April 19, 2014

Posts on national debt

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Thursday, February 6, 2014 - 4:07 PM

State lawmakers across the country are debating how to spend large surpluses after the economic recovery helped produce higher-than-expected tax collections for the second year in a row.

State legislatures and governors have welcomed this change after years of enacting painful spending cuts to balance their budgets. But they are waging battles both within and between their political parties about how to spend the extra money.

In a year when up to three dozen governors could run for re-election, as well as countless more state legislators who could be on the ballot, many of the proposals have unfortunately focused on short-term measures.

State officials should consider how to use at least part of their surpluses to improve the long-term health of their budgets instead of just haggling over whether to use the surpluses to finance short-term tax cuts or spending increases. A recent Concord blog post highlighted a report by the State Budget Crisis Task Force that said states have done little to address the long-term structural problems in their...

Thursday, December 12, 2013 - 10:12 AM

President Obama hailed the two-year budget deal reached by House Budget Committee Chair Paul Ryan (R-Wis.) and Senate Budget Committee Chair Patty Murray (D-Wash.) as a “good first step.”

If he meant a good first step toward broader reforms needed to put the nation’s finances on sounder footing for the long-term, let’s hope he is right.

It is not clear, however, that Capitol Hill leaders, or the President for that matter, have any plans to follow up this very modest achievement with anything more.

Under the terms of the agreement, spending caps for appropriations would be adjusted upward for 2014 and 2015, resulting in an outlay increase of $62 billion over 10 years, according to the Congressional Budget Office (CBO)

That increase, however, is calculated from the “sequestration” level that neither party ever intended to go into effect. The new caps would still be lower than the original caps put in place by the Budget Control Act of 2011 and lower than the levels under the Simpson-Bowles plan or the original Ryan budget.

The spending increase would be more than offset by an array of future cuts in mandatory (non-appropriations) spending and higher user fees together totaling $78...

Sunday, October 13, 2013 - 1:10 PM

We will soon see whether there is any remaining capacity in the U.S. political system to reach compromise across partisan lines for the common good.

Republican congressional leaders say that if President Obama wants the government to reopen and the debt limit to be increased he will have to make concessions on spending and agree to negotiate a long-term deficit reduction deal. Obama says he will not negotiate anything until the debt limit is raised and the government reopened. After that, he’ll talk.

If neither side blinks, the government will remain shut and nation could begin defaulting on a portion of its obligations within a matter of days..

That disastrous outcome must be avoided. But how?

Backing down now would be politically perilous for either side. Failing to back down, however, would be perilous for the economy, the nation’s creditworthiness and the trust that citizens place in elected leaders to carry out the most basic functions of government.

Surely, both sides know that ultimately two things have to happen.

1.) The debt limit must be increased. There is no realistic alternative and any set of fiscal options, even Paul Ryan’s austere House Budget Committee plan, would require additional borrowing.

2.) There must be a meaningful negotiation over fiscal policy in...

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...

Thursday, June 20, 2013 - 1:31 PM

Chad Laurie is an intern at The Concord Coalition.

Historically low interest rates, held down by the Federal Reserve’s quantitative easing program, have recently begun to rise sharply. Over the past few weeks, the interest rates on the federal debt rose 67 basis points from 1.66 percent to 2.33 percent. The increase is on pace with what the Congressional Budget Office projected in its most recent budget outlook; CBO estimates there will be $223 billion in net interest payments this year. In that same outlook, the CBO’s baseline assumes an increase in interest rates due to a recovering economy, and projected that interest payments on the federal debt would be $823 billion, or 3.2 percent of GDP in 2023, a percentage that has been exceeded only once in the past 50 years. With rates approaching levels consistent with a growing economy, interest costs will be the fastest growing spending program in the federal budget.

Why Were Rates So Low and Why Are They Rising Now?

During and after the recession, the Federal Reserve bought mortgage-backed bonds and Treasury securities to make borrowing cheaper for consumers and the government...

Wednesday, April 24, 2013 - 1:52 PM

Last Thursday, the Bipartisan Policy Center’s (BPC) Health Care Cost Containment Initiative released a comprehensive plan to increase efficiency and reduce costs while reorienting the nation’s health care system to become more patient-centered. That combination would ideally lead not only to a more sustainable fiscal future but to better health care as well.

The plan targets the largest health care levers that federal policymakers have: Medicare and the tax code -- specifically the exclusion of employer-provided health care from taxation. The plan, as scored by health policy experts, would reduce budget deficits over the next 10 years and then continue to lower the trajectory of the federal debt.

