Why the Balanced Budget Amendment Is Making a Comeback

Plus: The Air Force may not get all of its F-35s By Yuval Rosenberg and Michael Rainey Republicans Will Push for More Tax Cuts, Balanced Budget Amendment The Hill [reports]( that Congress, having passed a $1.5 trillion tax cut in December and a $1.3 trillion spending package just last week, isn’t sure what to do next. Lawmakers may turn to infrastructure, but there’s no agreement on how big the plan should be or how to pay for it, whatever the size. Immigration and gun violence are hot topics among the American public, but there’s little interest in addressing them legislatively before the election this fall. And although Obamacare premiums are expected to [jump again]( in 2019, lawmakers left a stabilization plan out of the omnibus bill and the issue will likely be shelved for now. Lawmakers may lack a clear plan to pass meaningful legislation, but that doesn’t mean Congress plans to sit on its thumbs until election day. Instead, Republicans are hatching a plan to bring taxes and the budget back into the spotlight in the next few months, though perhaps more to score political points than to actually get something done. First, Republicans want to push for a second round of tax cuts, focused on making the temporary individual tax cuts permanent. However, there is no plan to use the reconciliation process to pass the cuts, which means they will need Democratic votes in the Senate to get the job done. Since there’s very little chance that enough Democrats will join in, the push for more tax cuts will likely be more symbolic than substantial – and that may be just what Republican are counting on. GOP lawmakers can portray the proposed cuts as a defense of the middle class, while daring Democrats to vote against them. “Can you imagine Democrats voting that down? I mean, how do you explain that one?” Senate Majority Whip John Cornyn told [Politico](. Bloomberg’s Sahil Kapur [reports]( that Republicans are considering holding a vote for a second round of tax cuts on April 17, when taxes are due this year, for maximum publicity. The second part of the developing GOP strategy is to push for a balanced budget amendment. Skeptics will note that Republicans have run up an enormous amount of red ink in the past few months, making it an odd time to start talking about a law that requires a balanced budget. But there may be political points to score on that subject before the election. Here’s Politico’s [take]( “It’s almost election season, and it would be helpful if GOP lawmakers could go home and be able to say they voted to support balancing the federal budget, even though they voted boosted discretionary spending by a ton, and have not touched entitlement spending, which, they have said for years, is the driver of U.S. budget deficits.” And if that seems too cynical, it’s worth noting that even the conservative Washington Examiner takes much the same view: “That’s probably the real reason Republicans are introducing a balanced-budget amendment now. They need something to perk up those conservative faithful, something shiny to lead them back to the polls one more time after being let down again and again. This amendment is just the gimmick,” the Examiner [wrote]( Wednesday. Chart of the Day Ernie Tedeschi of Evercore ISI reviewed estimates for federal spending, revenues and GDP growth made by the Congressional Budget Office in 2001 and compared them to the actual results, as well as the latest projections from the Committee for a Responsible Federal Budget. Seventeen years ago, the CBO expected to see a substantial surplus over the coming years, but what we got instead was trillions of dollars of additional debt. The biggest culprit, Tedeschi [says]( is weaker than expected GDP growth. Reduced revenues form tax cuts were the second most powerful factor, followed by increased spending. Penn Wharton Budget Model Scores the Omnibus Bill Analysts at the Penn Wharton Budget Model say the spending bill signed by President Trump last week will increase the debt by 1.6 percent over 10 years, while decreasing GDP by 0.1 percent, relative to the baseline established before the passage of the bill. By 2037, the debt will be 2.4 percent higher as a result of the spending package, while GDP will be 0.2 percent lower than the baseline. Read the full analysis [here](. Air Force May Have to Slash Its F-35 Order The U.S. Air Force plans to order 1,763 F-35 Lightning II jets from Lockheed Martin, but rapidly increasing operating costs could reduce that number significantly. According to an internal analysis obtained by [Bloomberg]( the Pentagon says it has stabilized the initial purchase price for the F-35, now estimated to total $406 billion for a combined 2,456 jets for the Air Force, Navy and Marines. But the cost of operating the jets is still climbing, and the current estimate for flying and maintaining the F-35 platform now stands at $1.1 trillion through 2070. According to the internal