A federal court has sent back (vacated and remanded, in regulatory-speak) to the Bush administration a rule aimed to limit government reimbursement for Medicaid providers. The rule is one of several the administration is attempting to codify in an effort to undermine the entire Medicaid program.

The process by which the Centers for Medicare and Medicaid Services finalized the rule was particularly sneaky, even by Bush administration standards. A New York Times editorial explains:

In a decision issued last week, Judge James Robertson of the Federal District Court in Washington ruled that the administration had overstepped its authority last year with a maneuver "deliberately designed to outfox a clear directive of Congress." The administration was seeking to evade the annoying fact that Congress had enacted a one-year moratorium on the administration's efforts to alter — and in the process cut — Medicaid reimbursements to public hospitals and nursing homes.

Congress had already passed, but President Bush had not yet signed, a broad funding bill that included the moratorium when the secretary of the Department of Health and Human Services rushed through a typo-ridden rule for "emergency display" on May 25, 2007, the very day the moratorium took legal effect. The rule, which had been in preparation for some time, was officially published a few days later. That shifty maneuver was too much for Judge Robertson to swallow. He found ample reason to overturn the rushed-through rule as a violation of Congressional intent.

The ruling should serve as a reminder to Bush administration higher-ups that Congress, not the Executive Branch, is primarily responsible for crafting federal policy. The role of federal agencies is to faithfully enforce the law in the spirit Congress intended, not to undermine it based on personal views — in this case, an ideological aversion to government programs meant to help the needy.

In his opinion, Judge Robertson writes to that effect:

[T]he Secretary treated an act of Congress seeking to control the substantive rules of Medicaid reimbursement as an "emergency," and prioritized issuance of his own rule over Congress's plain intent to prohibit his actions ... Although administrative law has evolved to allow agencies significant leeway to fill in the interstices of broad congressional mandates … control over the substance of the rules that govern the nation has always remained with Congress first. The Executive must comply with the duly enacted commands of Congress.

When the Treasury Department released a stack of propaganda analyses yesterday on the 2001-2003 Bush tax cuts, they also promulgated a press release to accompany their reports. While their message was nothing more than years-old, warmed over talking points, it has provided yet another opportunity to talk about the continual deepening of income inequality in the United States.

The administration crows about the enormous burden of taxes that upper income groups shoulder, however, it remains typically silent on why they pay such a large share of taxes -- upper income groups earn way more than lower income groups.

From the Treasury's talking points we learn that the individual income tax is "highly progressive" because:

• In 2005, the top 5 percent of taxpayers paid more than one half (59.7 percent) of all individual income taxes, and the top 1 percent paid 39.4 percent; and
• Taxpayers who rank in the top 50 percent of taxpayers by income pay virtually all individual income taxes. In 2005, they paid 96.9 percent of all individual income taxes.

But what remains unsaid is the underlying reason for these numbers:

• Taxpayers in the top 50% earned the overwhelming majority of income. In 2005 they earned 87.2 percent of all income, up from 86.2 percent in 2001; while
• The bottom 50% has not fared as well. In 2005, they earned 12.8 percent of all income, down from 13.8 percent in 2001.

Yesterday was apparently the fifth anniversary of a momentous occasion in American history. And another day in infamy approaches.

On the off-chance that Americans somehow overlooked the fact that noteworthy tax legislation was signed by President Bush on May 28, 2003 -- and this blog stands guilty on that score -- the administration saw fit to mark the moment with a flurry of papers and pronouncements, including:

• a historical perspective
• various and sundry Tax Relief Topics
• a helpful Fact Sheet
• and a press release

As the fact sheet shrieks, "the Largest Tax Increase in History Is Looming." This is an ironic canard, in view of the fact that the president's budget assumes the extension of his 2001 and 2003 tax cuts, leaving the Treasury with about $400 billion less in revenues by 2012 than the Democrats' budgets do. And yet he claims that he can produce a budget surplus that year without letting his tax cuts expire.

Economy -- It's Not A Recssion, per CEA Chair: Edward Lazear, chairman of the Council of Economic Advisers, said yesterday that, of the five measures the private National Bureau of Economic Research uses to date the start and end of recessions, only one--sales in retail and manufacturing--"are declining at rates commensurate with prior recessions." Recent job losses are at "less than half the rate that prevailed during the mild recession of 2001." Payrolls have declined four months in a row.

