June 23, 2017

Washington Budget Report: Feb. 8, 2011

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Social Security’s Cash Deficits

The Congressional Budget Office created a stir when it reported last week that Social Security paid out $37 billion more than it took in last year. The CBO projected that Social Security would run perpetual cash deficits from this point on, rising from $45 billion this year to $118 billion in 2021.

The cash deficits will force Social Security to draw on its trust fund balance. But the trust funds simply represent a promise from one arm of government (the Treasury) to pay another arm of government (Social Security); the government still has to come up with the money from somewhere.

This means raising more tax revenue, squeezing other parts of the federal budget, borrowing more money or relying on some combination of those options. And Social Security’s future funding needs are small in comparison to those of Medicare and Medicaid.

Social Security’s cash deficits – coming before the vast majority of baby boomers have even qualified for benefits -- highlight the need to begin phasing in entitlement reforms soon to prevent an explosion of debt.

Proposed Cuts Fall Short of Promises

Using authority provided by a new House rule, House Budget Committee Chairman Paul Ryan (R-WI) announced last week that this fiscal year's allocation to the House Appropriations Committee would be $1.055 trillion, a cut of $35 billion below the FY 2010 funding level.

Ryan's allocations assume an $8 billion increase for security funding and a $43 billion cut for non-security funding.  House Appropriations Committee Chairman Harold Rogers (R-KY) also released allocations to the 12 subcommittees that include cuts below 2010 levels for every subcommittee except defense.  Federal agencies are currently funded with a continuing resolution that expires March 4.

In a pledge released last year, House Republicans estimated that $100 billion in cuts would be made during the first year. The $35 billion in proposed cuts represents two percent of this year's projected $1.5 trillion deficit.

Senators Weigh Tax Reform

In hearings last week, the Senate Budget Committee considered ways to put the country on a fiscally sustainable path without harming the economic recovery.

Fortunately, tax reform was a key part of the discussion. Committee Chairman Kent Conrad (D-ND) stressed that simplifying the tax code and closing loopholes would allow the government to boost revenue even as it lowered tax rates.

Conrad emphasized the need to focus on the long term, saying that, “…beginning in 2012, and through the end of the decade, at that point we need to be very, very disciplined with respect to reducing those deficits, get it down to two percent of GDP.”

Eugene Steuerle of the Urban Institute echoed the need for both a simpler tax code and a focus on long-term fiscal sustainability. Tax reform, he said, "ought to achieve something quite valuable — a simpler tax code, long-term budgetary balance, a Social Security system without long-run deficits, and so forth."

The approach that Conrad and Steuerle advocate echoes the broad tax reform recommendations of the President's fiscal commission and the Bipartisan Policy Center's Debt Reduction Task Force. Such a reform effort could enable Democrats and Republicans to find common ground.

Citizen Groups Urge Action on the Debt

Citizen groups originally convened by The Concord Coalition have called on Congress and President Obama to produce “a bold, comprehensive plan to avoid an explosion of federal debt that could devastate the economy, weaken our national security and unfairly burden future generations.”

Entitled “The National Debt Is a Real Threat,” the statement says both spending cuts and tax revenue increases will be needed. It was developed by Concord’s Fiscal Advisory Councils around the country and sent to the White House and members of Congress last week.

Debits & Credits

Fed Up With Inaction: In a speech Thursday at the National Press Club, Federal Reserve Chairman Ben Bernanke focused welcome attention on the “realistic solutions to our fiscal problems” that have been proposed by the President’s fiscal commission and other prominent groups. Immediate action on a program to to reduce future deficits, he said, “would not only enhance economic growth and stability in the long run, but could also yield substantial near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence.”

Fuzzy Math: Senate Majority Leader Harry Reid (D-Nev.) keeps forgetting that Social Security is now running a cash deficit and that its trustees say its long-run financial challenges should be addressed soon. Last month Reid said “I am saying that the arithmetic on Social Security works.” He has also declared Social Security is “fine” and claimed it “has not contributed one penny to the debt.”