October 25, 2014

Posts on federal budget

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Saturday, October 12, 2013 - 9:48 AM

Reflecting the sour public mood towards Washington, a panel of experts on the federal budget described themselves Thursday night as worried, puzzled, frustrated and disappointed as the fiscal stalemate dragged on.

They faulted top political leaders and other elected officials in both parties for irresponsibility, inflexibility and, in some cases, a lack of common sense.

It all led former senator Sam Nunn (D-Ga.) to recall a comment by Will Rogers on congressional philosophy: “If stupidity got us into this mess, then why can’t stupidity get us out?”

Concord Coalition Executive Director Robert L. Bixby offered this suggestion for members of Congress who have failed to level with the public on the nation’s fiscal challenges: “If you are trying the strategy of pandering, pandering, pandering, and you are at 5 percent in the polls, why not try something else – coming together and legislating?”

The panel discussion took place at The Concord Coalition’s annual Economic Patriots Dinner in Washington.

Also on the panel were former Federal Reserve vice chair Dr. Alice Rivlin, former senator Pete Domenici (R-N.M.), and former senator Bill Brock III (R-Tenn.). Washington Post reporter Lori...

Monday, October 7, 2013 - 4:13 PM

Lawmakers struggling with the Fiscal 2014 budget will face an even tougher challenge funding the government in future years as interest payments rise to record levels, squeezing other parts of the budget and making it more difficult to quell rising deficits.

Although slow economic growth and Federal Reserve monetary policies have kept interest rates at record lows in recent years, the Congressional Budget Office (CBO) expects rates to rise steadily in the coming years, making interest payments the fastest growing part of the federal budget.

For Fiscal 2013, CBO estimates interest payments totaling $223 billion, or 1.3 percent of GDP. By 2023, interest payments are expected to climb to $823 billion, which is 3.1 percent of GDP -- a percentage that has only been exceeded once in the past 50 years. By 2038 the figure would increase to 4.9 percent.

Rising interest payments would make a larger share of revenue unavailable for spending on federal programs; to prevent the deficit from growing larger, rising interest payments would either crowd out spending on federal programs or cause taxes to go up.

Assuming Washington eventually navigates its immediate budget and debt limit difficulties, interest rates are expected to rise in the next few years due to an improving economy. Yet, if interest rates are even...

Monday, September 9, 2013 - 9:48 AM

Syria is not the only challenge Congress faces as it returns to Washington from its August recess. Monday was the first of only nine legislative days that both the Senate and House of Representatives will be in session before the fiscal year ends on Sept. 30. Congress will need to approve a spending plan before then and take action on the debt limit not long after that.

Unfortunately, little progress has been made towards passing a budget this year. The budget resolutions adopted by Senate Democrats and House Republicans are $91 billion apart in overall spending levels, and no appropriations bills have been signed into law.

House Republicans have only been able to muster support for their deep proposed spending reductions in five of twelve appropriation bills, while the only appropriations bill brought to the Senate floor was defeated by a filibuster.

With so little time left on the legislative calendar, Congress is extremely unlikely to finish its appropriations bills on time. That would leave lawmakers with an important choice: adopt a continuing resolution to temporarily fund the government or allow it to shut down.

If that wasn’t bad enough, the government could default within weeks unless Congress raises the debt ceiling. The Treasury warns that it will run out of "...

Friday, August 30, 2013 - 12:55 PM

This year will mark the end of a four-year string of trillion-dollar-plus federal deficits that have troubled the American public and caused turmoil on Capitol Hill.

Fiscal Year 2013 is drawing to a close with a projected deficit of a little over $640 billion, down from $1.1 trillion last year. That’s good news, but it should hardly be considered an “all clear” signal on the nation’s fiscal and economic challenges.

Here are eight reasons why:

1. While the deficit is going down, the federal debt is still going up.

The government is still borrowing a substantial amount of money this year, and that is all being added to the accumulated debt, which is approaching  $17 trillion. That’s why elected officials -- despite their usual lamentations and finger-pointing -- have no choice but to raise the debt limit at some point in the next few months. The real question is what they will do to prevent the debt from growing in the future to unsustainable levels.

2. This year’s lower deficit can be largely attributed to short-term economic factors rather than systemic reforms in the federal budget

During difficult economic times with high unemployment, federal deficits rise as...

Tuesday, August 6, 2013 - 10:08 AM

Developments on the budget front last week demonstrated both the difficulty of achieving a grand bargain and why it may not be totally out of reach.  

First, the difficulty.

It became apparent last week that the House and Senate have made no progress on resolving their differences over Fiscal Year 2014 appropriations.  At issue is whether to assume that the sequestration cuts that took effect in March will continue. They are about $90 billion apart and unable to budge.

Then, in a speech last Tuesday, President Obama floated a new kind of  “grand bargain”: one aimed at short-term job creation rather than long-term fiscal sustainability.  The speech broke no new ground and did little to break the budgetary logjam.

While conceding that a fiscal sustainability plan must eventually be adopted, including a way to replace the sequestration cuts, Obama argued that his plan would at least address the current slow pace of job creation.

Essentially, he proposed to pay for a package of jobs programs (such as he proposed in his budget) with “transition revenue” from base-broadening corporate tax reform ideas that he proposed last year. The only new...

