May 24, 2017

The (Tab)ulation

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Thursday, April 13, 2017 - 10:32 AM

Experts on the federal budget often warn that excessive federal debt could eventually lead to a fiscal crisis. But what would that actually involve, and how could Washington respond to such a crisis?

The Congressional Budget Office recently sought to answer those questions, among others, in a report following up on CBO Director Keith Hall’s testimony before a Senate Budget Committee hearing in February. CBO’s explanations underscore the importance of putting the federal budget on a more sustainable course.

The federal debt is already quite large by historical standards, equaling 77 percent of GDP, and the budget office has projected that under current law it will grow rapidly in the coming decade and beyond.

At some point, CBO warns in the new report, investors worried about the size and growth of the debt “might become less willing to finance federal borrowing unless they were compensated with high returns. If so, interest rates on federal debt would rise abruptly, dramatically increasing the cost of government borrowing.”

Unfortunately, interest payments...

Monday, April 3, 2017 - 11:17 PM

Many Americans are no doubt struggling to understand some of the latest news from Washington about the federal budget. That’s because elected officials in Washington are approaching their work on the Fiscal 2018 budget with some long-unfinished business: They have yet to agree on most of their spending plans for the current fiscal year.

That year is now more than half over. Congress has approved only one of the 12 regular appropriations bills that were supposed to have passed before Fiscal 2017 began Oct. 1. This is a poor omen for the 2018 budget work that is supposed to be completed in the coming months. It also raises the possibility of a costly government shutdown later this month.

Instead of getting more 2017 spending bills passed, Congress has been relying on stop-gap measures known as “continuing resolutions” that generally continue funding for federal programs at current levels -- regardless of changing needs, new priorities and the government’s growing debt.

In addition, the failure of Congress to make timely final budget decisions makes it difficult for federal agencies and departments to plan effectively, anticipate appropriate staffing levels and commit to important projects and...

Monday, March 27, 2017 - 9:57 AM

The Congressional Budget Office (CBO) has released an overview of certain tax breaks -- known as “tax expenditures” -- that can provide elected officials and the public with helpful information as President Trump and many lawmakers shift their focus to revamping the tax code.

“Tax expenditures, projected to total more than $1.5 trillion in 2017, cause (federal) revenues to be lower than they would be otherwise and, like spending programs, contribute to the deficit,” the CBO said in a recent blog post.

The Concord Coalition has long urged elected officials to reduce or eliminate many tax expenditures to help reduce the deficit while making the tax code simpler and more growth-oriented. Tax expenditures, however, receive far less public attention and congressional scrutiny than direct government spending.

“Current tax law includes an array of exclusions, deductions, preferential rates, and credits that reduce revenues for any given level of tax rates in the individual, payroll, and corporate income tax systems,” says the blog post by CBO analyst Joshua Shakin. “Some of these provisions are called tax expenditures because, like many government spending programs, they provide financial assistance for particular activities or to certain...

Thursday, March 16, 2017 - 4:30 PM

Today the federal debt limit will be reset at a level equal to the outstanding federal debt (roughly $19.8 trillion). The debt limit, which caps the government’s total borrowing authority, has been suspended since November of 2015.

Because the federal government is still running deficits, elected officials will need to once again raise or suspend the debt limit to enable the Treasury to cover federal spending obligations. Failure to raise the limit would do nothing to reduce these deficits or spending obligations – it would be akin to simply refusing to pay the credit card bill when it comes due and could have severe economic implications. (For more background, please see Concord's updated issue brief: Understanding the Federal Debt Limit.)

Thursday is not the day by which lawmakers must act. The Treasury Department has a number of so-called “extraordinary measures” it can deploy to postpone a default. These measures allow the Treasury to reduce intragovernmental debt, such as by temporarily delaying payments to federal employee retirement funds. This create additional borrowing room under the debt limit.

These extraordinary measures cannot...

Wednesday, March 15, 2017 - 11:39 AM

As a result of our nation’s demographics, Social Security is on an unsustainable path under current policy and needs to undergo reform. Fortunately, there are many bipartisan options available to consider, as the Congressional Budget Office (CBO) recently reminded lawmakers.

The Concord Coalition has long urged elected officials to make repairs on a program that is of vital importance to millions of American workers and retirees. The list of options discussed in a recent CBO blog post are a good place to start considering what could be done.

In recent years, CBO has highlighted troubling trends in the Social Security program, providing some indication of what is to come if current policies are left unchanged. The budget office says the costs of Social Security benefits are still projected to rise faster than both economic growth and federal revenue in the next few decades. This means we can expect a worsening of the cash deficits that the program is already experiencing.

According to CBO, longer life spans will result in current and future Social Security beneficiaries, in average, receiving benefit payments for...

