In the aftermath of the debt ceiling crisis, a panel of 12 lawmakers has been named to ferret out an additional $1.5 trillion in spending cuts or revenue increases by Nov. 23. Failure to reach an agreement will result in automatic across the board cuts in 2012, and will confirm for the watchful eyes of the world that our government is no longer capable of fulfilling its responsibilities to the American public.
A Reuters/Ipsos poll taken in late July found that 56 percent of Americans prefer a balanced approach to solving the budget issues, which includes some tax increases as well as spending cuts. Yet there are concerns that the more extreme factions of each party may not get the message. Fortunately, the debt ceiling bill does not require members of the “super committee” to reach a unanimous vote on their recommendations. A bill can be passed out of the committee by a simple majority of seven members. Since the committee will consist of six Democrats and six Republicans, this means there will have to be bipartisan support for the any bill the committee produces but inflexible positions can be overruled.
The Congressional Budget Office (CBO) has made it easy for both lawmakers and citizens to review the current funding of various budget items and consider the effects of reducing expenditures in those areas. The CBO’s report, “Reducing the Deficit: Spending and Revenue Options,” outlines “more than 100 options for altering federal spending and revenues,” according to the agency website. This report embraces the “balanced approach” most Americans favor, suggesting modest cuts in most areas of the budget along with increases in revenue.
Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac make it easier for Americans to get mortgage loans by buying and guaranteeing those loans. Currently they help with mortgages of up to $729,750, but that limit will be lowered to $625,500 after Sept. 30. By simply freezing the loan limit, the CBO estimates that the government could realize $4 billion in savings over the next 10 years. Lowering the limit further would increase the savings.
The median price of a single family home is $170,000, so most borrowers would not be affected by this change. For more affluent buyers, the CBO estimates that the cost of borrowing money for a home would increase by only a quarter of a percent.
Payments to Teaching Hospitals
Currently, teaching hospitals are compensated for the extra expenses they incur to educate doctors in three ways: Medicare IME (indirect medical education) payments, federal Medicaid GME (graduate medical education) payments, and state Medicaid GME payments to the tune of about $10 billion per year. According to the Medicare Payment Advisory Committee (MedPAC), these payments are too high.
The CBO estimates that the government could save $69 billion over the next 10 years by consolidating these three payments into a single grant program for teaching hospitals and adjusting the formula used to calculate payments so it more accurately reflects the actual costs of educating doctors.
Reduce Farm Subsidies
At a time when most industries are suffering from economic distress, many Americans will question why one industry should be subsidized by the government while the rest are left to their own devices. At current funding levels, the federal government will spend over $100 billion in the next 10 years on just two programs: crop insurance subsidies and direct and countercyclical payments for producers of certain crops (i.e. the basic farm subsidy).
The CBO report postulates a $22 billion savings by making modest cuts to these programs. Right now farmers pay 40 percent of their own insurance costs. The CBO scenario stipulates that they pay 50 percent beginning in 2012. It also calls for a 20 percent reduction in the amount of acreage that would be eligible for direct and countercyclical payments.
In short order, we’ve identified $95 billion in savings which will not cause undue pain and suffering, and in fact, should have virtually no impact on the vast majority of Americans. The super committee will have to make much more difficult choices to reach a total of $1.5 trillion in budget reductions, but with a moderate approach it can be done in a fair and equitable manner.