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 are nothing 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.
Selling oil reserves — $5.1 billion
The bill directs the government to sell 58 million barrels of crude oil from the Strategic Petroleum Reserve. Selling our oil, while misguided according to many energy experts, is not inherently a gimmick. But in this case it’s not likely to yield anywhere near what Congress thinks. For technical reasons the Congressional Budget Office estimates a sale price of $85-90 per barrel, laughably unrealistic given that oil is currently less than $50 per barrel. The difference is a form of phantom revenue that helps get the budget through, but will increase the deficit if it doesn’t materialize.
Social Security reforms — $4.3 billion
Social Security consists of two funds: one, the Old Age and Survivors Insurance (OASI) fund, pays out benefits to older Americans, and the other, the Disability Insurance (DI) fund, pays out money to Americans who are unable to work due to a disability. The DI fund was set to run out of money next year. When this has happened in the past, Congress has transferred money from the OASI fund to the DI fund—in fact, they’ve made such transfers 11 times. But conservatives objected making such transfers this time around.
The budget deal reallocates a higher percentage of payroll taxes in 2016-2018 to the DI fund, boosting its funding and enabling it pay benefits until 2022. To please conservatives, it also includes a number of measures to make it harder for Americans to qualify for disability insurance and to crack down on fraud. It now requires applicants to receive a medical exam before qualifying for benefits, a rule in 30 states right now. It would also strengthen penalties for Social Security fraud, among other reforms. In all, the changes would cut spending by more than $4 billion.
Selling spectrum — $4.4 billion
The bill directs the FCC to auction of 30 megahertz of spectrum before July 1, 2024. Auctioning off airwaves has the potential to put billions of dollars in the government’s coffers. But as POLITICO’s Kate Tummarello reported, CBO is drastically undervaluing the potential profits from selling the spectrum, according to lawmakers. That has restricted Congress’ ability to use such sales as a payfor but it found its way into the budget deal anyways.
Judiciary changes — $3.5 billion
All government agencies must adjust their civil monetary penalties to take into account inflation and continue updating them annually. It also rescinds funding for the Crime Victims Fund ($1.5 billion) and the Assets Forfeiture Fund ($746 million).
Crop insurance — $3 billion
The bill makes two changes to the federal crop insurance program. First, it requires that the standard reinsurance agreement, a deal that establishes the terms under which the government provides subsidies and reinsurance to an insurance company, must be renegotiated by the end of next year. Second, it caps the overall rate of return for insurance providers at 8.9 percent. According to an official summary of the deal, the “rate of return [currently] is approximately 14.5 percent.”