Foundation

Taxpayer's Tab: House, Senate GOP Offer Budget Alternatives

/

 
The FY 2016 budget season is well underway. President Obama started it off last month with the release of his budget request, which outlined a slew of new taxes and even more new spending designed to advance what the White House called “middle class economics.” Many lawmakers in Congress instantly billed the plan as a non-starter; not only would the President’s blueprint hike taxes by $2.3 trillion (from $3.2 trillion to $5.5 trillion over 10 years), it would also increase spending by $2.4 trillion, incur a 10-year deficit of $5.7 trillion, and abandon any hope of a balanced budget for the foreseeable future. By the end of the decade, the national debt would rise to $20 trillion under the policies outlined in the White House budget.

The path the budget is currently on is not sustainable. Now, in turn, Republican House and Senate Budget Committee chairmen have unveiled their fiscal outlines and various caucus groups are expected to release their own respective budget alternatives. The dynamic of this year’s budget process is still largely framed by the $18 trillion debt and Budget Control Act of 2011 which set discretionary spending caps and automatic spending reductions through 2021. That law has already been revisited twice to allow for increased spending. How would the latest budget resolutions in Congress abide by the remaining caps? In this week’s edition of The Taxpayer’s Tab, NTU Foundation analyzes the impact that each budget alternative would have on federal spending, taxes, and ultimately, the country’s fiscal future.

 

A Balanced Budget
 
Both the House Budget Committee’s (HBC) and Republican Senate Committee on the Budget’s proposals would, under the assumptions and policies they lay forth, balance the budget within ten years. HBC Chairman Tom Price’s (R-GA) plan would reach a surplus within 9 years of enactment, while Senator Mike Enzi’s (R-WY) would do so in the tenth year. President Obama’s budget proposal does not balance at any point.

Budget Comparison: Spending, Revenue, and Deficits in $Billions
 2016201720182019202020212022202320242025Total
House GOP Budget
 Outlays378937213811400442124372459847214,8445,07943150
 Revenue346035883715386540254204438945914804502941670
 Deficit3291339613918716820913040501480
Senate GOP Budget
 Outlays380237463827402341944384460647354899502743243
 Revenue346035883715386540254204438945914804502941670
 Deficit34215811215816918021714495-21573
President's FY 2016 Request
 Outlays399942184423465348865126537256215875616550338
 Revenue352537553944413543324525474649865236547844664
 Deficit4744634795185546016266356396875674

 

Tax Reform vs. Tax Hikes
 
The U.S. Tax Code is, as NTU and Foundation have been noting for years, extremely complex. Each year the system becomes more expensive to comply with, and it is so convoluted and difficult to administer at this point that it is actually imposing security risks on taxpayers.
 
The House Budget Committee’s FY 2016 proposal includes a set of overarching goals for tax reform, but does not spell out many details associated with them. For instance, the HBC recommends paring down the number of income tax brackets from the current system’s 7, without specifying how many; reducing corporate and individual income tax rates, without specifying new ones; and eliminating the number of deductions and exemptions (“loopholes”) available to filers, without mentioning which ones or how many.
 
With that said, the HBC budget would not raise taxes above current levels, projecting tax revenue over the next decade to remain in line with current baseline figures ($41.67 trillion).
 
Similarly, the Senate GOP budget proposal is lean on specifics but does “[allow] Congress to [r]eform the Internal Revenue Code” as well as “extend certain expiring tax relief provisions for innovation and high quality manufacturing jobs” and “[r]epeal the 2.3 percent excise tax on medical device manufacturers.” Like the House plan it would not raise existing taxes or institute any new ones.
 
In comparison, the President's FY 2016 budget proposes a tax plan that would see unprecedented annual revenue increases of nearly $230 billion over the next decade.

 

Prospect of Entitlement and Health Care Reform Remains Uncertain
 
Both the House and Senate GOP budgets propose repealing the President’s so-called Affordable Care Act (ACA) in its entirety, but do not offer an alternative health care reform plan. NTU Foundation determined that undoing the controversial ACA could save $63.9 billion per year, on average.
 
Two other major federal healthcare-related programs are addressed in each budget: Medicaid and Medicare. Both the House and Senate GOP have proposed shifting more control over Medicaid administration to the states by instituting a block-grant system of fund disbursement, similar to a proposal included in former House Budget Committee Chairman Paul Ryan’s (R-WI) “Path to Prosperity” plan. The Senate GOP points to the Children’s Health Insurance Program as a model for the new system.

