare benefit balloons to
more than four times the lifetime contribution.
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\276\C. Eugene Stuerle and Caleb Quakenbush, Social Security and
Medicare Lifetime Benefits and Taxes, Urban Institute, September 2015:
http://www.urban.org/sites/default/files/alfresco/publication-pdfs/
2000378-Social-Security-and-Medicare-Lifetime-Benefits-and-Taxes.pdf.
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These trends play a significant role in Medicare's long-
term outlook. The CBO recently updated enrollment projections
for Medicare by age group. Currently, the majority of
beneficiaries are under age 75, but by 2035 there will be more
Medicare beneficiaries over age 75 than under.\277\ This is
especially troubling when the difference in Medicare per capita
spending between older and younger beneficiaries has widened.
The average spending for a Medicare beneficiary of 85 years is
now more than twice that of a 66-year-old, and spending is
three times greater for a 95-year-old.\278\ Not surprisingly,
Medicare costs are expected to rise not only as a greater
number of beneficiaries enter the program, but also as per-
capita costs increase with the continued aging of the Medicare
population. The CBO estimates Medicare per-capita cost growth
to average 4.3 percent per year between 2017 and 2027, 3
percent higher than the previous five years and net program
spending to grow from 3 percent of gross domestic product [GDP]
to 5.7 percent by 2046. Compared to the other major health care
programs--Medicaid, the State Children's Health Insurance
Program, and the Affordable Care Act [ACA]--that are expected
to grow from 2.2 percent to 2.9 percent of GDP by 2040, this is
a startling growth rate for a single program.\279\ Furthermore,
the Medicare Trustees estimate the total amount of unfunded
obligations for the Medicare Program over the 75-year period to
equal $3.2 trillion for the HI Trust Fund and $24.8 trillion
for the SMI Trust Fund.\280\
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\277\The Congressional Budget Office, The 2015 Long-Term Budget
Outlook, June 2015: https://www.cbo.gov/sites/default/files/114th-
congress-2015-2016/reports/50250/50250-breakout-Chapter2-2.pdf.
\278\Tricia Neuman, Juliette Cubanski, Jennifer Huang, and Anthony
Damico, The Rising Cost of Living Longer: Analysis of Medicare Spending
by Age for Beneficiaries in Traditional Medicare, The Kaiser Family
Foundation, 14 January 2015: http://kff.org/medicare/report/the-rising-
cost-of-living-longer-analysis-of-medicare-spending-by-age-for-
beneficiaries-in-traditional-medicare/.
\279\The Congressional Budget Office, The 2015 Long-Term Budget
Outlook, June 2015: https://www.cbo.gov/sites/default/files/114th-
congress-2015-2016/reports/50250/50250-breakout-Chapter2-2.pdf.
\280\United States Department of the Treasury. Fiscal Year 2015
Financial Report of the United States Government: https://
www.fiscal.treasury.gov/fsreports/rpt/finrep/fr/15frusg/02242016_
FR(Final).pdf.
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In the short term, Medicare costs are projected to outpace
income, creating a shortfall in the HI Trust Fund. In January
2017, the CBO reported the HI Trust Fund would be exhausted by
2025--four years earlier than the date estimated by the
Medicare Trustees and one year earlier than CBO projected last
year.\281\ Expenditures from the trust fund, which is financed
mainly through the 2.9-percent payroll tax, have exceeded
revenues annually since 2008. Although the Medicare trustees
expect a slight surplus from 2016 through 2020, the ratio of
revenues to costs declines quickly in the following years. The
most recent projection, reported by the trustees in July 2017,
estimated depletion of the HI Trust Fund in 2029. Upon
depletion, Medicare may only pay for Part A services equal to
the amount of revenues available in the HI Trust Fund, which
are expected to cover only 88 percent of promised benefits. The
Social Security Act is silent on what steps may be taken upon
depletion of the HI Trust Fund, but without action,
beneficiaries' access to health care services would certainly
be severely reduced. They will be subject to automatic benefit
reductions.
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\281\Congressional Budget Office, The Budget and Economic Outlook:
2017 to 2027, January 2017.
