January 2010
How Refreshing to Have a Plan with…Brace Yourself…Details!
Congressman Paul Ryan’s Roadmap for America’s Future 2.0 is a standout accomplishment if for no other reason than that it deals with details. Imagine that, a lawmaker who backs up his views on the role of government with actual proposals.
In a perfect world, this is how budget discussions would look: policymakers would articulate a point of view, fill in the details with policy proposals, and then, the public could evaluate the competing visions. Bigger government, you pay higher taxes; smaller government, you figure out how to support grandma. The myth of the free lunch would be replaced with a focus how to pay for lunch, while still planning for dinner and saving for breakfast.
What is remarkable about Ryan’s proposal is how unusual it is. Usually, politicians who talk about fiscal responsibility fall back on process issues such as paygo or commissions (don’t get us wrong – we support all these improvements, but they are not nearly as courageous as specific reforms.) Instead, the roadmap lays it all out. Ryan would:
- Change Social Security by reducing benefits in a progressive manner for participants younger than 55 and create individual savings accounts funded with a portion of the payroll tax.
- Reform healthcare by eliminating the tax exclusions for employer-provided health care (yeah!) and replacing it with a credit, means-testing Medicare, increasing the retirement age for Medicare, creating a voucher program for younger participants, and slowing the growth rate for Medicaid.
- Implement a nondefense discretionary freeze from 2010 through 2019, rescinding all unused stimulus funds, scaling back TARP, and capping the growth rate of other areas of spending.
- Cap federal revenues at 19% of GDP (along with a number of other tax reforms.) For more details, read the plan and the CBO report.
Here’s the problem. Under this courageous, aggressive, and specific plan, the deficit would grow to above 5% of GDP throughout the mid-2030s, before it turned to surpluses in the 2060s.
The debt would reach 100%—100%!—in 2043, before shrinking as a share of the economy.
The Roadmap numbers reflect the challenge of creating a budget that would keep the debt from exploding during the baby-boom-bubble. (A similar plan to the Roadmap without the diversion of payroll taxes into Social Security investment accounts would be much more deficit-friendly.) No one knows at what point excessive debt levels, would lead to a fiscal crisis, but 100% is much higher than most experts belief is safe.
The Peterson-Pew Commission recommends getting to 60% in the medium term, and lower over the subsequent decades. Here is an example of what that would take.
So we are left with two conclusions: First, Congressman Ryan deserves a blue ribbon for fiscal courage: He treads where few politicians dare to go, and judging from his rising political star, this is a model others should copy rather than fear. His willingness to get specific is commendable.
But second, it is going to be impossible to get the deficit and debt down to reasonable levels without increasing revenues. If Paul Ryan can’t do it, no one can. (Our guess is he’ll agree with our first conclusion but not our second – but we’d love to know how he responds.)
FISCAL FACT CHECKER: The Obama-Hensarling Exchange
CRFB decided to fact check the exchange between President Obama and Congressman Hensarling at the Republican retreat. Here is the transcript with our comments.
First Congressman Hensarling (emphasis added):
Mr. President, a year ago I had an opportunity to speak to you about the national debt. And something that you and I have in common is we both have small children. And I left that conversation really feeling you're sincere commitment to ensuring that our children, our nation's children do not inherit an unconscionable debt. We know that under current law that government -- the cost of government is due to grow from 20 percent of our economy to 40 percent of our economy right about the time our children are leaving college and getting that first job.
In 2009, the government actually cost 24.7 percent of GDP. But that number is uncharacteristically high due to the recession—during most of the 2000s spending was below the 20 percent of GDP number cited by the Congressman. In terms of government growth, Hensarling is right that it will eventually hit 40 percent of GDP -- but this is not projected to occur "about the time [his] children are leaving college." Under current law, CBO projects government spending will reach 40 percent around 2070. Under a current policy baseline*, which makes some seemingly more realistic assumptions, it would hit that level around 2050.
Mr. President, shortly after that conversation a year ago, the Republicans proposed a budget that ensured that government did not grow beyond the historical standard of 20 percent of GDP. It was a budget that actually froze immediately non-defense discretionary spending. It spent $5 trillion less than ultimately what was enacted into law. And unfortunately, I believe that budget was ignored.”