Contracting -- But It's Contracting: Purchases by federal agencies will drop by double digits in fiscal 2009, with most of the decline coming from the Defense Department, according to a forecast by a federal market research firm. Contract spending will drop by more than 10 percent from fiscal 2008 to fiscal 2009, from $490.7 billion to $440.4 billion. Story.

Taxes -- And White House Warns on Tax Hikes: Gloom marked the fifth aniversary of the 2003 tax cuts, with the White House predicting that the largest tax increase in history is looming: "[i]f the President's tax relief is allowed to expire at the end of 2010, Americans will pay about $280 billion more in taxes each year. With the largest tax increase in history looming, Congress should make the President's tax relief permanent." Fact Sheet.

The good folks at POGO have come into the possession of one Defense Department Inspector General's report published in March of this year.

This report was at the center of a congressional hearing that was commented on by Stan Collender in a blog post (and WaPo story) we flagged yesterday.

The rapid growth of the DoD budget since 'FY 2000 leaves the. Department increasingly more vulnerable to the fraud, waste, and, abuse that undermines the Department's mission. At the same time, our ability to adequately cover high-risk areas and Defense priorities has become strained due to the fact that our staffing levels have remained nearly constant during this period while the nation's annual defense costs have grown from less than $300 billion to more than $600 billion.

The report underscores the fact that as fantabulous as privatizing government may appear to be (with the Magic of the Market_® and all), it requires a certain level of oversight or money starts getting disappeared. This nontrivial cost of oversight is all to often overlooked (intentionally and not) by proponents of outsourcing and privatization. While outsourcing government work to private firms may save a few bucks, it's entirely possible that the cost of oversight -- either of hiring contract officers or of "lost" funds -- exceeds the benefits.

Posted by Craig Jennings, 11:59:58 AM



Hi (Economist) Mom!

I just wanted to alert readers of a new blog we've been reading: EconomistMom - "where analytical rigor meets a mother's intuition."

Authored by economist and mom Diane Lim Rogers of the Concord Coalition, the blog's "particular focus [is] on the economics of fiscal responsibility," but Rogers also writes about broader issues.

She's been on a roll lately, explaining the trap of the "largest tax increase in history" rhetoric, expressing frustration about the 'extenders' tax cuts, and righteously high-fiving Steven Pearlstein for his column that connects the dots of the various economic woes of the day.

Good stuff.

Economy -- Consumer Confidence Drops to 16-Year Low: The Conference Board Consumer Confidence Index, based on a representative sample of 5,000 U.S. households, fell to its lowest level since October 1992. "Weakening business and job conditions coupled with growing pessimism about the short-term future have further depleted consumers' confidence in the overall state of the economy." Press Release.

Government Oversight -- Defense Inspectors Stretched Thin: Pentagon auditors say billions of dollars in military spending is going unchecked because they are having trouble keeping pace with the ever-expanding defense budget and combat operations in Iraq and Afghanistan, Government Executive magazine reports today. 10 years ago, a single auditor would have reviewed some $642 million in defense contracts, individual investigators are now charged with auditing more than $2 billion in spending. Story.

WSJ Expose -- Bearing the Bad News: The Wall Street Journal opens a three-part expose today of the fall of Bear, Stearns. Part One: As the firm's fortunes spiraled downward, executives squabbled over raising capital and cutting its inventory of mortgages. Part Two: Executives believed they were about to turn a corner, but rumors and fear sent clients, trading partners and lenders fleeing. Part Three: The Fed pressured Bear Stearns to sell itself, but a misstep in the hastily drawn agreement nearly scuttled the deal.

CongressDaily is reporting ($) that a few members of the House of Representatives are forming the "Smart Contracting Caucus" to pursue what Rep. Tom Davis (R-VA) called "thoughtful federal procurement reform." But Dan Friedman at CongressDaily isn't buying the spin:

Davis was a contracting lawyer and is the House's top backer of government contractors concentrated in his suburban Virginia district. He has long pushed to make contracting with federal agencies simpler for businesses. Since the 2006 election, Davis has negotiated with House Oversight and Government Reform Chairman Henry Waxman and other Democrats to remove provisions from several House-passed contracting reform bills after they drew particularly vocal industry opposition. With Davis leaving Congress this year, the caucus appears in part an effort to institutionalize his role.