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Structural reforms to the Medicare Program are necessary to
ensure the long-term viability of the program without
compromising beneficiary access to quality care. While many of
the most insidious effects of the ACA appear mainly in
Medicaid, the Medicare Program was also fundamentally undercut
and altered as a result. The ACA imposed across-the-board cuts
on Medicare providers and services, and put those savings
toward new government spending programs rather than to extend
the solvency of the Medicare Program. Furthermore, the Medicare
trustees have warned for several years that the low Medicare
payment updates authorized by the ACA will lead to serious
limitations of access over the long term, and create perverse
incentives in the short term that further distort the health
care sector. By 2040, approximately half of hospitals, 70
percent of skilled nursing facilities, and over 80 percent of
home health agencies will have negative margins, the Medicare
trustees estimate--an unsustainable situation that will cause
many providers to withdraw from the program, and will
unquestionably limit access to quality care for Medicare
beneficiaries.\282\ Furthermore, the Independent Payment
Advisory Board [IPAB] established by the ACA must submit
proposals for further spending reductions if the estimated rate
of growth in Medicare exceeds GDP plus 1 percent. Without
congressional action to achieve the same level of savings, the
IPAB's proposals will automatically take effect. Given these
pressures, medical providers have acted accordingly, with
record rates of consolidation among hospitals and physician
practices. Medicare currently pays approximately 67 percent of
what private insurance would otherwise pay for hospital
services. Over time, however, reimbursements for services are
expected to fall well below providers' overhead costs, such as
rent, energy, equipment, and the cost of employing medical
staff. A recent study by the Government Accountability Office
[GAO] reported that from 2007 through 2013, the number of
vertically consolidated physician practices nearly doubled,
from 96,000 to 182,000; this occurred more rapidly in recent
years across all regions and hospital sizes.\283\
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\282\2017 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplementary Medical Insurance Trust
Funds, July 2017. https://www.cms.gov/research-statistics-data-and-
systems/statistics-trends-and-reports/reportstrustfunds/downloads/
tr2017.pdf.
\283\Government Accountability Office, Increasing Hospital
Physician Consolidation Highlights Need for Payment Reform, December
2015: http://www.gao.gov/assets/680/674347.pdf.
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As currently structured, Medicare cannot fulfill the
promise of health care security for America's seniors. Medicare
must be saved, strengthened, and secured to restore the trust
that both current and future retirees will continue to have
guaranteed access to health care providers, services, and
treatments. Looking to examples both within the Medicare
Program and the private sector, positive solutions can be
discovered that reduce costs while maintaining access to high
quality care through patient-centered reforms that foster
competition, restore market forces, expand choices and empower
individuals, promote innovation, and provide flexibility for
patients and providers.
This budget resolution reflects the Medicare Program in the
direct spending portion of Function 570 (see Table 3). The
function includes all four program components: Medicare Part A
Hospital Insurance Program, Part B Supplementary Medical
Insurance Program, Part C Medicare Advantage Program, and Part
D prescription drug coverage. For fiscal year 2018, the net
direct spending totals in the resolution are $587.3 billion in
budget authority and $587.0 billion in outlays. Over 10 years,
Medicare direct spending is projected at $8.1 trillion in
budget authority and $8.1 trillion in outlays.
The primary authorizing committees--Ways and Means and
Energy and Commerce--have made a laudable commitment to
structural Medicare reforms, along with efforts to improve
transparency and eliminate waste, fraud, and abuse in the
program.\284\ They have complete authority and discretion to
write program reforms that meet the fiscal parameters of this
budget resolution. Nevertheless, they may choose to follow the
framework outlined below to ensure Medicare's long-term
sustainability for America's current and future retirees.
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\284\Committee on Ways and Means Committee, Views and Estimates, 14
February 2017; Committee on Energy and Commerce, Views and Estimates on
the President's Fiscal Year 2018 Budget, 3 March 2017.
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Illustrative Direct Spending Policy Options
This budget provides for policy proposals that protect
seniors' and near-seniors' health care security with a focus on
the doctor patient relationship as opposed to the
indiscriminate, mindless cuts brought about as a result of the
ACA.
Every year that difficult choices are deferred, the cost of
inaction continues to rise and inflicts tremendous fear on
current recipients who do not view Medicare as a real choice.
To them, it is truly a matter of life and death. Without
changes, the accelerated insolvency of the HI Trust Fund will
only lead to an abdication of the Federal Government's
responsibility to this population. The budget offers Americans
true structural reforms that generate savings by allowing
competition to derive greater efficiencies without the loss of
access to high-quality care for beneficiaries.
Enhance Quality and Choice in Medicare. Throughout
Medicare's history, Washington has been slow to innovate and
respond to transformations in health care delivery. Meanwhile,
controlling costs in Medicare's open-ended fee-for-service
system has proved impossible without limiting access or
sacrificing quality. This is because policies in the main have
artificially controlled prices or payments, not costs; in the
absence of real structural reform, the factors that drive costs
higher remain. Today, costs continue to grow, seniors continue
to lose access to quality care, and the program remains on a
path to bankruptcy. Inaction will not protect Medicare; it will
only hasten the program's demise.
