September 30, 2016

The (Tab)ulation

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Tuesday, September 27, 2016 - 10:31 AM

The first segment of the first presidential debate between Democrat Hillary Clinton and Republican Donald Trump was dedicated to achieving prosperity.

That provided an opportunity for the moderator to ask about -- and the candidates to talk about -- their respective plans for putting the nation’s projected debt on a sustainable path. It’s hard to see how prosperity can be achieved, or long maintained, with a debt that is projected to reach unsustainable levels.

Unfortunately, the subject was not discussed.

Trump made a couple of passing references to the debt and Clinton noted that Trump’s plan might increase the debt, but neither of them made a connection to the debt as an economic issue, much less described what they would do about it.

That’s too bad because one of these two candidates will become president in 2017 and will immediately be confronted with having to submit a budget to Congress against the backdrop of rising deficits and debt.

Each has made some expensive proposals that would have to be paid for and the American people have a right to know how they plan to do this without making the debt problem worse.

Consider what awaits the next occupant of 1600 Pennsylvania Avenue:

  • For the first time since 2009, the budget deficit is projected to increase this year,...
Monday, September 26, 2016 - 9:51 AM

Even casual observers of today’s federal budget process can see it is badly broken.

Congress has repeatedly failed to pass budget resolutions. Failure to pass appropriations bills has become the norm, forcing lawmakers to rely on continuing resolutions, bills that simply extend prior spending regardless of shifting priorities. And efforts to negotiate legislation on a long-term fiscal plan are non-existent. 

These failures enhance the argument to shift towards a “biennial” budget process that would produce funding legislation for two years at a time rather than one. Under biennial budgeting, Congress would set spending and revenue levels and complete appropriations bills in the first year of each Congress, and the second year would be used to conduct greater oversight of federal programs and ideally focus on long-term fiscal challenges.

Advocates of this approach received some heartening news recently: House Majority Leader Kevin McCarthy (R-Calif.) indicated his willingness to bring to the House floor a biennial budget reform bill that was originally introduced by Rep. Reid Ribble (R-Wisc.) and Rep. Kurt Schrader (D-Ore).

Twenty states make use of a biennial budgeting process in some form, and every administration since Ronald Reagan’s has...

Friday, September 16, 2016 - 2:13 PM

The penny plan to reduce spending by one cent on every dollar (one percent a year) has been bouncing around Washington for years but is now getting a higher profile with versions supported by the Senate Budget Committee Chairman Mike Enzi and the Republican nominee for president, Donald Trump. 

While the plan sounds simple, it allows politicians to duck any responsibility for explaining to voters which federal programs should be cut and why. Furthermore, the size of cuts required are much larger and more unrealistic than one might think from the characterization built around the idea of “one percent."

That is because government spending on programs like on Social Security, Medicare and Medicaid (which alone make up nearly half the budget) grows to take into account population changes, aging and inflation. Thus the actual amount that the government would have to cut in spending is much larger than one percent relative to that built-in growth.

In the plan’s most basic iteration, where all government spending aside from interest payments would be subject to cuts, spending would have to be cut by almost 40 percent from where it would be otherwise in the tenth year of the budgeting period. That would mean dramatically large cuts to Social Security, Medicare, and everything else. Exempting a program from...

Thursday, July 21, 2016 - 12:47 PM

The overall budget picture in Washington remains bleak as lawmakers have left town without making any meaningful progress on the appropriations process. They are now anticipating a September scramble to approve a Continuing Resolution (CR) to keep the government open after the new fiscal year begins Oct. 1. This means Congress, yet again, would be falling back on legislation that indiscriminately maintains the funding levels of the previous year, with little or no attention to the necessity of increased or decreased funding levels for important programs. 

The long-term outlook is even more dire. The Congressional Budget Office (CBO) issued yet another warning recently about the enormous pressures on the federal budget over the next 30 years. Just to maintain the current level of federal debt as a share of the economy, the nonpartisan budget office warns, would require large-scale spending cuts and/or tax increases every single year until 2046. 

It would stand to reason that the nation’s leaders would focus on such a significant problem at this critical time. Unfortunately, many of them -- along with other political candidates -- have done the exact opposite and are pandering to voters with unrealistic promises of giant tax cuts and major benefit increases, even for upper-...

Monday, May 2, 2016 - 3:44 PM

Health care cost-control efforts in the United States can often be described simply as “changing incentives.” The focus on incentives can be traced to two main circumstances:

1) The majority of politicians have opposed efforts to reduce costs simply through government price-setting, a mechanism widely used around the world to control costs.

2) The incentives in the U.S. health care system have been severely misaligned for decades, with all the actors -- from consumers to employers to insurance companies to physicians and hospitals -- having incentives to increase spending.

The most notable cost-related health care system changes of the past decade have attacked some of this misalignment and those efforts have contributed to historically slow growth rates for health care costs over the last five years.

The one area primarily untouched by those changes, prescription drug costs, is also the one area where inflation is growing rapidly, with 12.2 percent growth in 2014. Yet there appears to be an effort in the House and Senate...