While I like that folks in Congress are paying more attention to the horrific problems we have in the federal procurement system (here's the latest), I'm not sure if Davis is the best person to be heading up this caucus. Considering his opposition at one point to legislation to prevent companies that owe federal taxes from being considered for government contracts, his original support of a spending transparency bill that did not disclose contracts data, and his support of the largest corporations regardless of whether they have broken federal contracting laws, it's probably good he won't be around next year. If he was, they would probably have to rename it the "Fighting Contractor Abuse" Caucus.

Federal budget sensei Stan Collender reads this WaPo story on the mismanagement of $15 billion Iraqi reconstruction funds and wonders if something more than incompetence isn't at work.

The Pentagon's own inspector general confirmed that this lack of concern for procedural safeguards was blatant and commonplace. That makes it hard to come to any conclusion other than that they were ignored rather than expedited or poorly executed.

It's also hard to come to any conclusion other than that the spending of taxpayer funds in Iraq bordered on, or actually was, simple and straightforward corruption.

Given the magnitude of the spending involved, Iraq may be the Bush administration's contribution to the biggest public corruption scandals of all time like Boss Tweed in New York, James Michael Curley in Boston, and Teapot Dome.

Housing -- Market Collapse Accelerates: Prices of single-family homes declined a record 14.1 percent in the first quarter from a year earlier. Year-to-year prices fell less than three percent during the worst drop in the last housing recession, according to the Standard & Poor's/Case Shiller national home price index, released this morning.

War Supplemental -- House to Take Bill Up Again After Break: One casualty of the congressional congestion in the weeks prior to the Memorial Day recess was the war supplemental, which will be taken up by the House once again when Congress returns. The House bid to fund the war through much of FY09 failed; the Senate adopted the largest appropriations bill in history, which included that funding, on May 22.

Defense Bill -- Nussle Calls Earmarks Item "Veto Bait": OMB Director Jim Nussle called an earmarks provision included in the House defense authorization bill "veto bait" last week. A spokeswoman for House Speaker Nancy Pelosi, D-Calif., said the administration's concerns would be noted, but pointed out the provision "had unanimous, bipartisan support in the Armed Services Committee." Story.

When Sen. Ben Nelson (D-NE) heard from the Department of Defense that the agency was withholding 12 percent of a $1 million medical research earmark Nelson had secured for the University of Nebraska, he learned about a widespread but little-known practice among federal agencies -- taking a cut from earmarked funds, some for unrelated purposes as varied as staff salaries and postage stamps. Nelson dubbed it "earmark simming."

This week, the New York Times reported on this practice. Apparently,

according to a Congressional Research Service study that [Nelson] ordered, the federal government has no umbrella legal authority that allows agencies to take a cut of each earmark, and it has no overall standard for how much agencies should take.

The Tiimes story says that OMB is currently preparing a governmentwide report, due in March 2009, that will examine how much each agency takes from earmarks and for what purpose.

The first question may not be why it should take at least ten months to prepare the report but... how much will it cost?

When the Senate unanimously approved the Heroes Earnings Assistance and Relief Tax (HEART) Act (HR 6081) on Thursday, two days after the House approved it 403-0, it also approved a measure that would force federal contractors employing American workers through offshore shell companies to pay Social Security and Medicaretaxes. If signed by the president, the bill's enactment would result in hundreds of billions of in new revenues.

The provision is based on the Fair Share Act of 2008 (HR 5602). U.S. PIRG has been a champion of the measure, and OMB Watch had signed on to a U.S. PIRG letter urging Senators to approve the provision.

And score another victory for PAYGO! The Fair Share Act is one of three provisions that fully offset the $1.3 billion tax bill. This is real victory for the fiscally responsible and advocates of fair tax policy .

Yesterday, the Senate passed an amendment to the war supplemental bill that will put the brakes on several controversial Medicaid regulations. The Bush administration has finalized, or is preparing to finalize, the regulations in an effort to cut federal funding for a variety of Medicaid programs administered by the states. (More details on the regulations here.)

