Heritage Foundation Scholars respond to Obama debt reduction proposal (Part 1)

I love going to the Heritage Foundation website for articles like this:

Obama’s Debt Reduction and Tax Proposal

Heritage Responds to Obama’s Debt Reduction and Tax Proposal

Mike Brownfield

September 19, 2011 at 11:16 am

Heritage’s experts watched President Barack Obama’s debt reduction and tax increase proposal. Here are their immediate reactions:

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Obama’s Plan Is More Bad News for Defense

President Obama’s approach to deficit reduction, which he outlined in a Rose Garden statement today, means additional bad news for the defense budget and the nation’s security.  According to the fact sheet provided by the White House, accompanying his statement from the Rose Garden, the deficit reduction plan sees the continued application of $1.2 trillion in discretionary spending cuts already included in debt ceiling law that was enacted recently.  Office of Management and Budget Director, Jack Lew, released a blog on August 4th that estimated that this provision will cut roughly $350 billion from the defense budget over ten years.  The new deficit reduction plan would add $1.1 trillion in cuts from defense to come from funding for the military operations in Afghanistan and Iraq.  Finally, it would impose an unspecified level of spending reductions in benefits for military personnel.

Today’s statement, however, ignores the fact that President Obama had already proposed an inadequate five-year (FY 2012 through FY 2016) defense budget in February.  The news in this latest statement is the recommended cut in funding for the overseas operations.  While it is unclear what baseline the White House is using in advancing this proposal, the President’s own budget estimates spending only a bit more than half the amount of proposed cuts to the budget for such operations over a similar timeframe.  This not only repudiates a provision in the debt ceiling law to protect these operations through a special instrument for adjustments in the applicable spending ceiling, it implies that the President will apply additional cuts to the budget for the core defense program.

The greatest disappointment, however, is that the President’s deficit reduction proposal sidesteps the kind of structural reforms in the major entitlement programs that are necessary to avoid draconian cuts to the budget for the federal government’s most important constitutional obligation, which is to defend the nation and its vital interests.

Baker Spring

The President’s Disappointing Retreat on Medicare

During the Debt Ceiling negotiations, President Obama tentatively joined the large and growing consensus that the age of eligibility for Medicare enrollment should be raised from 65 to 67. Among serious advocates of entitlement reform, raising the age of normal eligibility has emerged as one of the few precious areas where there has been a   broad consensus. It was a position endorsed by analysts at both the American Enterprise Institute and the New America Foundation, and by former Democratic CBO Director Alice Rivlin and Republican Budget Chairman Paul Ryan. It would also result in significant savings. The Congressional Budget Office (CBO) projected that budget savings from the proposal would amount to $124 billion over the period 2012 to 2021.

The Medicare age of eligibility change is long overdue.  When Congress and the Johnson Administration enacted the Medicare program in 1965, the average life span had increased to 70.2 years. They made the decision to retain the normal retirement age at 65, which was enacted for enrollment in Social Security back in 1935. By 2009, the average life span had reached 78.2 years, and by 2030, when the Medicare population is projected to jump to approximately 80 million enrollees, the average life span is projected to top 80 years of age. At that time, there will be roughly 2 younger workers supporting each retiree. We’re doing it to the kids.

The President’s retreat is a disappointment. He must know that long-range structural reform of the Medicare program is necessary, since, in the estimate of the Medicare Actuary, it faces a long term unfunded liability of almost $37 trillion. In his deficit reduction program, he is proposing savings of $248 billion over ten years, and 90 percent of these savings will come from reducing “overpayments” in Medicare.  These include a number of “cats and dogs” in Medicare’s complex payment system, relating to such items as changes in payments to rural providers, payments for post acute care, payments for advanced imaging, earmarking penalties ($500 million)  for non-compliance to deficit reduction, applying the Medicaid rebate (kick-back, price control system) for drug payments to Medicare Part D (a terrible idea); and the old crackdown on Medicare waste, fraud and abuse, which is expected to save $5 billion over ten years. (According to a July 28, 2011 GAO report, there are estimated $48 billion in annual Medicare “improper” payments, representing about 38 percent of the total $125.4 billion estimate for the entire federal government.) The President wants to toughen Medicare payment caps to be enforced by the Independent Payment Advisory Board (IPAB), reducing the target from GDP plus 1 percent to GDP plus 0.5 percent.

The President is also proposing to increase Part B and D premiums for upper income retirees; increase the Part B deductible by $25 for new retirees; introduce a Part B “surcharge” for enrollees who buy Medigap coverage that provides “near first dollar” coverage. While these ideas have merit, they are substantially modest and don’t even kick in until 2017. In other words, the reform falls far short of what is needed, as embodied in Heritage’s Saving The American Dream, which delivers a balanced budget within ten years and guarantees the solvency of the Medicare program.

Robert Moffit

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