It is true, they did propose a budget, which froze “non-defense, non-veterans’ benefits, and non-homeland security” discretionary spending activities (the same as the Obama freeze except the President starts a year later, goes for three rather than five years, and includes international affairs in the exemptions), although it wasn't quite as austere as he suggested. The budget would have brought spending down from 22.8% in 2010 to a low of 20.6% in 2012 and 2013, and it would have then hovered around 20.7% for the rest of the decade. The Republican alternative budget proposed spending $36,913 trillion over 10 years, or $4.8 trillion less that the Obama budget proposed-though the President's budget was not (and never is) what was enacted into law.
And since that budget was ignored, what were the old annual deficits under Republicans have now become the monthly deficits under Democrats. The national debt has increased 30 percent.
Not quite. Since January 21st (Obama’s inauguration) of 2009, debt held by the public has increased from $6.3 trillion to $7.8 trillion – an increase of around 23 percent.
Now, Mr. President, I know you believe -- and I understand the argument; I respect the view -- that the spending is necessary due to the recession. Many of us believe, frankly, it's part of the problem, not part of the solution, but I understand and I respect your view. But this is what I don't understand, Mr. President. After that discussion, your administration proposed a budget that would triple the national debt over the next 10 years.
Almost true. According to CBO estimates, debt would hit $17.3 trillion in 2019 under the President's FY 2010 budget. That is 270% bigger as the $6.3 trillion debt when the President took office. It is worth noting, however, that debt was already scheduled to increase significantly under current law, and would have increased by more than the President's budget if Congress simply chose to continue a number of expiring policies that were already in place (for example the 2001/2003 tax cuts, the AMT patch) without paying for them.
Surely you don't believe 10 years from now we will still be mired in this recession. It proposed new entitlement spending and moved the – the cost of government to almost 24.5 percent of the economy.
This is true; CBO estimated spending in the Obama budget would increase to 24.5 percent of GDP in 2019. That compares to 22.3 percent of GDP under the current law baseline estimates at the time.
Now, very soon, Mr. President, you're due to submit a new budget and my question...
OBAMA: “Jeb, I know there's a question in there somewhere, because you're making a whole bunch of assertions, half of which I disagree with. And I'm having to sit here listening to them. At some point, I know you're going to let me answer.”
HENSARLING: “That's the question. You are soon to submit a new budget, Mr. President. Will that new budget, like your old budget, triple the national debt and continue to take us down the path of increasing the cost of government to almost 25 percent of our economy? That's the question, Mr. President.”
OBAMA: “All right. Jeb, with all due respect, I've just got to take this last question as an example of how it's very hard to have the kind of bipartisan work that we're going to do, because the whole question was structured as a talking point for running -- running a campaign. Now, look, let's talk about the budget, once again, because I'll go through it with you line by line. The fact of the matter is, is that when we came into office, the deficit was $1.3 trillion. $1.3 trillion.”
This is consistent with OMB "current policy" estimates, and not far off of CBO's current law estimates. CBO’s January baseline, published not long before the President took office, estimated a deficit of $1.19 trillion in 2009. That said, there have been some major technical readjustments since between the January baseline and the final deficit calculation (particularly regarding the treatment of Fannie Mae and Freddie Mac), so this figure may not be useful for "apples-to-apples" comparisons. We will discuss this more in a future blog post.
So -- so when you say that suddenly I've got a monthly budget that is higher than the annual -- or a monthly deficit that's higher than the annual deficit left by Republicans, that's factually just not true, and you know it's not true. And what is true is that we came in already with a $1.3 trillion deficit before I had passed any law. What is true is, we came in with $8 trillion worth of debt over the next decade.
Not under standard CBO practice, but it depends on your baseline. Under CBO's current law baseline, in its January assessment, cumulative deficits between 2010 and 2019 were projected to be $3.1 trillion; or $4.1 trillion between 2009 and 2018. Under the "current policy" baseline from the President's budget, though, cumulative deficits between 2010 and 2019 are actually $9.3 trillion.
[This] had nothing to do with anything that we had done. It had to do with the fact that in 2000, when there was a budget surplus of $200 billion, you had a Republican administration and a Republican Congress, and we had two tax cuts that weren't paid for, you had a prescription drug plan -- the biggest entitlement plan, by the way, in several decades -- that was passed, without it being paid for, you had two wars that were done through supplementals, and then you had $3 trillion projected because of the lost revenue of this recession. That's $8 trillion.