The HBC budget would repeal Medicare’s Sustainable Growth Rate (SGR) formula, which determines the amount of reimbursement medical professionals receive for treatments covered through the program. It is designed to control Medicare costs, but is frequently (17 times in the past decade) modified and adjusted on a temporary basis. The HBC budget would institute a permanent rate determination system. The Senate GOP’s plan is less specific but supports dedicating some savings from repealing the Affordable Care Act to protecting the solvency of the Medicare program. 

Each budget also acknowledges the looming insolvency and rising cost of Social Security, which is already paying out more in benefits than it receives in payroll tax revenue, but rather than push for any specific reforms to the program instead promise a “bipartisan discussion” on potential long-term solutions. In the words of the HBC: “Our budget calls for a bipartisan path forward in addressing the long-term structural problems within Social Security. We acknowledge that short-term policy proposals that merely delay addressing Social Security’s long-term fiscal challenges are untenable, and raiding the Social Security trust fund is unacceptable.”

Mandatory Spending
(in $ Billions)
 2016201720182019202020212022202320242025Total
House GOP Budget234322712308243525812693288129703062325526799
Senate GOP Budget236522842311243825412677285929523082316626674
President's FY 2016 Request254826232730293231013278351636543797407332252

 

The War Over Defense Spending
 
A major point of contention between each Chamber’s fiscal and defense hawks will be the amount of military spending requested in each budget. Though the Budget Control Act (BCA) capped defense spending for FY 2016 at $523 billion, and both the House and Senate GOP stick to that figure at least technically, actual military spending will rise well above that.
 
Each plan adds to and draws from Overseas Contingency Operations (OCO) funding, which is intended to fund anti-terrorism objectives and is not subject to the BCA caps. The HBC budget proposal would increase defense-related spending above levels proposed by the President by $22 billion over the first five years and $151 billion over his ten-year plan; relative to current baselines, that would be a net increase of $387 billion over ten years. In FY 2016 alone, the HBC budget adds $94 billion to the OCO fund. Each year after that would add $27 billion, the same amount proposed by the President.
 
The Senate proposal contains $5.8 trillion of defense spending over the next decade, with such budget authority rising every year over the next ten years. It too adds funding to the OCO account in order to fund additional military activity, but nearly $40 billion less than the House’s budget. In FY 2016 the Senate GOP budget requests $58 billion for OCO (the same as the President’s request) and $27 billion per year in each of the five years after that.

Defense and OCO Budget Authority
(In $ Billions)
 2016201720182019202020212022202320242025Total
House GOP Budget
 Defense5235745996116236356486616736876235
 OCO9427272727270000227
 Total6176016266386506626486616736876462
Senate GOP Budget
 Defense5235365495625765906056206356515848
 OCO5827272727270000191
 Total5815635765896036176056206356516039
President's FY 2016 Request
 Defense6125735845925986106226356486616135
 OCO5827272727270000191
 Total6706006116196256376226356486616326

 

What It Means For Taxpayers
 
The House and Senate GOP budgets differ significantly when it comes to defense spending, but at the same time they share many of the same guiding principles on issues of tax system and entitlement reform, mandatory and discretionary spending cuts, and health care. As Cato’s Dan Mitchell points out, their proposals would restrain the average annual growth in spending to 3 percent while the economy is projected to grow by over 4 percent per year – the slow and steady way to get the budget under control.

It is unlikely that the budget Congress eventually sends to the President will look much like the blueprints being debated now, which are essentially “wish lists” of policies that each Chamber’s majority would like to see enacted – and there are many specifics left to be revealed. However, they are substantially different in their approach to fiscal restraint than the President’s budget which should encourage taxpayers concerned with mounting debt and deficits. However, the Budget Control Act’s caps have already been loosened and these plans would seek ways to evade the limits. Congress should make all efforts to adhere to the existing spending caps and find ways to offset any new spending. 

 

National Taxpayers Union Foundation is a nonpartisan research and educational organization dedicated to helping Americans of all ages understand how taxes, government spending, and regulations affect them. Through our timely information, analysis, and commentary, we’re empowering citizens to engage in important policy debates and hold officials accountable.

Our findings are provided for educational purposes only and are not intended to aid or hinder the passage of legislation or as a comment on any Member’s or Candidate's fitness to serve. Photo Credits: Wiki Commons


}