Defense Squeeze Tight, Non-Defense Squeeze Tighter

January 3, 2012 at 3:46 pm

As Defense Secretary Panetta prepares to offer a strategy for cutting the defense budget over the next decade, a new CBPP report shows that the tight annual funding limits scheduled for 2013-2021 will squeeze non-defense appropriations even more than defense.

This finding contradicts claims by House Armed Services Chairman Buck McKeon (R-CA) and others that the required cuts disproportionately affect the military.

Scheduled Non-Defense Cuts Will Exceed Defense CutsAs our report shows:

  • Between 2011 and 2021, non-defense discretionary funding — the part of the budget that includes education, veterans’ health care, law enforcement, food safety, medical research, and many other programs — will shrink by 17.1 percent, after adjusting for inflation, while funding for defense will decline 15.1 percent (see graph).
  • As a share of the economy, non-defense funding will shrink by 1.22 percent of gross domestic product (GDP) over this period, while defense funding will decline 1.17 percent of GDP.
  • Over the two-decade period from 2001 to 2021, non-defense discretionary funding will shrink by 0.96 percent of GDP, while defense funding will shrink by a little over half as much — by 0.58 percent of GDP.

Defense funding in 2021 — at 2.5 percent of GDP — will be the lowest since 1940, before the nation’s entry into World War II.  But at 2.4 percent of GDP, non-defense discretionary funding will be at its lowest level since 1930.

Click here for the full report.

Happy Holidays from the Center

December 21, 2011 at 5:48 pm

Wishing you and your loved ones a happy holiday season. Off the Charts is going on vacation, but we’ll resume posting regularly and approving comments as soon as we return in the new year.

.

.

.

.

In Case You Missed It…

December 21, 2011 at 5:42 pm

This week on Off the Charts, we focused on the federal budget and health care and concluded our special series on safety net programs.

  • On the federal budget, Kelsey Merrick discussed how the cuts to Pell Grants for fiscal year 2012 that Congress recently agreed to would make it harder for many low-income students to afford college.
  • On health care, Paul Van de Water explained why the premium support proposal from House Budget Committee Chairman Paul Ryan and Senator Ron Wyden would likely shift substantial Medicare costs to beneficiaries.
  • On our special series on safety net programs, Stacy Dean elaborated on the importance of the Supplemental Nutrition Assistance Program (i.e., food stamps) in helping families afford an adequate diet.  Chad Stone showed that unemployment insurance plays a vital role in helping families stay afloat during periods of high unemployment.  Indivar Dutta-Gupta concluded the series by noting that while the safety net works, we should do more to reduce poverty.

In other news, we held a media briefing on the Ryan-Wyden premium support plan for Medicare and released a report on the case against premium support.

Taking Stock of the Safety Net, Part 6: It Works, But It Doesn’t Do Enough

December 21, 2011 at 5:35 pm

As we’ve shown in our blog series over the past week, millions more Americans would face poverty and severe hardship without programs like TANF, housing assistance, SNAP (food stamps), and unemployment insurance — as well as other programs that this series didn’t focus on, such as Social Security and the Earned Income Tax Credit.

Still, the tax code and government transfer programs do less than they could or should to reduce poverty.

U.S. Poverty Rate Is High After Taxes and Transfers Compared to Similarly Wealthy Countries

Other similarly wealthy countries have far lower rates of poverty after factoring in the impact of safety net programs even though, on average, they have similar rates of poverty before counting these programs (see chart).  That’s true largely because nearly all of these other countries do more: their programs are more generous, easier to access, and broader in scope than those in the U.S.

Let’s remember:  people need these programs because they either receive inadequate wages or cannot work.  For many working Americans, a job alone is inadequate to lift a family out of poverty.  Economic Policy Institute data show that in 2007 (the most recent year available), over 25 percent of all workers received wages that were inadequate to keep a family of four out of poverty.

These programs also help support many people who cannot work, including children, the elderly, and people with significant disabilities, as well as able-bodied adults who cannot secure adequate employment because jobs are scarce.