The President's claim here, essentially, is that deficits over the next decade will be entirely the result of revenue loss from the recession and of continuing policies from the Bush Administration. These numbers seem plausible, although we need to check into it further. CBO's cumulative economic adjustments since since September of 2008 have reduced revenues by roughly $2.8 trillion over ten years; continuing all the 2001/2003 tax cuts (including the interaction effect with AMT patches) would reduce revenues (and increase refundable outlays) by around $3.2 trillion; the wars in Iraq and Afghanistan will cost more than $850 billion over the next decade -- even if we reduce the number of troops to 60,000 by 2015; and we have seen estimates that Medicare Part D would add as much as $750 billion to the deficit over the next decade. When interest costs from past and future borrowing as a result of these policies is included, the numbers would likely reach the $8 trillion claimed by the President.
Of course, this does not alleviate the current President and Congress from dealing with these problems. Although President Obama cannot be held responsible for the economic recession or the policies of the previous administration, the same is not true with regards to the continuation of these policies. This is particularly true for the tax cuts which are scheduled to expire at the end of 2010 -- but most of which President Obama is proposing to renew without offsetting.
Now, we increased it by $1 trillion because of the spending that we had to make on the stimulus.
This is roughly true. The CBO estimates that the American Recovery and Reinvestment Act will cost around $860 billion. With interest costs, this will likely exceed $1.3 trillion.
Note to Clemons: Freeze Won’t Hurt Competitiveness; Too Much Debt Will
Our good friend Steve Clemons of the New America Foundation wrote in The Washington Note, this week, that President Obama's proposed spending Freeze Forfeits America's Future. Clemons argues that the proposed non-security discretionary spending freeze would hinder necessary public investments and put us at a competitive disadvantage relative to China. We strongly disagree.
It is true that China is our economic competitor, but they are also our largest single creditor. In 2009, according to the CBO, they held $800 billion (or over a tenth) of our debt. This is compared to just over $200 billion (a twentieth) in 2004.
In total, around half of our debt is held by foreign countries. The other half is held by domestic holders who, in normal times, would likely otherwise be using the money to make productive private investments.
Given all this, we find the claim that further increasing our borrowing needs will help our competitiveness to be spurious, at best. (Just look at how our failed fiscal policy drives down our competitiveness rankings).
In fact, continued borrowing is the surest way to stifle public (and private) investment. As
Precisely because China is our largest creditor, it is all the more important that we get our debt under control. (And, by the way, this is in the interest of China – not because they are a competitor but because they are an investor).
More importantly, we reject the claim that a non-security discretionary spending freeze means inadequate investments. We agree with Clemons on the importance of promoting economic growth; and in fact, we don't think it is possible to avoid a debt crisis without vibrant growth.
But freezing non-security discretionary spending won't prevent politicians from making necessary investments in education and infrastructure, it will force them to make choices as to how we should be spending our money. There are an awful lot of wasteful, unnecessary, redundant, and even economically damaging government programs (the President has proposed cutting a few of them); and there are many other programs which, though they may be beneficial, simply don't pass a cost-benefit analysis. Congress should be cutting this spending, in order to make room for the spending we need.
And yes, regular defense and homeland security spending should also be limited -- there is no shortage of waste in these programs. But this is an argument for broadening the freeze, not for scrapping it.
Clemons is right about one thing, we may be ceding our growth to China. But if we are, it isn't because we are spending too little; it's because we are borrowing too much.
No Deficit of Politics in Debt Limit Vote
Like peanut butter and jelly, diet and exercise, and bourbon and bacon (or is that just us?) PAYGO and spending caps are best when together. You wouldn't know it from the votes surrounding the debt limit increase.
There was a party line vote to reinstate statutory PAYGO, with all Ds for and all Rs against. Meanwhile, the amendment to institute spending caps narrowly failed to achieve the necessary 60 votes with a 56-44 vote, with 43 of the Ds who supported PAYGO opposing the caps.
But the two budget constraints were structured to work together when they were created as part of a budget deal in the 90s, and history tells us that is when they work best.
Without PAYGO, spending caps affect only about 1/3 of the budget -- and much less if parts are exempted such as under the Obama proposal. Likewise, relying only on PAYGO to keep certain parts of the budget from getting worse allows discretionary spending to go unchecked -- growth that has dramatically added to budget imbalances in the past (see this CRFB discretionary spending brief).
Traditionally, Republicans have tended to favor spending caps while Democrats have emphasized PAYGO as a way to control the budget, with Republicans more concerned that PAYGO raises the bar for tax cuts. But a true interest in improving the fiscal picture would include supporting both mechanisms.