Reform aimed at empowering patients--combined with a
strengthened safety net for the poor and the sick--will not
only ensure the fiscal sustainability of this program, the
Federal budget, and the U.S. economy, but will also guarantee
that Medicare can fulfill the promise of health security for
America's seniors. Hence, this budget resolution fully supports
a patient-centered program that enhances quality and choice in
Medicare.
Under this program, traditional Medicare--which would
always be an option available to beneficiaries--and private
plans providing the same level of health coverage would compete
for seniors' business, just as Medicare Advantage does today.
By adopting the competitive structure of Part D, the
prescription drug benefit, the program would also deliver
savings for seniors in the form of lower monthly premium costs.
This improved program assumes a simplified benefit that
provides comprehensive coverage for all beneficiaries, rather
than the complex and fragmented structure in place today.
Currently, beneficiaries must enroll in three separate programs
to get the same comprehensive coverage. Seniors are required to
enroll in Part A for hospitalization; coverage is provided
separately for physician services and prescription medications,
through the optional Parts B and D, respectively. None of these
coverage options, however, offers financial protections for
seniors, such as annual or lifetime limits, and many must sign
up for an additional supplemental insurance policy called
MediGap to obtain a fully comprehensive coverage package.
Today, only Medicare Advantage (Part C) offers seniors the
opportunity to choose from a selection of comprehensive
coverage plans. Not surprisingly, Medicare Advantage enrollment
has tripled in the past decade and currently serves almost 18
million seniors.\285\ Medicare Advantage also shows higher
satisfaction rates than traditional Medicare. Beneficiaries
were especially satisfied with the overall cost of Medicare
Advantage plans and with the simplified health process compared
to traditional Medicare.\286\
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\285\Medicare Advantage, The Kaiser Family Foundation, 11 May 2016:
http://http://kff.org/medicare/fact-sheet/medicare-advantage/.
\286\Morning Consult, Seniors Love Their Medicare (Advantage), 30
March 2015: http://morningconsult.com/2015/03/seniors-love-their-
medicare-advantage/.
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The Medicare improvements envisioned in this budget
resolution would adopt the popular simplified coverage
structure of Medicare Advantage, and allow seniors greater plan
choices while reducing costs. It would resemble the private
insurance market, in which the majority of Americans select a
single health care plan to cover all their medical needs.
The enhanced program would also continue to offer a robust
financial benefit to all beneficiaries. In many ways, the
benefit provided would mirror the Federal Employees Health
Benefits [FEHB] Program for Federal employees, retirees, and
their families. FEHB boasts the widest selection of health
plans in the country, from which its eight million members may
choose. Plans offered under the FEHB Program may charge
different premium amounts, competing for individuals' choices,
and the government pays a certain percentage--or a defined
contribution--to help offset the cost of coverage. Similarly, a
Medicare recipient would choose from an array of guaranteed-
coverage options, including traditional Medicare, for a health
plan that best suits his or her needs.
The Federal Government contribution would go directly to
the plan provider, following the current model under both the
FEHB Program and Medicare Advantage. Furthermore, the
government payment would be adjusted so the sick would receive
more financial assistance if their conditions worsened, and
lower-income seniors would receive additional support to help
cover premiums and out-of-pocket costs. Wealthier seniors would
assume responsibility for a greater share of their premiums.
Additionally, this enhanced Medicare program would ensure
affordability by fixing the currently broken system and letting
market competition work as a real check on widespread waste and
skyrocketing health care costs--as successfully demonstrated
through the competitive structure adopted by Medicare Part D.
More than 70 percent of beneficiaries are currently enrolled in
the prescription drug benefit, which enjoys extremely high
satisfaction rates among seniors.\287\ In 2016, nearly 90
percent reported satisfaction with their coverage, and 80
percent consider the coverage to be a good value.\288\
Similarly, this personalized arrangement puts patients in
charge of how their health care dollars are spent, requiring
providers to compete against one another on price and quality.
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\287\The Kaiser Family Foundation, The Medicare Part D Prescription
Drug Benefit, 13 October 2015:
http://kff.org/medicare/fact-sheet/the-medicare-prescription-drug-
benefit-fact-sheet/#endnote_link_165022-4.
\288\Morning Consult, National Tracking Poll, conducted 1-11 July
2016: http://http://medicaretoday.org/wp-content/uploads/2016/07/2016-
Senior-Satisfaction-Survey-Fact-Sheet.pdf.
