September 23, 2014

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Monday, February 3, 2014 - 10:46 AM

Like Frankenstein’s monster, the statutory debt limit will soon come back to life. It has been in a state of suspended animation since the October 2013 budget deal that ended the government shutdown.

The terms of that deal allowed the government to borrow without limit through this Friday, when the suspension period ends and the current debt level of about $17.3 trillion instantly becomes the new limit.

The Treasury will still be able to use  “extraordinary measures” for a while to keep its borrowing under the limit. However, as Treasury Secretary Jacob Lew explained in a recent letter to Congress, those measures will probably last for only a few weeks.

So despite hopes that the budget deal would break the chaotic cycle of fiscal crises, we’ll soon be facing another showdown unless swift action is taken.

That might not be as easy as many on Capitol Hill are assuming. Republicans generally favor adding yet-to-be determined conditions to any debt limit increase while Democrats insist that there can be no strings attached.

It might get resolved without a crisis this time, but the risk is still there and will return whenever the debt limit needs to be raised...

Friday, January 31, 2014 - 11:34 AM

For those interested in a vision of fiscal sustainability, the State of the Union Address was a major disappointment.

President Obama noted that the deficit has been cut in half, which is a positive development, but he offered no strategy for making further progress. At $680 billion and 4.1 percent of the economy, last year’s deficit was still quite high. More troubling is that fiscal policy remains on an unsustainable path -- a projection that deserved at least some passing mention.Obama briefly acknowledged that more could be done to bring down the deficit “in a balanced way,” but the general sense was that it was time to move on.

Few would dispute that creating new jobs is a top priority, but that task is compatible with a continued focus on fiscal sustainability. Indeed, a properly phased-in fiscal sustainability plan would improve the economic outlook. Moreover, the budget agreement hailed by the President did little to address either.  

When the President did mention fiscal issues in his speech it was mostly to promote new spending or tax cuts with no cautionary reminder that even a “pay-as-you-go” standard will...

Friday, January 24, 2014 - 4:47 PM

As more people obtain health insurance through the Affordable Care Act’s exchanges and its expansion of Medicaid -- the federal-state program for low-income individuals -- policymakers should focus on ensuring that the health care system can meet the increased demand for services.

As people gain insurance, they tend to increase their utilization of health care. (See, for example, this report from the Medicare and Medicaid actuaries.)

Thus federal and state policymakers need to work together to make the health care system more efficient so that expenditures on health care don’t crowd out other important government programs. Possible solutions to this challenge can be found in Oregon, which has experimented with payment and delivery reforms in Medicaid in ways that could serve as a model for the rest of the country.

Reforming the delivery of care for Medicaid patients is not an easy task. An analysis of a landmark...

Friday, January 17, 2014 - 1:52 PM

Many state and local governments have done little to address growing structural problems in their budgets that have been aggravated by federal deficit-reduction efforts, according to the State Budget Crisis Task Force.

The bipartisan organization released its final report last week, reiterating a stark warning from its previous reports: “The existing trajectory of state spending, and administrative practices cannot be sustained.”

Former Federal Reserve Chair and Concord Coalition board member Paul Volcker co-authored the report along with Richard Ravitch, a former lieutenant governor of New York. They urged state and local governments to deal with their budget problems and suggested that federal policymakers should focus more attention on how their own deficit-reduction efforts will impact other levels of government.

The task force’s work has concluded with this report, but Volcker plans to start a new organization, the Volcker Alliance, that will follow up on the recommendations and issues raised by the task force.

The task force recommends that Congress create an office to monitor and analyze how federal actions will affect state and local budgets, possibly as part of the Congressional Budget Office.

...

Tuesday, January 14, 2014 - 11:14 AM

A new report by the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) found that health care spending over the past four years grew at the slowest rate recorded in more than half a century. The spending grew by 3.7 percent in 2012; since 2009 the annual rate has been between 3.6 percent and 3.8 percent.

That's down from the 5.5 percent average increase over the past decade, and well below the average annual increase of 11 percent observed in the 1980s and 13.1 percent average annual increase observed in the 1970s.

The recent slower growth contributed to the first reduction in health care costs as a share of the economy in 15 years, down to 17.2 percent of GDP in 2012 from 17.3 percent in 2011.  

