Reducing Waste, Fraud, and Abuse and Improving Affordability in Reconciliation 3.0
If Congress uses reconciliation again, it should significantly reduce the deficit.
Congress is weighing Reconciliation 3.0, a fast-track mechanism to enact spending and tax legislation with only a simple majority. House Budget Committee Chair Jodey Arrington (R-TX) said it would center on defense spending, cutting fraud, and making housing and healthcare more affordable.
Congress should offset any new spending in reconciliation and focus on reducing the deficit on a path toward a 3 percent target. At a minimum, Congress should achieve $600 billion in net savings, the amount the House committed to in last year’s reconciliation framework but Congress ultimately failed to deliver in the final bill.
We’ve compiled links to previous publications and recommendations relevant to Reconciliation 3.0 below for easy reference:
Iran War supplemental should be fully offset. Dominik Lett warns that the White House’s June 24 request for $87.6 billion in emergency funding is “rife with wasteful spending,” with a significant share “ranging from $11 billion in agricultural subsidies to $1 billion to modernize New York City’s Penn Station.” Including interest costs “pushes the supplemental’s true price tag closer to $126 billion.” Lett notes that last year’s reconciliation law, “added more than $150 billion” to a base defense budget that “already approaches $1 trillion a year.” He emphasizes: “Congress should reject this request. Most of it does not merit the emergency label, and America cannot afford $126 billion in new borrowing amid $2 trillion deficits. If legislators insist on passing some version of it, they should strip every line item that is not a genuine emergency and offset the rest dollar-for-dollar. No offsets, no deal.”
Reconciliation 3.0 should target welfare fraud. Congress should “pursue reforms that curb waste, fraud, and abuse in federal welfare programs,” argue Romina Boccia and Tyler Turman. Their recent briefing paper highlights structural flaws that drive misspending in major federal welfare programs: the Supplemental Nutrition Assistance Program; Medicaid and the Children’s Health Insurance Program; child nutrition programs; Temporary Assistance for Needy Families; and Supplemental Security Income. Congress could save federal taxpayers nearly $6 trillion over the next decade by block-granting Medicaid and CHIP ($5 trillion) and phasing out federal funding for SNAP ($550 billion), child nutrition programs ($262 billion), and TANF ($91 billion). Short of that, Congress could make incremental reforms to reduce waste, fraud, and abuse that would save nearly $500 billion, including eliminating Medicaid provider taxes ($386 billion), eliminating broad-based categorical eligibility in SNAP ($100 billion), eliminating TANF’s Contingency Fund ($6 billion), and raising the community eligibility threshold to 60 percent in school meal programs ($3 billion).
Make housing more affordable by fixing cost recovery. Michel argues the most powerful lever is “cost recovery for residential structures”—letting developers deduct construction costs immediately instead of over 27.5 years. His proposals: full expensing for new housing, or, short of that, “neutral cost recovery, which adjusts deductions for inflation and the time value of money”; repealing the Low-Income Housing Tax Credit; and gradually cutting the mortgage interest deduction cap “from its current $750,000 toward the US median house sale price of about $400,000.” Michel emphasizes: “If lawmakers want a serious, growth-oriented affordability agenda, housing supply must be central, and cost recovery reform should take center stage.”
Congress should cap Medicare’s growth and convert it into a cash-transfer program. Boccia, Cannon, and Michel argue that “Medicare encourages waste, fraud, and excessive prices because politicians, bureaucrats, and enrollees do not spend government money as carefully as their own.” The biggest fix: cut baseline spending, limit growth to “a sustainable measure, such as chained CPI,” and “convert Medicare into a Social Security–style cash-transfer program that sends risk and income-adjusted ‘Medicare checks’ directly to enrollees.” Other options to reduce federal Medicare spending and improve affordability include expanding means-testing for high-income enrollees ($1.2 trillion); cutting “benchmark” ($615 billion) and “risk adjustment” ($1.32 trillion) subsidies to Medicare Advantage plans; expanding enrollee cost-sharing in traditional Medicare ($195 billion); adopting “site-neutral payment” for hospital outpatient services ($180 billion); and reducing 340B drug prices ($85 billion).
To make healthcare more affordable, remove government-created distortions. Repealing the (Un)Affordable Care Act (ACA) would “reduce premiums for most individuals by 50 percent or more.” Short of that, Congress could expand Obamacare-exempt plans that CBO found cost about 60 percent less than the cheapest Obamacare options, lower Obamacare’s “benchmark” premium subsidies, and require minimum out-of-pocket payments to curb subsidies for “phantom” enrollees. To make private-sector health plans more affordable, Congress should end the tax exclusion for employer-sponsored health insurance (up to $6 trillion in higher revenues) and replace it with “worker-owned, tax-free” Universal Health Accounts (UHAs) that let patients “purchase any health insurance plan from any source, tax-free.”
Congress should repeal four tax credits that distort markets and invite fraud. Congress should repeal the Earned Income Tax Credit ($800 billion), which “is highly complex, generates large improper payment rates,” and discourages work; the Low-Income Housing Tax Credit ($194.8 billion), which is “prone to corruption, with most of the subsidy captured by investors and intermediaries”; the New Markets Tax Credit ($14.4 billion), whose “subsidized projects would have occurred anyway”; and the Historic Rehabilitation Tax Credit ($6.5 billion), which “suppresses housing supply and raises housing prices.”