September 25, 2016

Posts on federal budget

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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...

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...

Thursday, August 27, 2015 - 11:00 AM

It has been easy for advocates of generationally responsible tax and spending policies to look at Capitol Hill with dismay for the past few years. A few consequences of inaction and lack of bipartisanship include:

  • A complete breakdown in the federal budget process.

  • Continued struggles to replace arbitrary, shortsighted caps on discretionary spending with smarter deficit reduction.

  • Total inaction on addressing the main drivers of deficits in the coming years, rising health costs and an aging population.

  • More than 30 short-term extensions of transportation funding and a failure to eliminate the growing shortfall plaguing the Highway Trust Fund.

  • Multiple debt-limit showdowns, each of which threatened the United States’ credit rating and roiled financial markets.

Yet in the past few months, I’ve been pleased to see at least a few positive signs.

In over two dozen staff and member meetings conducted over the first two months of my tenure at Concord, we’ve found that some lawmakers are coming back around to the fiscal realities facing them this fall and in the coming years. Part of the...

Monday, July 13, 2015 - 8:17 AM

In a good example of history repeating itself, Congress for the second year in a row is going down to the wire on a mid-summer deadline to replenish the Highway Trust Fund before it runs out of money.

If lawmakers can’t find a solution by July 31, states will not receive promised funding from the federal government to help pay for transportation projects, bringing many such projects around the country to an abrupt halt.

Proposals released last week rely on a flawed plan to temporarily replenish the trust fund. One of those proposals, however, does identify an alternative way to fund transportation spending that could be a long-term solution.

Lawmakers also have to reauthorize highway and transit programs after passing a two-month extension of them in late May. The short-term patch ensured that state governments could continue to be reimbursed for infrastructure projects during peak construction season, but lawmakers delayed action on needed reforms to transportation financing.

And make no mistake, the trust...

Thursday, March 12, 2015 - 1:15 PM

In less than three months, the highway bill enacted last July will expire and the program’s trust fund will face imminent depletion. At that point, Congressional failure to act would cause tens of thousands of infrastructure projects to be put on hold and would jeopardize construction jobs across the country.

The highway trust fund has historically operated on a “user pays” principle, where motor vehicle and fuel taxes paid by those who directly benefit from roads fund programs to maintain and improve the system. However, when Congress last raised the federal gas tax in 1993, lawmakers chose not to index it to inflation. As a result, the gap between revenue and expenditures has grown as the real value of the tax has declined.

As the chart above shows, there would be no shortfall in the highway trust fund today had its dedicated revenue source been allowed to grow with inflation. But instead of rectifying this problem or finding an alternative source of dedicated revenue, Congress has largely relied on fiscally irresponsible patches funded by...