Taxpayer's Tab: A Taxing Time for Taxpayers

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A Taxing Time for Taxpayers

With the pressures of Tax Day deadlines behind them, taxpayers are probably breathing a collective sigh of relief. This week, our sister organization, the National Taxpayers Union, released a study on how much America's complex tax system is costing taxpayers in time and money. The study comes just after a series of tax reform analyses in the April 3 Taxpayer's Tab, in which NTUF updated our scores for the Flat Tax and Fair Tax to determine the possible savings if either were enacted this year. 

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Most Expensive Bill of the Week

The Bill: S. 2157, the Commonsense Medicare SGR Repeal and Beneficiary Access Improvement Act of 2014

Cost Per Year: $13.3 billion ($66.5 billion over five years)

Senator Ron Wyden (D-OR)Physicians performing medical procedures on patients covered by Medicare are reimbursed according to the Sustainable Growth Rate (SGR), a fee schedule that is updated annually according to target expenditures set by the federal government. The system was designed and implemented as part of the Balanced Budget Act of 1997 as a means of slowing the growth of Medicare spending.

Each year, the Centers for Medicare and Medicaid Services (CMS) compiles a report with data on the previous year’s physician fee expenditures and a conversion factor used to adjust current rates to meet target expenditures going forward. That report is sent to the Medicare Payment Advisory Commission (MedPAC), which updates the fee schedule accordingly.

The SGR system is a contentious issue within the medical community. Under current law, if Medicare payment expenditures from the previous year were higher than the target set by Congress, reimbursement rates in the following year must be lowered in order to compensate. For example, CMS reports that cumulative expenditures from 1996 through 2012 were permitted to reach $1.23 trillion, but in fact, they were nearly $6.6 billion above that amount. This means that without legislative changes, the conversion factor would have decreased payments made to doctors in each year that payments exceeded expectations.

Congress has the authority to adjust or temporarily suspend the rate adjustments, a process known as the “doc fix” and one which it frequently utilizes. Legislative efforts prevented any conversion factor from cutting physician reimbursements in 2012 and 2013 (even though expenses were higher than allowed by law, as noted above).

Recently, the House and Senate both passed H.R. 4302, introduced by Congressman Joe Pitts (R-PA). The Protecting Access to Medicare Act of 2014 was then signed into law on April 1, delaying for one year the 24 percent cut that would have gone into effect the same day. The bill does not fully offset the spending it requires, instead moving Medicare sequester cuts from 2025 to 2024. It’s the 17th time Congress has legislatively adjusted the SGR payment formula since 2003.

A “permanent doc fix” would repeal the SGR adjustment system entirely and replace it with a new means of calculating physician reimbursement rates. Economists contend that on a budgetary level, a permanent doc fix would result in higher Medicare expenditures, as it prevents physician payment rates from being subject to annual cuts or relatively slower growth under the current formula and adjustment process.

Senator Ron Wyden (D-OR) introduced such a proposal as the Commonsense Medicare SGR Repeal and Beneficiary Access Improvement Act. S. 2157 would do away with the SGR formula and replace it with new systems to determine physician payment rates, including merit-based incentives and performance-based programs. The bill sets payment rates for the next five years and would also extend certain healthcare programs that are set to expire. Congressman Michael Burgess (R-TX) introduced similar legislation in the House as H.R. 4015.

The Congressional Budget Office (CBO) estimated that the bill would increase spending by $66.5 billion over fiscal years 2014-2018. In order to offset the cost, Senator Wyden included a provision in the legislation that would cap Overseas Contingency Operations (OCO) funding, which is dedicated to providing resources for the War on Terror and military operations in Afghanistan and Iraq. S. 2157 would limit such spending to $404 billion over fiscal years 2016 to 2021, or about $197 billion below CBO’s projections.

However, as the CBO makes clear, there are no funds actually set aside for OCO and “reductions relative to the baseline might simply reflect policy decisions that have already been made and that would be realized even without such funding constraints.” Additionally, future policymakers could spend above and beyond the proposed OCO caps if they deemed national security interests were at stake, rendering the caps all but a formality with no substantial means of enforcement.

The same budgetary gimmick was also included in S. 1982 to partially offset an increase in benefits for veterans. Because of doubts that this cap would actually reduce any spending, NTUF will not include the estimated savings in our score for S. 2157. capitol_dome_tinytaxtabhaticonalpha.png

The Bottom Line: The Commonsense Medicare SGR Repeal and Beneficiary Access Act would repeal and replace the current Medicare physician fee schedule and increase spending by $13.3 billion per year. It would also seek to offset the spending with a tenuous budget cap on future war funding.


Most Friended

The Bill: S. 1737, the Minimum Wage Fairness Act

Cost Per Year: “No Cost” -- below spending threshold

Number of Cosponsors: 39 Senators

Senator Tom Harkin (D-IA) This week's "Most Friended" feature may provide little consolation for those who are among the long-term unemployed or have had their work hours reduced as businesses seek to mitigate costs related to the so-called Affordable Care Act. Nonetheless, some in Congress want to mandate a pay raise for some low-income hourly earners. The first federally-mandated minimum wage was set at 25 cents per hour in 1938. It was last adjusted in 2009 to $7.25 per hour. Recently, there have been concerted efforts to raise the minimum wage in response to the economic downturn of the past five years, resulting in greater disparity between high- and low-income earners. Twenty-one states have minimum wages above the federal level, and 34 states have considered increasing their minimum wages during the 2014 legislative session. The issue has picked up steam on the international stage as well: Germany, which has traditionally left the wage up to business groups and unions, recently raised its national minimum wage to 8.5 euros per hour (the equivalent of $11.75).

