August 30, 2016

The (Tab)ulation

Subscribe to this feed Subscribe to this feed

 

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...

Friday, November 6, 2015 - 11:44 AM

Rep. Scott Rigell (R-Va.) recently offered the America First Act, a bill to replace 75 percent of the sequester cuts scheduled under current law with a mix of reforms in mandatory spending and revenue increases from limiting tax expenditures.

In the aftermath of the bipartisan budget agreement, ideas like those in the Rigell plan could serve as models for long-term, bipartisan fiscal reform efforts in Congress.

The Rigell plan proposes a new framework that would achieve substantial deficit reduction while replacing the sequestration-level spending caps that are in place under current law. The plan comes at a time when a number of fiscal experts and lawmakers have concluded that the sequester caps are unrealistically tight.  

According to Congressional Budget Office (CBO) estimates, the Rigell bill would save $2.5 trillion over the 10-year budget window. It would do so by implementing a three-to-one mix of spending cuts to revenue increases, making major reforms to Social Security and Medicare to improve their long-term finances.

On the...

Monday, October 12, 2015 - 12:30 PM

There has recently been a renewed focus on a key provision in the Affordable Care Act (ACA) -- the so-called “Cadillac tax.” The tax, which will take effect in 2018, attempts to limit the tax-free treatment of employer-provided health insurance benefits by taxing them above a certain amount.

The “Cadillac” terminology arises because only the most expensive, generous insurance plans are initially projected to be hit by the tax. As insurance costs rise along with health care costs, more plans will gradually become partly subject to the tax, and thus the amount of fully tax-free health insurance in the country will fall.

This is good, because the exclusion of health insurance from taxation is widely considered economically inefficient and regressive tax policy. It is very expensive for the government, only provides benefits to some workers, distributes those benefits primarily to those who earn the highest incomes, and encourages higher health care spending. Economists believe that as the tax-based preference for health insurance over employee wages dissipates, employee wages will rise.

The Cadillac tax was always a suboptimal and clunky method through which to limit the health care tax exclusion because it does so indirectly (Concord’s...

Monday, September 14, 2015 - 1:33 PM

The House Ways and Means Committee approved a measure last week that would allow the Treasury to continue issuing new debt to pay interest on the publicly held debt and Social Security benefits even if the statutory debt limit has been reached.

The measure, mislabeled the “Default Prevention Act,” would not actually prevent a default because failure to pay any government obligations is still a default and would be seen as such in global markets.

The legislation attempts to prioritize which payments the government would make if the debt ceiling is reached and Treasury can no longer pay all of its obligations. Under the act, all debts not related to debt held by the public or the Social Security trust funds would be left unpaid.

Treasury Secretary Jack Lew again urged Congress last week to raise the debt limit in a timely manner, reminding lawmakers that failure to do so in the...