Q: Does this agreement reduce the deficit?
A: Yes. This agreement provides for $63 billion in additional discretionary spending in 2014 and 2015—in return for a permanent deficit reduction of $85 billion. On net, this bill reduces the deficit by $23 billion.
Q: Is the deficit reduction that significant?
A: The House-passed budget cut over $4 trillion in spending and balanced the budget. The Senate-passed budget increased spending by $1 trillion and never balanced. This budget agreement represents the common ground between these two documents.
This bipartisan agreement reduces the deficit by $23 billion—without raising taxes. It cuts spending in a smarter way. And it provides stability to the budget process. It is a firm step in the right direction.
Q: How is this agreement better than doing nothing?
A: This agreement will cut spending and reduce the deficit even more than doing nothing will. It will replace temporary, arbitrary spending cuts with cuts to the mandatory side of the ledger—where the real problem is—without raising taxes.
Q: Where are the spending cuts?
A: This agreement eliminates waste, cuts corporate welfare, and takes steps toward real reform. It stops paying Medicaid bills that dead-beat dads and insurance companies should cover. It stops sending government checks to prisoners and the deceased. It repeals a government research program for private energy companies. There are many other concrete spending cuts in the agreement. They are more targeted than the sequester’s across-the-board cuts, and they don’t place an unfair burden on our troops. The agreement moves spending cuts to the mandatory side of the ledger—where the real problem is—without raising taxes.
The Congressional Budget Office estimates that the dozens of specifics spending cuts will reduce mandatory spending by $85 billion. For more concrete examples of spending cuts, click here.
Q: Does this agreement cancel the Budget Control Act’s deficit reduction?
A: No. This agreement achieves 100 percent of the Budget Control Act’s deficit reduction, and it reduces the deficit by an additional $23 billion. But this agreement achieves that deficit reduction in a smarter, more targeted way than the arbitrary sequester cuts required by the BCA.
Q: Why did you abandon this year’s cap of $967 billion? That was producing real savings now.
A: This budget agreement completely offsets the sequester relief with mandatory spending cuts. And it reduces the deficit by a further $23 billion. In 2014, the Budget Control Act’s sequester would make deep and arbitrary cuts solely to the defense budget. Defense spending is less than 20 percent of total spending, but in 2014 it would have absorbed all of the sequester’s cuts to discretionary spending. This agreement finds a smarter way to cut spending. It will replace temporary, arbitrary spending cuts with cuts to the mandatory side of the ledger—where the real problem is—without raising taxes.
Q: Does the agreement rely mostly on user fees to reduce the deficit?
A: No. The agreement does include several provisions to reduce taxpayer subsidies to special interests. For example, taxpayers shouldn’t have to bail out private companies’ pension benefits. So this agreement requires the companies themselves to pay higher premiums to guarantee their pension benefits. These provisions— sometimes described as “user fees”—are good, fair policies. Even so, they make up only a small share of the total deficit reduction. In fact, the agreement includes two times as many savings from spending cuts as it does from these other provisions. The cuts to mandatory spending are responsible for the vast majority of deficit reduction.
Q: Are the fee increases really tax hikes in disguise?
A: No. The federal government provides a range of specific services to specific populations. For instance, it offers insurance for private-sector pension plans and screens airline passengers for security. All taxpayers subsidize these services, even though they benefit only some subsets of the American public. This agreement reduces those subsidies by requiring the beneficiaries to pay a greater share of these programs’ costs. In all cases—even after the fee increases—the beneficiaries will not cover the full cost of these services. For more on fees, click here.
Q: Does the budget agreement raise taxes?
A: No. The budget agreement does not raise taxes. There are no amendments to the Internal Revenue Code, and there are no increases in statutory or effective tax rates.
Q: Why does the CBO score show an increase in revenue?
A: CBO and JCT found that the budget agreement would increase revenue for two reasons: 1) The bill reduces the share of taxpayers’ contributions to federal-employee pensions. For budgeting purposes, the contributions that federal employees make to their pension benefits are recorded as revenues. And 2) by making it harder for people to receive improper payments or for criminals to steal other people’s identities, these reforms will both reduce federal spending and increase revenue.
Q: Isn’t the aviation-security-fee increase just an airline-ticket tax hike?
A: No. After the 9/11 terrorist attack, the federal government took over the cost of providing security for the airlines, which had previously paid the full cost. At that time, a fee was established to cover the cost of the federal government’s new security-screening responsibility. Today, that fee covers about 30 percent of the total cost of aviation security. Under this agreement, the fee will cover about 43 percent of the total cost. For additional background, click here.