The safety net also helps push back against growing inequality, though not as effectively as it once did.

And research shows that keeping young children out of poverty helps them succeed in school and earn more as adults.

As policymakers consider proposals to address medium- and long-term deficits, they should keep these facts in mind and avoid cuts that would worsen the nation’s already high rates of poverty and inequality.  To further reduce poverty and inequality, we’ll eventually need to spend more in a fiscally responsible way.  We’ll also need to make our tax system more progressive — and do so in a way that raises more revenues to meet the nation’s pressing needs and promotes more broadly shared prosperity.

Why the Ryan-Wyden Medicare Plan Would Likely Shift Costs to Beneficiaries

December 21, 2011 at 3:24 pm

Our analysis of the Ryan-Wyden premium support proposal found that it would likely shift substantial costs to Medicare beneficiaries.  Some have asked about that conclusion, so here’s a more detailed explanation.

Traditional Medicare guarantees that beneficiaries have access to a specified package of health care benefits and services, and it pays doctors and hospitals when they provide those services.

Under premium support, in contrast, Medicare would pay insurance plans — one of which would be traditional Medicare — a fixed dollar amount per beneficiary (adjusted for the beneficiary’s health status).  Beneficiaries would pay the difference between the amount of that “premium support payment” and the cost of the plan that they selected.  (Click here for our detailed analysis of premium support.)

Put another way, while traditional Medicare is a defined-benefit system, the Ryan-Wyden premium support plan is a defined-contribution system.  As Chairman Ryan said of the Ryan-Wyden plan, “We are stopping the open-ended, defined-benefit system.”

The Ryan-Wyden proposal would limit the growth of Medicare spending per beneficiary to the growth of gross domestic product (GDP) per capita plus one percentage point.  Health care costs have grown faster than that for several decades, however, and the plan doesn’t clearly spell out what would happen to implement this limit if Medicare spending were projected to exceed it.

But one thing is clear:  limiting the growth in Medicare spending to GDP plus one percentage point is, in essence, limiting the growth in the premium support payment to GDP plus one percentage point.  After all, in a premium support system, the premium support payments constitute virtually all of Medicare’s spending.  Except for modest administrative costs, that’s all there is, so limiting the growth of Medicare spending necessarily means limiting the growth of premium support payments to plans.  Indeed, Chairman Ryan acknowledged at a December 15 briefing that the spending target would be met through automatic reductions in premium support payments, unless Congress decided to take other action.

Would the premium support payments under the Ryan-Wyden plan be sufficient to pay for the current package of guaranteed Medicare benefits without increasing premiums or cost-sharing for beneficiaries?  That’s the question at issue.

Two sentences in the proposal bear on this matter:

  • “To offset an increase in the cost of Medicare beyond the growth limit, Congress would be required to intervene and could implement policies that change provider reimbursements, program overhead, and means-tested premiums.”  This apparently refers to steps that Congress might take to hold down the growth of insurance plans’ costs and thereby assure that the premium support payment would be adequate to cover Medicare’s current benefit package.  But Ryan-Wyden couldn’t “require” Congress to intervene, and the proposal doesn’t spell out what would happen if it didn’t intervene.
  • “Any increase over [the GDP plus one percentage point] cap will be reflected in reduced support for the sectors most responsible for cost growth, including providers, drug companies, and means-tested premiums.”  This sentence could refer to some sort of automatic mechanism that would act as a fallback if Congress failed to keep plans’ costs within the spending limit.  But no other premium support plan has anything similar, and it’s difficult to see how such an automatic mechanism might be made to work, especially since — under a premium support system — Medicare no longer would be making payments directly to providers or drug companies.

Senator Wyden and Chairman Ryan could readily resolve the ambiguity in this area by providing legislative language for their proposal.  Unfortunately, they have said they do not intend to do so.  In the absence of further specifics — and without some automatic mechanism that reduces the cost of the benefit package to fit within the premium support payment — we can only conclude that the Ryan-Wyden plan, like other premium support proposals, is likely to shift substantial costs to Medicare beneficiaries.