So we have a budget. Now how do we pay for it?
The White House and Republican leaders have reached a sweeping budget deal to avoid a debt-limit showdown, lifting the cap on discretionary spending by $80 billion in the 2016 and 2017 fiscal years, as well as pumping up the emergency spending account called Overseas Contingency Operations. The deal also avoids large premium increases for certain Medicare beneficiaries in 2016 and ensures that the Social Security Disability Insurance fund doesn’t go bankrupt.
This is all expensive. But it does all this while not raising taxes.
How does that work, exactly?
The government’s accounting is as much art as science; many of the offsets arenothing more than promises of savings in the future. According to the Congressional Budget Office, the deal will raise an additional $29.8 billion and cut spending by $45.9 billion over the next 10 years. Here’s how:
More Medicare cuts in 2025 — $14 billion
Originally, the 2011 “sequestration” deal saved future money by cutting Medicare repayments to doctors until the 2021 fiscal year. The Murray-Ryan budget deal further extended those until 2023 and a bill to avoid a cut to military pensions extended them to 2024. This new deal extends them yet another year until 2025, while making a few changes to the repayment schedules in 2023 and 2024.
Pension changes — $11.6 billion
The budget deal makes a number of changes to pensions, including changing the annual premiums paid by the plan sponsors for single employer pension plans to the Pension Benefit Guaranty Corporation. Among other changes, fixed premiums would rise from $64 per person right now to $68 in 2017, $73 in 2018 and $78 in 2019. That’s not exactly money in the bank now, but it counts in budget terms.
Tax compliance — $11 billion
The agreement would make two changes to tax provisions for large partnerships including hedge funds and private equity firms. The first would make it easier for the Internal Revenue Service to audit partnerships so that they pay their full tax obligations, raising $9 billion. The second would clarify rules regarding partnership interests that are created through gifts—a technical change that brings in another $2 billion.
Non-Obamacare health care changes — $10.5 billion
Without Congressional action, Medicare Part B monthly premiums are projected to increase by nearly a third for many beneficiaries starting next year. The budget deal sets a new Part B premium for those beneficiaries that avoids the huge hike. To pay for the change, the beneficiaries would pay an additional $3 per month in premiums until it’s repaid. It would also force generic drug companies to rebate money to Medicaid if the price of a drug grows faster than inflation. In total, the changes would raise more than $10 billion.
Obamacare reform — $8 billion
The proposal eliminates a rule requiring all employers with more than 200 employees to automatically enroll their workers in a health plan. Behavioral economists liked this idea—it changed the “default choice” for employees, and would have ensured more of them enrolled. But critics, mainly large employers, protested that the provision would confuse workers and restrict their freedom. CBO expects that the government will collect $8 billion more after this change, since tax-exempt health care benefits will instead flow to workers in the form of higher wages, which are now taxed.
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