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The improvements to Medicare derive from a long history of
bipartisan reform plans based on the defined contribution
model, or premium support, with a competitive bidding structure
to lower costs. The 1999 Breaux-Thomas Commission, the
Domenici-Rivlin 2010 Report, and the 2011 Wyden-Ryan plan all
put forward this model of reform as it is designed to ensure
security and affordability for seniors now and into the
future.\289\ All three recognize two fundamental truths: the
current path of Medicare is unsustainable, and it is
unacceptable for Washington to allow the program to fail
current or future beneficiaries. Each proposal further
developed the policy with the intent of preserving Medicare
over the long term without reducing health care access or
quality.
---------------------------------------------------------------------------
\289\National Bipartisan Commission on the Future of Medicare,
Building a Better Medicare for Today and Tomorrow, 16 March 1999:
http://thomas.loc.gov/medicare/bbmtt31599.html; Bipartisan Policy
Center, Restoring America's Future, November 2010: http://
bipartisanpolicy.org/wp-content/uploads/sites/default/files/
BPC%20FINAL%20REPORT%20FOR%20PRINTER%2002%2028%2011.pdf.; and Senator
Ronald L. Wyden and Representative Paul D. Ryan, Guaranteed Choices to
Strengthen Medicare and Health Security for All: Bipartisan Options for
the Future, 15 December 2011: http://budget.house.gov/uploadedfiles/
wydenryan.pdf.
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The policy continues to garner bipartisan support today.
Even former-President Obama's fiscal year 2017 budget proposal
included a similar reform to introduce a competitive bidding
structure into the Medicare Advantage program. His proposal
failed, however, to offer the benefits of more choice and lower
costs achieved through the competitive bidding structure to all
beneficiaries.
Following these examples, CBO performed an analysis of two
variations of premium support that established a defined
government contribution using different formulas. CBO
determined that a Medicare Program following the premium
support model that based the contribution level on an average
of bids submitted by competing plans would result in savings
for both beneficiaries and the program. Moreover, it would set
up a carefully monitored exchange for Medicare plans. Health
plans that chose to participate in the Medicare exchange would
agree to offer insurance to all Medicare beneficiaries, to
avoid cherry-picking, and to ensure that Medicare's sickest and
highest-cost beneficiaries received coverage.\290\ A patient-
centered Medicare program would also adopt these protections to
guarantee better health, better value, and better choice for
America's seniors, and allow all those in traditional, fee-for-
service Medicare the same opportunity as new retirees to remain
there or transition into the improved program beginning in
2024.
---------------------------------------------------------------------------
\290\Congressional Budget Office, A Premium Support System for
Medicare: Analysis of Illustrative Options, 18 September 2013: http://
www.cbo.gov/sites/default/files/09-18-PremiumSupport.pdf.
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This resolution envisions giving seniors the freedom to
choose plans best suited for them, guaranteeing health security
throughout their retirement years. Further, it resolves the
concerns regarding Medicare's long-term sustainability, while
also lowering costs for beneficiaries. With the adoption of
patient-centered improvements, this program would preserve the
positive aspects of traditional Medicare, while modernizing the
program to reflect the changes to health care delivery in the
21st century.
Promoting Personal Digital Advance Care Plans. In keeping
with expanding patient-centered care, this resolution supports
the use of readily available advance care plans. Administering
medical treatment often requires patient consent. When informed
consent cannot be obtained due to life-threatening emergencies
or impaired decision-making, precious time is lost in
determining who has the legal authority to act on behalf of a
critical patient. Consequently, the patient's wishes may not
ultimately be fulfilled. Digital advance care plans allow
individuals to thoughtfully consider their treatment options,
on their schedules, and with their loved ones--rather than
making urgent decisions under emergency room pressure, where
time is of the essence. This resolution respects the patient's
voice, whatever it says, and supports its primacy in the health
care delivery process.
Implement a Unified Deductible and Reform Supplemental
Insurance. This resolution strengthens the Medicare Program
through another bipartisan proposal. The outdated and
fragmented fee-for-service arrangement would be streamlined
into one benefit, unifying the separate parts of the program,
that would provide coverage for both hospital and physician
services. Additionally, the reform would provide common sense
financial protections for America's seniors and reform
supplemental insurance policies. This proposal, which was also
supported by a number of bipartisan commissions including
Breaux-Thomas, Domenici-Rivlin, and Simpson-Bowles, would allow
the Medicare benefit to operate more like private health
insurance coverage.\291\\,\\292\\,\\293\
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\291\National Bipartisan Commission on the Future of Medicare, op.
cit., 16 March 1999; Bipartisan Policy Center, op. cit., November 2010.
\292\Bipartisan Policy Center, op. cit. November 2010.
\293\The National Commission on Fiscal Responsibility and Reform,
The Moment of Truth, December 2010: http://www.fiscalcommission.gov/
sites/fiscalcommission.gov/files/documents/
TheMomentofTruth12