Q: Isn’t the increase in Pension Benefit Guarantee Corporation insurance premiums a tax hike?
A: No. The Pension Benefit Guarantee Corporation insures private-sector pension obligations and, like any insurer, charges a premium. Today, the PBGC faces a $36 billion unfunded liability. Increasing the premiums will begin to reduce that unfunded liability. Otherwise, the PBGC could be unable to meet its obligations to pensioners or all taxpayers would have to bail out private-sector pension plans.
Q: Why are you cutting retirement benefits for federal employees?
A: The Congressional Budget Office found that the typical federal worker receives compensation that’s about 16 percent higher than a counterpart in the private sector. In study after study, the pay, health benefits, and retirement benefits for federal employees are far more generous than those in the private sector. And it’s the private sector that pays for the public sector’s benefits. To promote fairness, this agreement includes commonsense reforms to federal-employee retirement benefits by requiring employees to contribute 1.3 percent more to their defined-benefit pension plans. This agreement makes no changes to federal employees’ second retirement benefit, the defined-contribution Thrift Savings Plan. In addition, this agreement modernizes the Federal Employees Health Benefits Program by adding an additional coverage plan, Self Plus One, which will be a more affordable health-insurance option for many federal employees and retirees. Finally, federal employees are one of the prime beneficiaries of a budget agreement—because it will provide certainty for the next two years.
Q: Why are you cutting retirement benefits for military retirees?
A: The federal government has no greater obligation than to keep the American people safe. And it must take care of the men and women in uniform who put their lives on the line. To meet our obligations to our service men and women, we must make sure their long-term benefits are on a sound, financial footing. Doing so would not only strengthen their retirement security, but also free up more resources for today’s national-security priorities. Rising personnel costs are a growing problem in the defense budget, with the real compensation cost per service member up 41 percent since 2001. The budget agreement makes a modest adjustment to the cost-of-living adjustment for working-age military retirees. And though there will be slightly lower increases in annual retired pay for young retirees, the budget ensures that when they reach normal retirement age, they will receive a catch-up adjustment. And from then on, their benefit will be fully protected from inflation. For more information on the changes to military retirement, click here.
Q: Aren’t you cutting leasing royalties to states?
A: We aren’t cutting royalties to states. Under current law, some states receive large royalty payments from the federal government for the production of energy minerals on federal land within their borders. Since 2010, the federal government has asked those states to contribute a small amount from those payments to help defray the costs of managing the leases. The budget agreement simply makes this commonsense practice permanent.
Q: Does this agreement prohibit the government from refilling the Strategic Petroleum Reserve?
A: No. This agreement prohibits only one way of refilling the Strategic Petroleum Reserve. Under current law, the government can refill the reserve in three ways: It can use funds from the SPR Petroleum Account, Congressional appropriations, or oil paid directly—in lieu of actual dollars—for royalties owed—a practice called “royalty-in-kind payment.” This agreement prohibits the federal government from refilling the SPR using the royalty-in-kind program. The Government Accountability Office has found this method to be less efficient than direct purchases. But the other two options are still available.
Domestic oil production is booming, and the Strategic Petroleum Reserve has enough oil to cover 110 days of net imports—well above the 90-day threshold it is required to cover.
Q: Why is non-defense getting more money than defense?
A: This agreement increases the statutory caps for defense and non-defense in equal amounts. Both caps are each increased by about $22 billion in FY 14 and by $9 billion in FY 15.
Q: But isn’t non-defense getting a bigger spending increase compared to 2013?
A: Under the Budget Control Act, the upcoming sequester in January would only reduce defense spending from 2013 levels. This agreement adds back equally to defense and non-defense, so it prevents what would be devastating sequester cuts to defense, and both sides end up above their 2013 levels.
Q: You get $28 billion in savings from extending the mandatory sequester. Are those real savings?
A: Yes. The BCA includes a sequester on mandatory spending. That sequester is already in effect for this year and will produce $16 billion in savings in 2014 alone. Under the BCA, that sequester will take effect each year through FY 2021. This agreement extends the mandatory sequester for two more years. According to CBO, extending the mandatory sequester will save an additional $28 billion.
Q: Why didn’t you change the discretionary caps in 2015–21 or extend the discretionary caps to 2023?
A: This agreement makes concrete achievements on the immediate problems of completing the 2014 budget process and facilitating a 2015 process. Despite our best efforts, we couldn’t reach agreement on the long-term deficit and debt problems we face, such as the long-term path for discretionary spending.
Q: What happened to the budget resolution?