Medicare would be transformed into a system that rewards value and coordination instead of the quantity of services, and the tax code would no longer encourage overspending on health care. Furthermore, these changes at the federal level are meant to encourage and incent a more rational private health care system.

These lofty goals were heralded by BPC’s health care leaders: former Senators Tom Daschle, Bill Frist and Pete Domenici, along with Dr. Alice Rivlin. Their agreement after a year of...

Tuesday, April 23, 2013 - 2:49 PM

The new budget plan released recently by Alan Simpson and Erskine Bowles once again demonstrates that it is possible to bring the deficit under control using a mix of spending cuts and revenue increases without harming the near-term economy.

It is not a plan for partisan purists, and that is why it could play a vital role in the coming months as Democrats and Republicans struggle to find a way forward on a budget compromise.

Unlike the original Simpson-Bowles plan, which was presented when the two men co-chaired the bipartisan National Commission on Fiscal Responsibility and Reform, this plan picks up where negotiations broke off last December between President Obama and House Speaker John Boehner.

“The plan we have put forward here is not our ideal plan, it is not the perfect plan, and it is certainly not the only plan,” they wrote. “It is an effort to show both sides that a deal is possible; a deal where neither side compromises their principles but instead relies on principled compromise. Such a deal would invigorate our economy and demonstrate to the public that Washington can solve problems, and leave a better future for our grandchildren.”

Simpson and Bowles acknowledge that some...

Friday, March 1, 2013 - 11:19 AM

Back in August of 2011, with the nation’s debt bumping up against its statutory limit and an election year looming, President Obama and Congress made a deal.

They would empower a special committee (the “super committee”) to reach a long-term budget deal worth $1.2 trillion to $1.5 trillion in deficit reduction and give that deal a fast-track path to enactment. All options for cutting spending or raising revenues would be on the table.

To provide an incentive, other than simply doing the right thing, they agreed that if the super committee failed, or if Congress rejected its plan, a fallback mechanism known as “sequestration” would initiate spending cuts worth $1.2 trillion from non-exempt programs over 10 years. Half of the cuts would come from defense spending and the other half from domestic programs. The idea was not to craft rational policy but to install a back-up so arbitrary that no one would want it to go into effect.

The deal provided a grace period throughout 2013 during which a more comprehensive plan could be reached, if the super committee failed.

Here we are, 18 months later, still awaiting a “grand bargain.” The committee failed to produce a plan, nothing has been done to replace the 2011 deal, and the sequester...

Wednesday, February 27, 2013 - 4:15 PM

Among budget wonks who discuss the long-term fiscal challenge, there is something of a consensus -- the projected upward trajectory of our debt is caused primarily by the projected growth in federal health care programs.

For some, this consensus has developed into short-hand: The nation’s fiscal challenge is really “just a health care problem.” This leads to the conclusion that the nation’s unsustainable fiscal future can only be redirected by reforming the entire health care sector of the economy. Or perhaps by simply converting Medicare into a “premium support” program.

The latest CBO report, which takes into account three consecutive years of dramatically slower health care cost increases, should serve as a warning (and a reminder) that it is misleading to say the problem with the federal budget “is just a health care problem.”

If one only looks at the two CBO updates over the last six months, projected 10-year Medicare spending has been revised downward by $306 billion. Projected Medicaid spending has been revised downward by $273 billion (not counting revised estimates of lower Medicaid enrollment due to the Supreme Court’s ruling on Medicaid expansion in the Affordable...

Tuesday, February 26, 2013 - 10:22 AM

In his State of the Union Address President Obama declared: “Our government shouldn’t make promises we cannot keep, but we must keep the promises we’ve already made.”

It was good applause line, but it glossed over a key point: The promises we’ve already made are the ones we cannot keep.

It is widely accepted that current fiscal policy is unsustainable. By definition, that means something has to change. Yet, if we decide that all promises must be kept, we can’t change anything without “breaking a promise.”

The dilemma for policymakers in Washington is that for years they have made unfunded promises and there is no politically convenient way to reverse this.

The first thing to do is just face up to it.

That’s why a bipartisan group of former members of Congress included this warning among their findings from their Strengthening of America forum series last fall: “We cannot put our debt on a sustainable path without reductions in the projected cost of entitlement programs, cuts in discretionary spending and higher revenues.”

Strictly speaking, any of those things could be characterized as breaking a promise.

It could be argued, for example, that...