The administration developed the regulations under the guise of "fiscal integrity," arguing state Medicaid programs are using loopholes to inappropriately claim federal funds. Bush has threatened to veto the bill. Fortunately, the amendment passed the Senate in a 75-22 vote and also cleared the House by a veto-proof margin.

On May 6, more than 100 hospitals, providers, school districts and public interest groups (including OMB Watch) wrote to Congress in support of the legislation, which will place moratoria on all seven of the regulations until April 1, 2009. The letter says, "Taken together, the impact of these regulations would undermine the viability of our nation's health care safety net and reduce or eliminate access to health care services for many millions of low income patients."

Critics also question the administration's authority to make such major changes to Medicaid. For example, one of the proposed rules would limit the ability of state governments to provide rehabilitation services (such as transitions to independent housing) for people with mental illnesses or developmental disabilities. The Bush administration floated this limitation as a legislative proposal in 2006, but Congress rejected it.

Kudos to members in both chambers voting yea: they stood up to the administration's efforts to hobble state Medicaid programs.

From a government operations standpoint, Congress should also be commended for reestablishing control over issues that are properly within its purview and rebuking the administration's efforts to reinterpret federal law through administrative means.

Posted by Matt Madia, 12:00:40 PM



DAILY FISCAL POLICY REPORT -- May 23, 2008

Supplemental -- Senate OKs $250 Bn in War, Domestic Funds:
Voting 70-26, the Senate approved a $165 billion amendment to a war supplemental funding bill that would fund the wars in Iraq and Afghanistan until a few months into the next president's term. The chamber also agreed (75-22) to include a package of domestic spending items including a $52 billion expansion of the GI bill, an $11 billion extension unemployment insurance benefits, and a host of other programs ranging from Gulf Coast reconstruction to emergency heating assistance. The $250 billion package would, by a large margin, set a new record for supplemental spending.

Contracting -- House Adds Reform Measure to FY DoD Authorization:
By a voice vote, the House has included as an amendment to the FY 2009 Defense Authorization bill (HR 5658) Rep. Henry Waxman's (D-CA) Clean Contracting Act. Waxman's amendment bundles a set of contracting reform measures, including language from HR 3033 to establish a database of contractors in violation of contracting rules and from HR 5712 to require contractors to disclose to the government instances of waste, fraud, and abuse of overseas contracts.

Farm Bill -- How Laws Are Made, the Comedy: ... In which a clerical error results in the deletion of a 34-page section of a 673-page farm bill from a package sent to the president, with the House and Senate twice voting to overrule a bill twice vetoed by the president. Legislation ensues. House Speaker Nancy Pelosi (D-CA) laughed when asked to recount her initial reaction to the clerical error. "Uncustomarily crude," the Speaker replied, declining to reveal the expletive she uttered. Analysis of Snafu.

The unanticipated hiatus between this week's conference approval of the FY09 budget resolution and its formal adoption by Congress next month gives us some time to examine the assumptions underlying the deficit/surplus projections in both the resolution and the budget submitted by the President in February in depth prior to passage.

It is presumably de riguer in modern budgetmaking to show how we can get from here to the promised land of budget surplus, presto. Indeed, both documents project sizable federal government surpluses in 2012 and 2013. The budget resolution projects surpluses for those years in the hundreds of billions of dollars.

But today, the Center on Budget's released an Analysis of the Conference Agreement that revisits the resolution's assumptions and provides a sobering reality check on its projected surpluses/deficits, factoring in more realistic assumptions regarding:

• the extension of portions of Bush tax cuts of 2001 and 2003
• maintaining defense expenditures at current levels
• supplemental appropriations for the wars in Iraq and Afghanistan *
• increased interest expense

and concludes that both the president's budget and the budget resolution underestimate the cumulative projected 2008-13 surpluses/deficits by close to $800 billion.

We strongly support adoption of the budget resolution for its marked and numerous improvements over the president's provisions for FY09. But without saying so in as many words, the CBPP analysis makes amply clear that the projected 2012 and 2013 surpluses rest on somewhat fanciful assumptions. The analysis makes the implicit point that more credible assumptions in support of out-year deficit/surplus projections would help restore some badly needed integrity to the budget process.

-----------

* The Senate just approved the largest emergency supplemental appropriations bill in U.S. history, adding approximately a quarter of a trillion dollars to this amount. The House is expected to follow suit tomorrow.