As far as the debt ceiling increase goes, it had to be done, but we would have liked to see a smaller increase if for no other reason than to provide another opportunity for discussion such as the one the Senate just had. A number of important amendments were included as part of the vote -- from PAYGO, to caps, to the commission, and even though they all didn't pass, the focus on the issue was helpful in elevating the importance of addressing the growing debt.
Although a larger increase, such as the one that passed, creates more certainty in the short term that America will not default on its debt (see this instructive CRFB brief on the debt ceiling), it also allows politicians to duck the consequences of their ongoing borrowing binge.
It is highly discouraging that the debt limit was increased without including more measures to control the debt.
Profiles in fiscal courage:
| Democrats voting for a spending cap | Republicans voting for the Conrad-Gregg commission |
|---|---|
| Evan Bayh (OH) | Lamar Alexander (TN) |
| Mark Begich (AK) | Kit Bond (MO) |
| Michael Bennet (CO) | Saxby Chambliss (GA) |
| Tom Carper (DE) | Susan Collins (ME) |
| Kay Hagan (NC) | Bob Corker (TN) |
| Amy Klobuchar (MN) | John Cornyn (TX) |
| Joe Lieberman (CT) | Mike Enzi (WY) |
| Blanche Lincoln (AR) | Lindsey Graham (SC) |
| Claire McCaskill (MO) | Judd Gregg (NH) |
| Bill Nelson (FL) | Johnny Isakson (GA) |
| Ben Nelson (NE) | Mike Johanns (NE) |
| Mark Pryor (AR) | George LeMieux (FL) |
| Jeanne Shaheen (NH) | Richard Lugar (IN) |
|
Jon Tester (MT) |
David Vitter (LA) |
| Mark Udall (CO) | George Voinovich (OH) |
| Mark Warner (VA) | Roger Wicker (MS) |
| Jim Webb (VA) |
Broken Process: Authorizers Rely on Appropriators For Oversight
In yet another sign that the legislative process needs serious fixing, Congress last year appropriated $290.8 billion for programs that the House and Senate failed to reauthorize, the Congressional Budget Office says in a report released this month. Although House and Senate rules generally prohibit Congress from funding unauthorized programs, the rules are often waived, CBO said in its annual report, "Unauthorized Appropriations and Expiring Appropriations." The total does not include programs that never have been authorized or programs whose authorizations are indefinite.
Congress routinely fails to reauthorize many programs, instead, relying on appropriators to essentially reauthorize them by funding them. The reauthorization process is designed to allow committees specializing in particular areas the opportunity to evaluate programs under their jurisdiction. If authorizers fail to do their work, it is left to appropriators to determine if funding should continue.
And the list includes some large programs. For instance, the National Institutes for Health received $31 billion in Fiscal 2010; authorizers have not reviewed and renewed the legislation creating the institutes since the 109th Congress--2005 and 2006. The United States Agency for International Development received $18.9 billion, even though it has not been reauthorized since the 99th Congress--1985-86.
Congress has a lot of work to do before leaving for the year. Programs totaling some $733 billion are set to expire by Sept. 30--the end of the fiscal year. Most of those funds come from the annual defense authorization bill.
Authorizers should be key players in the effort to find savings in federal programs. They should be resources as Congress attempts to cut spending. But their failure to reauthorize the programs will make that process more difficult. Clearly, it is yet another signal that the process is broken
The State of the Union is...
Yesterday, President Obama gave his first official State of the Union address, outlining his agenda for the rest of the year. We watched the speech closely (and even tweeted on it), and were impressed overall. Although President Obama argued that "jobs must be our number one focus in 2010," he paid particular attention to the deficit. As the President explained:
[The deficit] is a challenge that makes all others that much harder to solve.
...if we don't take meaningful steps to rein in our debt, it could damage our markets, increase the cost of borrowing, and jeopardize our recovery -- all of which would have an even worse effect on our job growth and family incomes.
In a press release we issued following the State of the Union, CRFB pointed to three policies in particular which seemed like promising steps in the right direction:
We also appreciated President Obama's pledge to go line-by-line through the budget (he claims to have identified $20 billion in savings already), to enact measures to repay borrowing for the TARP program, to discontinue certain tax breaks (for oil companies, investment bankers, and those making over $250,000 a year), and to further reform earmarking.
But we also have some concerns. President Obama spent an awful lot of time bragging about all the taxes he cut, but very little on how he would reform the tax system to raise sufficient revenue without burdening the economy. He proposed a number of new and potentially expensive initiatives -- including for college students, farmers, small businesses, parents, savers, homeowners, veterans, and others -- but little mention of how these initiatives would be paid for. And while he did announce that he would create a commission, he spent only one line discussing the dangers of growing Social Security, Medicare, and Medicaid costs -- let alone solutions for controlling them.
