December 14, 2005

December 14, 2005 | WebMemo on Federal Budget

Ready for Reconciliation: The Top Five Items No Fiscal Conservative Could Possibly Support

With Congress back in town, rumors are flying about the budget reconciliation conference. This year, unlike most others, reconciliation isn't just an inside-the-Beltway phenomenon; with all the recent attention being paid to long-term spending issues, millions of Americans are watching to see whether Congress has finally gotten serious about the federal budget. Right now, it's hard to tell. The House and the Senate passed very different bills, with many competing provisions.

 

One thing, however, is certain: The worse the bill that comes out of conference, the more smoke and mirrors its proponents will employ to confuse the public about its contents. Final language could move from conference to votes in just hours, leaving almost no one, not even Members of Congress, to understand what's on the table. Some of the issues in play are horribly complex, but others should be obvious to anyone who wants to get federal spending under control-even to lawmakers.

 

The Top Five Items No Fiscal Conservative Could Possibly Support

 

  1. Digital Television Converter-Box Subsidies: "Feeling, evidently, flush with (other people's) cash, the Senate has concocted a novel way to spend $3 billion: create a new entitlement," wrote columnist George Will last week. The new entitlement has nothing to do with health, retirement, poverty, disability, or anything like that; it's an entitlement to watch television. Sometime in 2009, television networks will stop broadcasting analog signals and switch entirely to digital. For most of the millions of Americans with analog sets, this switchover will mean "absolutely nothing"-85 percent of households have cable or satellite service and won't even notice. Still, the Senate would spend $3 billion to subsidize converter boxes for whoever wants them; the House would spend only $1 billion. A true fiscal conservative would let consumers spend the $50 per converter box themselves.
     
  2. Farm Subsidies and MILC: Over the next five years, the government is scheduled to spend $102 billion on farm subsidies that drive up prices for U.S. shoppers, burden taxpayers, and put poor farmers in developing countries at a disadvantage in trade. The Senate has generously offered to shave $3 billion off of this total…in exchange for extending the subsidy programs for another four years after their scheduled expiration in 2007. Only the Senate could call a new $60 billion commitment paired with a $3 billion nip "savings." Adding insult to injury, the Senate would also reinstitute the now-defunct Milk Income Loss Contract (MILC) program, which makes direct payments to farmers, based on the amount of the milk they produce, whenever the price falls below a specified level. According to the Department of Agriculture, MILC so perfectly counteracts existing dairy subsidies as to effectively cancel them out. Really, the only lasting effect would be the cost to taxpayers: about $1 billion.
     
  3. Higher-Education Grant Extensions: Bravo to the House and Senate for putting forward proposals to trim federal outlays for higher education. The Senate bill, however, would actually expand several higher-education grant programs-most notably, the Provisional Grant Assistance (ProGAP) program. The Senate has no good justification for this additional $8 billion in spending through 2010. Given the state of the budget, that's just not acceptable.
     
  4. Medicare Smoke and Mirrors: Right around when the Washington Post's Robert Samuelson complained that very few in Congress are "serious about curbing federal spending and budget deficits," the Congressional Budget Office released a report detailing how the Senate hopes to wring savings from the Medicare program. The Senate's plan would save $2.5 billion in 2006. Where does the money come from? According to CBO, the plan "would postpone payments for Medicare Part A and B benefits for six business days at the end of the fiscal year 2006." In other words, the Senate plan would actually boost 2006 Medicare spending by $2.5 billion and then try to hide that increase by not paying doctors until the next fiscal year. This isn't savings; it's a sham.
     
  5. Pay for Performance: This sounds like something that embraces free-market principles. However, Pay for Performance-sometimes called "values-based purchasing"-is just code for wrapping Medicare-participating doctors in even more red tape. The Senate's proposal here would dock physicians who don't report "quality-related data" to the government and redistribute that money to physicians who do. Little evidence supports the effectiveness of this kind approach. What is clear is that Pay for Performance would effectively establish government guidelines for the practice of medicine and tie Medicare payment to physician compliance with those guidelines. This would be a radical break from the Medicare policy that prohibits federal officials from interfering in the practice of medicine. It is true that Medicare wants for market-based approaches, and it is encouraging that the Senate is at least paying lip-service to that. But Pay for Performance (or whatever the lawmakers want to call it in the end) would only strengthen the bureaucrats' hand-the exact opposite of relying on the market.