An op-ed in today's Washington Post, Fallout from a Bailout, examining the consequence of the Federal Reserve bailout of Bear, Stearns in March, breathlessly exclaims, "The world has changed because of a few snap decisions made one weekend in March."

Maybe it takes someone with the unique perspective and insight of a former director of the Division of Monetary Affairs at the Federal Reserve Board to appreciate and alert us to this global cataclysm: "the Fed's action tipped the political balance toward providing direct subsidies to households having trouble meeting their mortgage payments."

Dreadful. Author Vincent Reinhart is right in this one narrow respect: the Fed's action in March may have helped clarify how politically untenable in Congress the Bush administration's laissez-faire approach to the mortgage crisis was. His question, "Given that the government has provided funds to an investment bank, do you think government aid should also be given to households failing to meet their mortgage obligations?" became a no-brainer.

Whether the Fed's move really portends the ideological consequence Reinhart seems to fear is debatable. But once denizens of Club Fed stop hyperventilating, they probably should consider this question before debate begins in earnest on absurdly long-overdue and inevitable financial institution regulatory reform: should Bear-style Fed intervention with fiscal policy consequences (putting taxpayers on the line for the Bear bailout) be sanctioned going forward, and, if so, does that argue for an oversight and advice-and-consent role for Congress?

This may be the central question emerging from the Bear bailout. If the Fed wants license formally to expand its mission and effect fiscal policy, we will need to bear in mind that, as the late Sen. William Proxmire famously noted, "the Fed is a creature of Congress."

The Senate has approved an amendment to the war supplemental spending bill (HR 2642) that would fund the wars in Iraq and Afghanistan through the end of Bush's presidency. The $165 billion spending measure was adopted 70-26.

And by a vote of 75-22, the Senate also adopted an amendment that would appropriate a bevy of domestic spending provisions including a $52 billion expansion of the GI bill, an $11 billion extension of unemployment insurance benefits, and $10 billion for Gulf Coast reconstruction. The amendment would also delay the implementation of a set of Medicaid rules designed to reduce federal spending on the health care program.

The bill now heads over to the House, which failed to add war funding to the measure when it voted on the bill last week. The House did, however, add a war policy amendment, which the Senate stripped from the bill. The House also added its own set of domestic spending, with some differences, the most significant of which is the House's $54 billion offset to the GI bill expansion.

Our friend Wesley Snipes looks like he is running out of options to avoid going to jail on June 3 for believing he was exempt from paying taxes (oh, and actually not paying taxes too). The Associated Press reports:

Wesley Snipes must surrender to prison authorities June 3 if he isn't granted bail to appeal three federal tax convictions, defense lawyers said in a court filing. Snipes' attorneys plan to argue before the 11th U.S. Circuit Court of Appeals that the trial judge erred in several ways before and after his February conviction. U.S. District Judge William Terrell Hodges last month sentenced Snipes to three years in prison.

To be granted freedom during the appeal, the 45-year-old actor must prove that he has a substantial issue to raise and isn't a flight risk. His attorneys argue that Hodges gave the jury bad instructions and should have granted them an expanded pretrial hearing on their request to move the proceedings.

Prosecutors said Snipes had no major issues to raise and has demonstrated he could flee. In a Monday filing, U.S. Attorney Robert O'Neill said Snipes told the probation office he had less than $10,000 in liquid assets, but the actor surprised the government by producing $5 million in payment for back taxes at his sentencing.

(h/t TaxProf Blog)

The state of state budgets continues to deteriorate around the country. The Center on Budget and Policy Priorities released another update yesterday to their increasingly disturbing analysis, which now shows that 31 states are anticipating budget problems in 2009, with 27 projecting a budget shortfall. We continue to reiterate that this is pretty bad news as state budgets are far less flexible than the federal budget and usually are legally prohibited from running a deficit. From the CBPP update:

31 states anticipate budget problems. Of those:

• 27 states and the District of Columbia faced or are facing $47 billion in combined '09 budget shortfalls. Arkansas and Michigan join this list.
  
• 2 states face '09 deficits, but have released no further information. (Connecticut joins this list. Louisiana and Michigan leave.)
  
• 2 other states project budget gaps for 2010 and beyond. (Connecticut leaves this list.)