Still, the President outlined some positive steps. We hope to see more in his Budget, next Monday.
CRFB's MacGuineas Reacts to Obama's Spending Freeze
Yesterday, CRFB President Maya MacGuineas had an op-ed in CNN calling President Obama's proposed non-security freeze A Good First Step. Here are some highlights:
$250 billion, while obviously a large number, is a very small share of the [$12 trillion] Congress is poised to borrow -- and add to the debt -- in the coming decade. It would be fair, then, to say that this is a baby step -- OK, it's a teeny-weeny tiptoe of a step -- in the right direction. But there have been so many steps in the wrong direction in recent years, such as extending tax cuts, that anything that it can legitimately be argued would help bring down future deficits should be heralded as an important move.
[T]he president is going to have to back up his promise with more than words for it to be seen as credible. What it needs is teeth. First, he should promise to veto any appropriations bills that exceed the limits he has put forward for spending... Second, he should support statutory spending caps that enforce his limits. This is an idea that is gaining momentum in the Senate and House, and it is the ideal companion piece to his suggested freeze. From Sen. Jeff Sessions, R-Alabama, to Sen. Evan Bayh, D-Indiana, to Sen. John McCain, R-Arizona, he need not look far to find a host of good ideas.
Finally, there is the issue of the rest of the budget. Non-security is only a small sliver of discretionary spending, and discretionary is only a small sliver of total spending. All told, we are talking about less than one-sixth of the budget. It would be more sensible to cap all discretionary spending and force policymakers to make tradeoffs between defense and other security parts of the budget as well, not just within the relatively small non-security category. And then there are still the big enchiladas -- Social Security, health spending, and taxes -- to be dealt with.
Ryan Releases Roadmap
Earlier today, Republican Congressman Paul Ryan released his update Roadmap for America's Future (and a nifty Website to go with it). Under this Roadmap, the Congressman proposes major changes to Social Security, Medicare, Medicaid, tax policy, and the budget process, and these changes would lead to significant long-term fiscal improvements. CRFB is quite encouraged to see that several proposals which address the debt situation, including Congressman Ryan's, have come out of Congress recently. As we wrote in a press release, today:
It is no longer sufficient for policymakers to acknowledge that we have a problem... You'd have to be blind not to know that. Now is the time to start proposing real solutions-and it is gratifying to see that a number of policymakers are taking that responsibility seriously."
Ryan's proposal is quite detailed, and even includes a CBO score. From a budgetary perspective, he would limit federal revenues to no greater than 19 percent of GDP (a bit above the historical average), while dramatically slowing spending growth. By 2020, primary (non-interest) spending would be almost 15% below CBO's alternative (="current policy") fiscal scenario; by 2040, it would be 30% below, and by 2080 it would be 60% lower. As a result, he would eliminate the debt entirely by 2080.
Unfortunately, even these significant cuts, alone, will not be enough to prevent the debt from hitting 100 percent of GDP in the early 2040s under his plan. And we worry that such levels of debt, even if brought down in subsequent years, could be quite dangerous.
Then again, it is important to view these numbers in light of the alternative. Under CBO's alternative fiscal scenario, debt would reach 250 percent of GDP by 2043. Even under CBO's unlikely baseline extended(="current law") scenario, the debt will hit 100 percent in the early 2040s (although it will be lower than under Ryan's plan for the first 30 years of implementation).
One option to reduce the still-too-high deficit and debt levels under his plan would be to finance his Social Security individual accounts, at least in part, through new contributions (so-called “add-on accounts"). Another option might be to target revenues to 20 percent of GDP, rather than 19 percent.
Other options aside, Congressman Ryan's plan offers far more detail and specificity than any other plan out there. He deserves credit for having the thoughtfulness and courage to propose such a plan.
CRFB to Tweet State of the Union Address
UPDATE: We will begin Tweeting just after 9pm.
Tonight CRFB is live-tweeting President Obama's State of the Union address. Join us at Twitter under the name BudgetHawks to get the latest on what President Obama is discussing, including the discretionary spending freeze, the possibility of an executive fiscal commission, the tax relief efforts aimed at the middle class, the upcoming jobs bill, and the future of health care.
CRFB will also be putting out a press release after the speech.
"If You Are Not For This Commission, Than What Are You For?"
