Three Medium-Sized Budget Deals

by Reihan Salam

In light of the Ryan-Murray budget deal, Maya MacGuineas offers a roadmap for a series relatively modest $150 billion budget deals that have the potential to unite Republicans and Democrats while improving, if only slightly, the broader fiscal picture:

(1) She proposes coupling an extension of emergency unemployment compensation (EUC) with a “growth package” that would include infrastructure spending, targeted tax breaks, and other measures, to be paid for by non-Social Security savings that would flow from the adoption of chained CPI. Andrew Biggs has persuaded me that adopting chained CPI for setting Social Security benefits and tax brackets is unwise, so I’d be inclined to pass on this deal. Trading an extension of EUC for structural reforms like those identified by Michael Strain in his new National Affairs essay would be a better bet, politically and substantively. Unfortunately, there appears to be relatively little interest among Republican lawmakers in this approach:

Giving unemployed workers a modest cash bonus when they secure employment has been shown to be effective in shortening the length of unemployment spells, and, if targeted at workers who have a high probability of exhausting benefits, it can actually save the taxpayers money in the long run. It seems implausible that a re-employment bonus would have a large effect on long-term unemployment, but evidence suggests that it would help in addressing shorter unemployment spells. There is also some evidence that giving out lump-sum unemployment benefits may be preferable to the current system of weekly checks. Under traditional unemployment insurance, a worker forgoes his unemployment benefit by taking a job. Lump-sum unemployment insurance may be beneficial because it would mitigate the weekly-check system’s incentive to delay starting a job. With lump-sum unemployment benefits paid, say, every month rather than every week, a worker who got a job at the beginning of a pay period could take in both unemployment compensation and a paycheck for that month. If this gets workers off unemployment faster, then the program could save money over traditional unemployment insurance.

(2) MacGuineas offers a $150 billion health package that aims to finance the partial rollback of the planned Sustainable Growth Rate cuts to Medicare reimbursement rates by adopting a series of structural health reforms, e.g.:

Such a package could include expanding new forms of cost-controls like bundled payments and readmission penalties; restricting supplemental health plans which lead to the overconsumption of health care; reforming overly-complicated cost-sharing rules; increasing the use of generic drugs; and expanding the means testing of Medicare premiums.

This seems like a reasonable step.

(3) And finally, she calls for swapping a one-year extension of various “tax extenders,” a permanent extension of increases to the child tax credit and the EITC that are scheduled to expire in 2017, and paying for these measures with limits on the use of tax expenditures by high-earners. This deal seems defensible, but also as little more than a bridge to a more comprehensive tax reform, as she acknowledges. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.