Tuesday, March 14, 2017 - 8:58 AM

The Congressional Budget Office (CBO) analysis of the American Health Care Act (AHCA) estimates that relative to current law the House Republican health care plan will decrease spending by $1,219.1 billion and decrease revenue by $882.8 billion, leading to a total deficit reduction of $336.5 over the 10-year budget window from 2017 to 2026.

While it is important to consider the projected loss of health insurance for 24 million people, this post will look at the numerous fiscal risks of the legislation.

The biggest of these risks is also the AHCA’s biggest omission: the absence of any provisions to control overall health care costs, and not just federal payments for those costs.

Although the AHCA reduces federal spending on health care, it doesn’t necessarily reduce the “cost curve” of long-term health care inflation. Ultimately that is a problem because if health care inflation isn’t controlled, long-term health care spending growth will continue to drive up the cost of Medicare, make the Medicaid savings assumed in the legislation more difficult to achieve, and decrease the relative value of the tax credits meant to help people find affordable health care insurance in the non-group market.

The AHCA potentially makes long-term cost...

Friday, March 10, 2017 - 5:10 PM

In recent days, there have been questions raised about the credibility of the Congressional Budget Office (CBO). This is likely a pre-emptive rebuttal in case CBO produces politically problematic estimates of the American Health Care Act (AHCA) -- the House GOP proposal for replacing the Affordable Care Act (ACA). There is no reason, however, to doubt that CBO will apply its usual and critically important “objective, impartial, and nonpartisan” analytical standard in arriving at its AHCA estimates.

This is hardly the first time the budget office has been questioned by policymakers with political agendas. Democrats criticized it during the original debate over the ACA for underestimating the degree to which their proposals could control costs. Republicans similarly criticized CBO in the early 2000s for refuting their claims that tax cuts would spur sufficient economic growth to make them self-financing.

The CBO’s role, admirably maintained over several decades, is not to take sides but to...

Wednesday, March 8, 2017 - 3:15 PM

Last week, the Congressional Budget Office published a blog exploring the role of fiscal policy in improving economic productivity. The subject is particularly interesting given how frequently politicians propose to pay for their agendas, be they tax cuts or spending increases, with dubious claims of improved economic growth. CBO identified four main fiscal tools that can actually result in increased growth through higher productivity:

  • Increasing funding for federal research and development (R&D)

  • Incentivize private investment in R&D through tax credits

  • Increase federal spending on education

  • Increasing loans or loan guarantees for businesses pursuing innovative technology

While federal lending programs can be difficult to quantify, the first three of these are easily measured and are worth putting in perspective relative to other areas of the federal budget.

In Fiscal Year 2017, the federal government is projected to directly spend just under $126 billion on four categories of R...

Tuesday, March 7, 2017 - 12:37 PM

When The Concord Coalition presents its federal deficit-reduction exercise around the country, many of the participants arrive with what they consider an easy solution in mind: Cut foreign aid.

They assume this would produce a gusher of extra money for other programs or deficit reduction. As they begin studying the spending and revenue numbers in the exercise, however, many participants quickly realize that annual foreign aid amounts to far less than they had realized -- a little over 1 percent of the federal budget.

That’s about $50 billion a year. By comparison, the government’s net spending last year on Medicare was $588 billion, while $910 billion was spent on Social Security and $584 billion on defense.

Misconceptions about the size of the foreign aid budget are widely shared. Over the years studies have repeatedly found that Americans grossly overestimate what the country spends on foreign aid. Many aren’t even in the ballpark, assuming that this assistance consumes a fourth of the entire federal budget or more.

But cutting foreign aid -- or even completely eliminating it -- would be no substitute for seriously addressing the big drivers of the federal deficits that are projected for the coming years:...

Tuesday, March 7, 2017 - 10:31 AM

In considering budget plans for the coming fiscal year, President Trump and lawmakers should keep in mind that under current law the federal government is already on track to run up deficits of nearly nine and a half trillion dollars, according to Robert L. Bixby, executive director of The Concord Coalition.

“I think that one of the problems . . . with what we’ve seen so far from the White House is that if you are just going to try to pay for new initiatives -- if you are going to pay for the new defense spending by cutting other spending -- that’s fine, but it still leaves the budget on an unsustainable track,” Bixby said Sunday on C-SPAN’s Washington Journal.

Stan Collender, a Forbes columnist, also appeared on the program and expressed a variety of concerns about Washington’s ability to meet the difficult fiscal challenges facing the country.

Bixby emphasized that most of the projected growth in federal deficits over the next 10 years is driven by mandatory spending programs such as Social Security, Medicare and Medicaid. These programs are growing rapidly because of the aging population and rising health care costs. They are projected to outpace federal revenue in the years...