Monday, April 25, 2016 - 11:47 AM

A pair of Republicans on the House Rules Committee recently discussed proposals to alter the rules for the consideration of spending bills. The effort drew attention – and opposition – from Rules Committee Democrats and Appropriations Committee Republicans alike.

The controversy centered on a proposal that would have enabled the House to reduce expenditures on mandatory spending programs, the largest of which are Social Security, Medicare and Medicaid, during the appropriations process.

While it would be a good idea to provide more opportunities for review of mandatory spending programs, the already troubled appropriations process is not the right vehicle.

 As our chart shows, mandatory spending -- which is set by formula and does not require approval through the annual appropriations process -- has ballooned in the past several decades and is projected to continue growing faster than the economy. Many fiscal analysts...

Monday, April 4, 2016 - 11:25 PM

In an interview with Bob Woodward of the Washington Post, Republican presidential front-runner Donald Trump estimated last week that he could pay off the nation’s $19 trillion debt within eight years.

This claim demonstrates a basic misunderstanding of the debt and its impact on the economy. It is also inconsistent with the tax and spending proposals Trump has espoused on the campaign trail, which are far more likely to grow the debt rather than eliminate it.

What’s important about the debt is not its size in dollar terms but its size relative to the economy (GDP) and whether it is on a sustainable path. While the debt is indeed very high by historic standards and is projected to grow at an unsustainable rate over the coming decades, there is no need to eliminate it within eight years. Attempting to do so, however, would require spending cuts or tax increases that risk substantial harm to the economy.  

A better goal would be to stabilize the debt as a share of the economy and then begin to reduce it over time. That is what happened following World War II when the debt in 1946 was $242 billion or 106 percent of GDP. By 1974, the debt had grown in dollar terms to $344 billion but had shrunk to 23 percent of GDP -- the post World War II low.

Moreover, no plausible set of policy...

Monday, April 4, 2016 - 12:41 PM

As Congress slides into April without any serious progress on a budget resolution in the House, some pragmatic lawmakers are reportedly considering the use of a novel approach to break the gridlock: a “Queen of the Hill” legislative rule.

The rule operates on a simple, common-sense principle: Every lawmaker has an opportunity to put his or her preferred solution on the table, and if no preferred solution receives a majority of votes, a default option is “deemed,” or considered passed by the House. This approach should be taken seriously and the lawmakers proposing it should be praised for their efforts.

At issue in the impasse over the budget resolution is the $1.07 trillion total for Fiscal Year 2017 appropriations agreed to by lawmakers in the Fall. Some argue that the figure is too high; if the budget were accompanied by reforms to mandatory spending to put long-term deficits on a downward trajectory, they say, the agreement reached might be more acceptable. Laudable as this goal may seem, it has had the adverse effect of blockading the budget process.

It is against this backdrop that Rep. Charlie Dent (R-Penn.) has raised the possibility of a “Queen of the Hill” rule to inject some needed creativity into a broken process. Dent, according to a report in the National...

Tuesday, February 2, 2016 - 11:12 AM

On the campaign trail, voters are hearing promises of big tax cuts from the Republican presidential candidates and of big spending increases from the Democrats.

Meanwhile, back in Washington last week, the nonpartisan Congressional Budget Office (CBO) released a new set of projections for the next 10 years that casts serious doubt on how realistic (or responsible) those campaign promises are.

According to CBO's projections, here are some sobering fiscal facts that will confront the next president:

  • In 2018, the first fiscal year for which the new president will present a budget, the projected deficit will be $572 billion (2.8 percent of GDP).
  • By 2022, the end of the next president’s first term, the projected deficit will be  back above $1 trillion (4.4 percent of GDP).
  • Projections for a hypothetical second term show a steadily worsening situation, with the deficit above $1 trillion and rising in each year. By 2026, the last year of CBO’s 10-year outlook, the deficit will be $1.4 trillion (4.9 percent of GDP).
  • Debt held by the public is projected to grow from 76 percent of GDP this year to 86 percent in 2026, far above the 39 percent average for the past half-century.

This is not a scenario that calls for spending increases or tax cuts, even if offsetting...

Monday, December 14, 2015 - 10:35 AM

Donald Trump is often described as an “unconventional” candidate. When it comes to the federal budget, however, his campaign promises are entirely too conventional.

Some candidates deny the necessity of reforming popular entitlement programs such as Medicare and Social Security.

Some candidates propose enormous tax cuts without credible proposals to cut enough spending to prevent this from worsening the debt.

Some candidates make exaggerated claims for how much waste, fraud and abuse they will cut and how much savings that would achieve.

Some candidates make exaggerated claims for the economic growth their policies will produce.

The Republican front-runner, however, does all of the above -- while simultaneously promising to somehow balance the budget.

Let’s begin with Social Security and Medicare. These two important programs already comprise nearly 40 percent of the federal budget and are the biggest contributors to projected spending growth aside from interest on the debt.

According to the programs’ trustees, “Social Security as a whole as well as Medicare cannot sustain projected long-run program costs under currently scheduled financing. Lawmakers should take action sooner rather than later to...