Tuesday, July 9, 2013 - 5:39 PM

The Obama Administration released its Mid-Session Review (MSR) of the budget on Monday. It would be nice to say that this update arrived just in time to clinch the deal on a fiscal sustainability plan, or even a plan to get through the rest of the year, but sadly that is not the case.

There are no apparent negotiations going on between the House and Senate to work out their differences over next year's spending levels, let alone any broader deal involving the President. Certain mechanical functions are grinding forward, such as the release of the MSR and approval of a few appropriations bills, but these are disjointed efforts with no attempt at coordination.

We no longer have "regular order" so much as we have regular chaos. A tacit decision seems to have been made to take no action on the budget until a crisis is at hand, which is not likely to occur until the end of the fiscal year on Sept. 30.  And even then, the "fix" might be to simply push things forward just enough to reach the next crisis point – raising the debt ceiling - later in the fall.

Within that context, the MSR means little. Still, it is useful to have the administration reiterate its most recent proposals with updated numbers.

...
Monday, June 10, 2013 - 2:37 PM

Judging by recent media reports, there is a growing belief in Washington that the best way to deal with the deficit is to “declare victory.” 

It won’t work.

The deficit problem is far from being solved and its lengthy shadow will hang over every other issue, including the economy, until a fiscal sustainability plan is in place.

To be sure, the deficit is coming down and that is good news. However, most of the improvement comes from a recovering economy, allowing expiring tax cuts to expire and assuming that improbable cuts in discretionary spending and Medicare provider payments will actually occur.

And even if all these things turn out as planned, the budget is still on an unsustainable track. We’ll need a lot more than a short-term declining deficit to declare victory. We’ll need a plan that doesn’t just bring the deficit down but keeps it down on a sustainable basis.

The core problem is not a cyclical deficit driven by the ups and downs of the economy but an underlying structural deficit caused by a mismatch between future spending promises and current tax law.

The Congressional Budget Office (CBO) estimates that under current law the deficit will bottom out at $378 billion in 2015 before turning higher again, reaching $895 billion by 2023. Meanwhile, as a share of the...

Monday, May 20, 2013 - 2:37 PM

For those inclined to look beyond the sharp drop in the deficit this year, as we should, the budget update released by the Congressional Budget Office (CBO) on May 14 has some striking indications of things to come. 

Not surprisingly, these indications tell us that the most powerful factors in the current budget dynamic are aging, health care costs and interest on the debt -- things political leaders seem the least interested in doing anything about.

One way to show the looming problem is to compare the composition of federal spending in 2013 with 2023 under the CBO current-law baseline. During those 10 years, total spending is projected to rise from 21.5 percent of the economy (GDP) to 22.6 percent. However, it is far from a uniform acceleration.

Discretionary spending, which includes defense, is projected to shrink from 7.6 percent of GDP to 5.5 percent, the lowest level on record.  

Mandatory spending other than Social Security and the major health care programs is also projected to shrink, from 2.6 percent of GDP to 2.1percent. Between these declining categories, the total drop in spending totals a very substantial 2.5 percent of...

Monday, April 29, 2013 - 9:32 AM

Although Congress has plenty of serious budget work to do, lawmakers in both parties can’t seem to resist frittering away time and confusing the public with various proposals that serve no useful purpose. Last week offered a couple good examples.

House Republicans distracted themselves with a bill that would set priorities for payments on federal obligations if the debt limit were reached. There’s understandable confusion and disagreement over what exactly the bill would do, but the general idea seems to be that the federal government could somehow limit the damage of a default by presenting itself to the world as only a partial deadbeat.

As approved by a party-line vote Wednesday in the House Ways and Means Committee, the legislation would tell the Treasury to continue making payments on principal and interest on U.S. debt obligations – and keep Social Security checks going out, of course.

Becoming a partial deadbeat apparently requires some special accounting rules, and so those were tacked onto the legislation. Alas, the nation’s creditors and global financial markets are under no obligation to embrace lawmakers’ unconventional notions about what might constitute a government default.

In any case, there is really...

Tuesday, April 16, 2013 - 12:09 PM

Is the federal budget heading for unsustainable deficits or unsustainable surpluses?

It all depends on the long-term assumptions. 

Last week, the Government Accountability Office (GAO) issued an update of its long-term fiscal outlook for the federal government. As in prior reports,  GAO found that an extension of current law (the Baseline Extended simulation) leads to rising and eventually unsustainable debt “driven by a fundamental imbalance between revenue and spending, which, on the spending side, is driven by the aging of the population and rising health care costs.”

On the other hand, the President's Office of Management and Budget (OMB) released a new estimate last week showing that an extension of President Obama's budget policies would not just be sustainable but would lead to growing surpluses that would eventually pay off the national debt.

Not that OMB thinks this will actually happen. In fact, OMB calls the end result “unrealistic and undesirable.”

As explained by OMB in the Analytical Perspectives of the 2014 Budget, “These projections are not intended to be a prediction of future legislative action, nor are they intended to reflect explicit policy proposals for the years beyond 2023; rather, they are a mechanical extrapolation of the Budget policies.”

But in...