It is good news that we are bucking the historical trend on health care cost growth. But the causes for this are not completely understood and thus we have uncertainty as to the sustainability of the trend.

Several factors are at work, including: the last recession and subsequent slow recovery, programs and policies initiated by Obamacare, structural changes in the health care...

Monday, January 13, 2014 - 5:02 PM

The national taxpayer advocate, who serves as ombudswoman for the Internal Revenue Service (IRS), released her annual report last week, saying budget reductions have “significantly hampered” the agency’s ability to provide top-quality service. While additional funding would undoubtedly help, an even better way to help taxpayers and collect revenue more effectively would be for Congress to eliminate many tax expenditures. 

Nina Olson’s report notes that IRS funding has decreased by nearly $1 billion, or 8 percent of its budget, since Fiscal Year 2010.

Her report says that shrinking budgets for the agency mean “fewer dollars available to fund all federal programs.” Restoring the lost funding, she said, would lead to more effective revenue collection and could help reduce the budget deficit.

The annual report came after a very tough year for the agency. The IRS became embroiled in controversy when it was revealed that it had applied extra scrutiny to some political advocacy groups that had applied for tax-exempt status. Olson’s office issued a special...

Friday, December 13, 2013 - 4:43 PM

Unlike the past few years, the recent budget agreement has smoothed the way for Congress to recess for its winter break well before Christmas. That has left some traditional end-of-year legislation out in the cold.

That is bad news for the unemployed, as emergency unemployment benefits are scheduled to expire. Yet there is also hopeful news for those who wish to bring some sanity to the tax code because the oft-extended package of miscellaneous tax breaks, collectively called the “tax extenders,” is also scheduled to expire.

The tax extenders are temporary provisions. Like other tax expenditures, they are disguised federal subsidies that encourage certain behaviors. Every year Congress has extended them for at least another year, allowing certain individuals and businesses to lower their tax bills. Extenders represent the ad hoc approach that has made the tax code a complex, inefficient mess of tax expenditures.

Senate Finance Committee Chair Max Baucus (D-Mont.) and House Ways and Means Committee Chair Dave Camp (R-Mich.) came out last week against approving the extenders for another year. Instead, they want a comprehensive overhaul of the tax code that would eliminate wasteful subsidies.

Denying a vote on the...

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...

Friday, December 6, 2013 - 3:19 PM

Extending emergency unemployment compensation for another year would add 200,000 jobs but carries a price tag of $25 billion, according to an analysis released recently by the Congressional Budget Office (CBO). Such an extension now appears to be a central focus of negotiators trying to reach a budget deal before Congress adjourns for the year.

Emergency unemployment compensation (EUC) provides more “bang for the buck” than many other policies aimed at improving the economy. It provides an immediate surge in economic activity due to recipients quickly spending their benefits on consumer goods and services, which boosts aggregate demand and induces businesses to increase production and hire more workers.

CBO noted that part of this positive effect is offset as some workers reduce the intensity of their job searches in response to the extension of benefits.

Emergency unemployment compensation was approved in 2008 as the unemployment rate was rapidly rising due to the recession. It provides at least 14 additional weeks of benefits to individuals who have exhausted...

Wednesday, December 4, 2013 - 8:28 AM

If the recent past is any indication of how elected officials will deal with the country’s short- and long-term fiscal challenges, Americans – and especially younger ones – are in trouble.

Washington will have to step up its game.  And ordinary Americans can help by encouraging their elected representatives to forgo political  theatrics in favor of timely budgets and more responsible policies.

That was the consensus of budget experts as well as former lawmakers who spoke at a conference Tuesday on Capitol Hill. The conference was organized by the University of New Hampshire’s Warren B. Rudman Center for Justice, Leadership and Public Policy in cooperation with The Concord Coalition and several other organizations.

With congressional negotiations on an overdue budget for Fiscal 2014 still sputtering, speakers at Tuesday’s conference considered what it would take to avoid a federal debt crisis.

They generally agreed that lawmakers in both parties as well as the President should put a greater focus on developing realistic solutions and exercising bipartisan cooperation.

“We have got to get our colleagues to lift themselves out of this political quagmire -- and forget, just for...