The Top Five Items No Fiscal Conservative Could Do Without

 

  1. Oil Exploration in ANWR: Coming off a year marked by volatile energy prices and disruptions in energy supplies, the need for more energy sources is more apparent than ever. Allowing oil exploration in Alaska's Arctic National Wildlife Refuge would eventually put another source online and at the ready should disaster disrupt supplies again. Moreover, exploration would net the government $2.5 billion in oil-leasing revenues, as well as subsequent royalty payments from oil companies-billions more, all told. Opening ANWR is a win-win policy no matter how you look at it.
     
  2. Modest Cuts in Food Stamps: The way things stand now, you can't qualify for food stamps if your income is above a certain level-unless, that is, you receive certain other government benefits, such as job training. Fixing this quirk in the law, combined with requiring immigrants to wait an extra two years before they can become eligible for food stamps, would save $0.6 billion through 2010. Despite the fact that these are very minor changes, the House leadership has been excoriated for pursuing them. Whether these cuts remain in the final bill will be a test of Congress's backbone; if not, there's little hope that Congress will have the will and strength to address the looming entitlement crisis.
     
  3. Ending the Byrd Amendment: The Byrd Amendment takes tariffs on imports that allegedly have been "dumped" in the United States and transfers them to the foreign firms' competitors. It's bad enough that these tariffs raise prices for U.S. consumers, but the Byrd Amendment gives U.S. firms the incentive to run to the government for protection rather than duke it out in the marketplace. Even worse, the WTO has ruled that the Byrd Amendment violates U.S. trade obligations and has awarded a number of countries the right to impose retaliatory duties on U.S. goods. For these reasons alone, ending the Byrd Amendment, as the House reconciliation would do, is a no-brainer; that it would save the government an estimated $3.2 billion is just icing on the cake.
     
  4. Medicaid Flexibility: State governments are sinking under the weight of Medicaid bills. Under current law, states' Medicaid programs, funded in part by the federal government, are hamstrung by unnecessary mandates that drive up costs and block innovation. A set of proposals in the House would give the states flexibility to serve Medicaid enrollees better. New flexibility in benefit packages and cost-sharing will allow states to differentiate between the truly indigent and those with some financial means. States could offer enrollees new options for service delivery-such as using private insurers-and experiment with new financing techniques. In the process, the federal government would save an estimated $6.5 billion through 2010.
     
  5. Postponing the Medicare Prescription Drug Benefit: Despite a strong proposal from Senator John McCain (R-AZ) and his colleagues on the Senate's "Fiscal Watch Team," neither the House nor the Senate stepped up to the plate to address the new Medicare drug entitlement. The new entitlement, the first to be created in decades, will cost hundreds of billions of dollars, and Congress has no idea right now how it will pay the bill. A fiscally responsible budget reconciliation bill would delay the Medicare drug entitlement for two years so that Congress could go back to the drawing board and design a rational and responsible Medicare drug benefit. In the meantime, Congress could make the existing Medicare drug discount card more generous for low-income seniors, targeting aid on the truly needy. A two-year delay would save between $40 billion and $80 billion.

These Things Are Clear

Breathless thousand-word stories in the Post and the Times, seemingly impenetrable jargon (like the daunting phrase "budget reconciliation"), and bizarre procedural rules in the House and Senate lead many Americans to believe that their representatives' work is beyond comprehension in its complexity. While some issues at play in this budget reconciliation are complex, many of the big ones are not. By looking at just a few items, fiscal conservatives should be able to tell almost instantly what kind of bill has come out of conference and whether Congress is finally getting serious about federal spending.

 

Andrew M. Grossman is Senior Writer at The Heritage Foundation.

About the Author

Andrew M. Grossman Visiting Fellow
Edwin Meese III Center for Legal and Judicial Studies