A: Subtitle B of Title I establishes an enforceable budget for FY 14 and sets up a process for the timely adoption of an enforceable budget for FY 15. We are nearly one-quarter of the way through FY 2014, so completing a concurrent budget resolution, and then considering legislation to adjust the statutory caps and to reduce mandatory spending would consume time that we just don’t have.
Q: Does this bill strip Senate Republicans of their ability to stop a tax hike?
A: No. This bill includes what’s called a Senate-only deficit-neutral reserve fund (DNRF) related to replacing the sequester. To understand the import of this reserve fund, take a look at this 2009 “Informed Budgeteer” published by Senate Budget Committee Republicans. It concludes that “In effect, DNRFs have become the latest incarnation of Sense of the Senate (SoS) amendments — non-binding, throwaway, hand-waving provisions.” Even with a DNRF, Senate Republicans retain the right to unlimited debate, meaning Democrats would still need 60 votes to pass a tax increase. And of course, any revenue bill must originate in the House, and House Republicans have been unquestionably clear, that we would not under any circumstance pass a tax hike regardless of what the Senate does.
In addition to the 60-vote threshold, any future sequester replacement bill would be subject to any, and possibly all, of the following three budget points-of-order:
Section 314(f) of the Congressional Budget Act of 1974 – “It shall not be in order in the House of Representatives or the Senate to consider any bill, joint resolution, amendment, motion, or conference report that would cause the discretionary spending limits as set forth in section 251 of the Balanced Budget and Emergency Deficit Control Act to be exceeded.”
Two Budget Act points of order against bills breaching the discretionary spending limits. Section 312(b) of the Congressional Budget Act of 1974 – “Except as otherwise provided in this subsection, it shall not be in order in the Senate to consider any bill or resolution (or amendment, motion, or conference report on that bill or resolution) that would exceed any of the discretionary spending limits in section 251(c) of the Balanced Budget and Emergency Deficit Control Act of 1985…”
Budget Act Section 306 point of order against bills within the jurisdiction of the Budget Committee. This would lie against a bill amending the discretionary spending limits. Section 306 of the Congressional Budget Act of 1974 – “No bill, resolution, amendment, motion, or conference report, dealing with any matter which is within the jurisdiction of the Committee on the Budget of either House shall be considered in that House unless it is a bill or resolution which has been report by the Committee on the Budget of that House (or from the consideration of which such committee has been discharged) or unless it is an amendment to such a bill or resolution.”
Q: Why are you singling out current military retirees while leaving civilian retirees unaffected?
A: The budget agreement reduces military and civilian retirement benefits by about $6 billion each. But the military and civilian retirement systems are very different and these differences necessitate that the reforms be tailored to these differences. For example, the budget agreement reforms federal civilian retirement benefits by requiring employees to contribute more money to their retirement benefit. By contrast, military personnel do not make any financial contribution toward their retirement benefit. Another difference is that federal civilians don’t receive any cost-of-living adjustments (COLA) until they reach age 62, while the budget agreement provides for slightly smaller COLAs for military retirees until they reach age 62, a catch up adjustment at age 62, and the full annual COLA after that. Moreover, while the civilian retirement reforms are effective in January 2014, the military retirement reforms don’t effect benefits until December 2015. That means Congress will have time to consider the recommendations from the Military Compensation and Retirement Modernization Commission that is due to report in May 2014.*
Q: How big is the cut to the military retirement benefit?
A: That depends on how young a service member is when he or she retires. If a serviceman enlists at 18 and retires after 20 years at age 38, then the lifetime reduction to the retirement benefit is about 6 percent. However, the average age at retirement is just under 49 years of age for an enlisted service member. That means that the average service member faces a shorter period of reduced COLAs and an average cut of the lifetime benefits of less than 3 percent.
Q: But some are saying this is a 20 percent cut in benefits. What gives?
A: That number refers to the change in compensation for one year—it does not refer to the change in compensation overall. Under this reform, if a service member retires at 38, the retired pay at age 61 will be about 20 percent lower than it otherwise would be. But the very next year, when the member turned 62, retired pay would increase by more than 20 percent to make up for all of the reduced-COLA payments and inflation index for that year.
Q: Where did the idea for the military retirement reforms come from?
A: Defense leaders — both civilian and military — have been calling for military compensation reform for years. (For more on the need for military compensation reform, click here.) The President’s Bowles-Simpson Commission recommended eliminating the cost-of-living adjustment (COLA) for military retirees under age 62 entirely. The proposal included in the Bipartisan Budget Act is much more modest in that it only limits the COLA to inflation less one percent with no negative adjustments, ever.
* The FY 2014 defense authorization act extended the Commission’s report date by nine months.