"If you are not for this commission, than what are you for?" was Republican Senator George Voinovich's reaction to fellow Republicans who voted against the creation of the Conrad-Gregg fiscal commission yesterday in the Senate. As we reported yesterday in The Bottom Line, the commission fell short of the 60 votes needed in order to pass. Twenty-three Republicans voted along with 22 Democrats to defeat the commission. The list of votes can be seen here.
Voinovich, who is going to retire this year, came back swinging against the Senators who helped defeat the commission. He said (courtesy of The Hill):
I was disappointed in Sen. [Sherrod] Brown [D] from Ohio for opposing it. I'd like to know why he opposed it. If he's opposing it, what is he for? Same question to Mitch McConnell: Mitch, if you don't like it — he came out for this last year, as The Washington Post pointed out, six times on the floor last year — and he's backed off. And this issue is, Why is he backing off?
I think that for the Republican Party, one of the important things — first of all, from a substantive view, we have to get on with this. I think that if the public perceives that the Republican Party is playing political games and putting covering people's hides and whose main goal in life is to see how many more Republicans we can get in the Senate and the House, and the public interest be damned because this is the theory that we're going to create an environment that's going to be better — I think it's going to backfire.
This came on the heels of a statement Voinovich released Monday commending President Obama for throwing his support behind the Conrad-Gregg commission, and that described the differences there would be between a bipartisan Congressional commission and one created by the executive branch.
CRFB commends Voinovich's challenge to Republicans to support the creation of a bipartisan commission. As we stated in a press release Monday on the creation of a statutory commission, a commission can "help to jump-start the critical process of crafting a sensible fiscal plan for the country, and make that process just a little bit easier." We recognize that the commission would not be a cure-all, but could help Congress to address the urgent budget challenges that face them.
We agree with Senator Voinovich: if you are not for the Commission than show us what you are for. We have created a spending challenge for readers to show us how they would close the budget gap. Check out the latest response.
The Debt is Not Just a Beltway Problem
In this week’s debate on the Senate floor and the release of several congressional plans to address the deficit and debt, the national debt is on the radar inside Washington. But a recent op-ed by two of CRFB board members (Jim Jones and Douglas Holtz-Eakin) highlights why the national debt is an issue far outside the Beltway and could have huge international consequences.
What are the global implications of spiraling U.S. debt? An ever-growing proportion of our debt must be sold outside U.S. borders and some international investors have publicly expressed concern about continuing to finance our spending. It was no accident that the issue of U.S. debt arose during President Obama’s recent trip to Asia. If international markets come to the conclusion that the United States cannot manage its debt, the U.S. will be unable to continue to borrow as freely, or cheaply, as it now does. The American economy could falter and U.S. securities could lose their value as investors flee to alternatives.
But the international community also offers hope that nations can address their debt problem. Other nations have been successful at lowering their debt with a credible fiscal plan. And in fact, a plan to lower a country’s debt can actually improve the country’s economic performance as happened in Denmark, Sweden, and Ireland.
Steuerle's 'Fiscal Democracy Index'
This morning, CRFB board member Gene Steuerle claimed in a USA Today article that the big problem of current deficits is not just a symptom of the annual budgeting process. He says that in fact, the Federal government is gripped by a disease:
"The disease? Fiscal sclerosis — setting future national priorities in stone long before the future has arrived. Our fiscal arteries are so clogged and hardened that to do anything new, meet any emergency, or engage any new opportunity, the president must renege on past legislators' promises regarding Medicare, Medicaid, Social Security and other such entitlement programs. If he doesn't address unsustainable promises head-on, Obama will have no wiggle room in the budget for the rest of his presidency, and government will be tied up with yesterday's problems and the demands of yesterday's voters."
Steuerle has a measure that determines how much discretion Congress has in attempting to make a budget: his own "fiscal democracy index," which measures the percentage of federal tax revenues that are not allocated to mandatory spending programs. Over the past fifty years, it's dropped significantly, going from 65 percent in 1962 to well below zero in 2009; almost half of that decline came in just the past year. Unfortunately, the outlook doesn't improve when the economy does.
"The index is poised to enter the dead zone again later this decade under current law if the president and the Congress don't take more spending and tax subsidy programs off the automatic growth path and then match up revenues to whatever size government they think is right for the times. In particular, they must constrain, cap or set triggers on how much future health, retirement and tax subsidies — the big ticket items — can grow without any vote by Congress."
The index presents another dimension to the explosion of mandatory programs. If we can't get entitlements under control soon, it will severely limit the ability of future generations to set their own priorities.