Traditionally, the argument against raising the minimum wage too high has been that the higher wage might discourage employers from hiring new employees. The impact of fewer hourly wage jobs might even disproportionately affect the very people the proposal is designed to help -- namely, the relatively young and inexperienced. On the other hand, those who support raising the minimum wage argue that the wage has not kept up with inflation and the overall cost of living. The White House recently claimed that in inflation-adjusted dollars, the federal minimum wage is actually 20 percent lower than it was in 1981 and has fallen by about a third since 1967.

Economists tend to have mixed views on how significantly minimum wage laws can affect the labor market. CBO’s analysis shows that there are trade-offs involved under the President’s proposal for $10.10 federal minimum wage: increasing hourly employees’ pay could lift about 500,000 low-income workers above the poverty line but at the same time it would reduce the workforce by as many as one million people in 2016, when the proposal would be fully implemented.

CBO recently scored S. 1737, a proposal by Senator Tom Harkin (D-IA) that would increase the federal minimum wage to $10.10 per hour within three years, and index it to inflation thereafter. Additionally, it would gradually raise the minimum wage for tipped workers to 70 percent of the federal wage. Congressman John Larson (D-CT) has introduced similar legislation in the House in the form of H.R. 3746, the Fair Minimum Wage Act of 2013, which would ultimately boost wages to $11 per hour.

According to the CBO, the Minimum Wage Fairness Act would increase federal costs by $1 million over several years for about 4,000 federal workers currently earning less than $10.10 per hour. The U.S. Postal Service would also see its payroll expenses rise, by $1 million over five years for about 1,000 of its employees. The total annualized costs fall below the threshold that NTUF uses to determine whether a bill is included in our BillTally study. Neither the latest CBO cost estimate nor the February review noted whether the loss of jobs would increase outlays for unemployment compensation or other entitlement programs.

Although BillTally does not track revenue effects, CBO and the Joint Committee on Taxation estimated that the legislation would reduce revenues by about $13.7 billion over the next five years, mostly due to the bill’s extension of small business tax deductions through 2016.

There are currently 39 cosponsors of S. 1737, all of whom caucus with the Democratic Party. capitol_dome_tinytaxtabhaticonalpha.png

The Bottom Line: The Minimum Wage Fairness Act would increase the federal minimum wage to $10.10 per hour within three years. It would increase spending by about $2 million over five years, with a larger $13.7 billion effect on federal revenues.


The Wildcard

The Bill: S. 2165, the Access to Consumer Energy Information (E-Access) Act

Cost Per Year: $2 million ($10 million over five years)

Senator Mark Udall (D-CO)According to the U.S. Energy Information Administration (EIA), America used over 377 million megawatt hours of electricity during the month of January. This was an increase of 8.2 percent during the same month last year, when prices were also 1.6 percent lower per kilowatt hour. The higher usage was likely due to the brutally cold conditions that swept through much of the central and eastern U.S., during which multiple regions recorded all-time high electricity demands.

New data suggest that monthly electricity bills may have actually been on the decline until recently, as the EIA reported in its latest monthly update that the average residential electricity bill decreased in each of the years 2010 through 2012. However, electricity usage and prices are both expected to increase in the coming years, driven not only by residential demand but also within commercial and industrial sectors (the forecast assumes continued economic growth, lower unemployment, and increased housing starts in 2014 and 2015).

Part of the problem, according to Senator Mark Udall (D-CO), is that Americans don’t know how much energy they are using or how their usage has changed over time. The Senator recently introduced the E-Access Act to “empower consumers with information about their own energy use.”

His bill would authorize $10 million in federal funding to encourage states and local utility companies to adopt policies which make energy usage information more readily available to consumers.

For example, funding could be awarded to assist utility companies that use “smart meters” to remotely track consumption patterns; make energy usage data freely and readily available online for customers to access; or make it easier for residents of multi-tenant building complexes to track energy consumption. The Department of Energy would be directed to develop standards for what constitutes easier access to consumers’ energy data.

Currently, the Department of Energy maintains a similar program known as “Green Button.” The program was established in 2012 and represents a partnership with 35 local utility agencies across the country. Users can electronically access information about their energy consumption provided by those companies and receive reports as frequently as every 15 minutes. Funding is provided by the Office of Electricity Delivery and Energy Reliability, which received $14.6 million for “Smart Grid Research and Development” activities for fiscal year 2014.

In a press release, Senator Udall said the bill was a “common-sense proposal” that “would spur innovation in energy efficiency by making information on electricity prices and consumption available for households and businesses.” NTUF scored the legislation as a $2 million annual cost and assumes that the $10 million in funding authorized by the text would be spent over a period of five years. capitol_dome_tinytaxtabhaticonalpha.png

The Bottom Line: The Access to Consumer Energy Information Act would authorize $10 million in new funding over five years, awarded to utilities that provide more detailed energy-consumption information to consumers.