analysis, operations and support costs are rising as flight hours for the F-35 increase, but the Air Force has “very limited visibility into how” those funds are being spent by Lockheed. Earlier cost projections indicate that the Air Force needs to reduce its F-35-related costs by 38 percent, and failure to do so could force the service to reduce its order by 590 jets. Send Us Your Tips and Feedback: Email Yuval Rosenberg at yrosenberg@thefiscaltimes.com and follow me on Twitter [@yuvalrosenberg](. Follow The Fiscal Times on Twitter [@TheFiscalTimes](. Most Households Getting Tax Cuts in 2018 The Tax Policy Center issued a [new report]( Wednesday that takes another look at the winners and losers from the Tax Cut and Jobs Act. Overall, TPC says 65 percent of households in the U.S. will get a tax cut in 2018, while 6 percent will see a tax hike. High-income households will see the biggest cuts, both in dollar terms and as a percentage of after-tax income, “particularly those in the 95th to 99th percentile of the income distribution.” Only 27 percent of households in the bottom quintile will see a tax cut. At the state level, TPC estimates that residents of high-tax states will see smaller tax cuts on average; individual tax cuts for residents of New York, California and Oregon will be below 1.5 percent of after-tax income. The loss of state and local tax deductions will hit some high-tax state residents particularly hard. The chart below shows the percentage of households in each state that will see tax increases, with New York, New Jersey, Connecticut, Maryland, and California having the highest proportion. Mayo Clinic CEO: Middlemen Responsible for a Lot of Waste in Health Care Mayo Clinic President and CEO Dr. John Noseworthy told [CNBC]( Wednesday that one of the basic questions facing the U.S. health care system is how you "remove the intermediary steps that add so much cost and add no value.” CNBC’s Becky Quick cited pharmacy benefit managers as a possible example of such intermediaries, and Noseworthy diplomatically agreed that they are part of the problem, since they stand between health care providers and patients. At least a third of health care costs can be attributed to such middlemen, Noseworthy said, and the challenge is to find a way to reduce the toll they charge, if not avoid them entirely. Quote of the Day “U.S. taxes are relatively low, which in theory leaves plenty of room to raise them if needed. But creditworthiness depends not just on the ability but the willingness to pay. No country’s voters like to pay taxes but Americans are much more resistant than their counterparts in, for example, Scandinavia, where high spending corresponds to high taxes.” – Greg Ip of The Wall Street Journal, who [notes]( that the U.S. is shrinking its tax base even as the population is aging and interest rates are rising. News - [Trump Ousts Veterans Affairs Secretary David Shulkin]( – The Hill - [Trump Wants to 'Go After' Amazon Over Taxes]( – CNBC - [Trump Proposal Would Penalize Immigrants Who Use Tax Credits and Other Benefits]( – Washington Post - [US Economic Growth in Q4 Revised Up to 2.9 Percent Rate]( – Associated Press - [Corporate Profits Expected to be Highest in Seven Years]( – CNBC - [Utah Seeks Partial Expansion of Medicaid Under Obamacare]( – The Hill - [Must Work for Food Stamps Under New West Virginia Law]( – Charleston Gazette-Mail - [Mulvaney Nears Victory in Struggle with Mnuchin on Tax Rules]( – Politico - [Mattis to Military: You Have Your Money. Spend It Wisely]( – Defense One - [VA Failed to Give Required Background Checks to Thousands of Medical Personnel]( – Government Executive - [F-35s for Everyone!]( – Taxpayers for Common Sense - [Trump Signs Bill Barring Federal Funds to Pay for Official Portraits]( – Politico Views - [A Debt Crisis Is on the Horizon]( – Michael J. Boskin, John H. Cochrane, John F. Cogan, George P. Shultz and John B. Taylor of the Hoover Institution, Washington Post - [Powerless: How Lax Antitrust and Concentrated Market Power Rig the Economy Against American Workers, Consumers, and Communities]( – Marshall Steinbaum, Eric Harris Bernstein and John Sturm, Roosevelt Institute - [Pro-Growth Infrastructure Needs Concrete Pay-Fors]( – Committee for a Responsible Federal Budget - [Is It Time to Stop Saying 'the Safety Net'?]( – J.B. Wogan, Governing - [Republicans Need Another Legislative Success to Avoid Midterm Woes]( – David Hawkings, Roll Call - [Lawmakers Don't Understand How Stock Buybacks Work]( – Ben Carlson, Bloomberg View - [Ann Coulter Blames ‘Lazy Ignoramus’ Trump for Lack of Border-Wall Funding]( – Jack Crowe, National Review - [A Little-Publicized Incentive in The New Tax Law Could Become America’s Largest Economic Development Program]( – Brett Theodos, Tax Policy Center - [The White House Is Overworked and Undermanaged]( – Jonathan Bernstein, Bloomberg View Copyright © 2018 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com. 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