The Bottom Line

December 22, 2015

With debt already around its highest level as a share of Gross Domestic Product (GDP) other than around World War II and estimated to grow with no end in sight, the least one could have hoped for from lawmakers would be to stop digging the hole deeper. But 2015 proved even that low bar to be too lofty a goal.

December 22, 2015

As it often does in December, CBO has released its detailed long-term projections for Social Security that build off the ones released with their long-term outlook in June. The projections generally show a worse picture for the trust fund and the 75-year shortfall than the Social Security Trustees expect. Notably, these are the first estimates since the Bipartisan Budget Act reallocated revenue to Social Security Disability Insurance (SSDI) and extended that trust fund's solvency through Fiscal Year (FY) 2021.

The combined Social Security trust fund is projected to be exhausted in 2029, five years earlier than the Trustees expect. At that point, benefits would be cut across-the-board by 29 percent to bring spending in line with revenue. The 2029 date is the median outcome of a range of possibilities, with CBO estimating a 10 percent chance that the trust fund is exhausted by 2026 and a 99 percent chance that it runs out by 2040.

The SSDI trust fund is projected to be exhausted by FY 2021, at which point benefits would be cut by 21 percent. If lawmakers reallocate revenue from the old-age program to extend SSDI solvency, it would bring forward the old-age program's insolvency date from 2030 to 2029. Notably, the SSDI reallocation that lawmakers undertook in the budget deal appears to have moved the old-age insolvency date from 2031 to 2030, since 2031 was the date CBO projected back in June.

December 18, 2015

With the first session of the the 114th Congress rapidly drawing to a close and the big budget issues being settled, we will take a look at how the actual legislation enacted compared to the Fiscal Year (FY) 2016 Congressional budget resolution.


December 18, 2015

Carrying on the tradition of retired Senator Tom Coburn (R-OK), Senator Jeff Flake (R-AZ) this week released the 2015 edition of the Wastebook: The Farce Awakens, where he cites 100 examples of wasteful federal spending totaling more than $100 billion. Sen. Flake's Wastebook is the latest in a series of lawmakers attempting to carry on Sen.

December 17, 2015

It's no surprise that a deficit-financed tax cut deal costing $830 billion after interest would be bad for the budget. We've been describing the emerging deal in various blogs over the last month, but below are the most important charts, updated for the actual numbers from the announced deal.

The Deal Would Add More Than $2 Trillion to the Debt Over 20 Years

The Joint Committee on Taxation has scored the deal as costing $680 billion over ten years, which would rise to $830 billion if interest costs are included. Although 20-year estimates are inherently uncertain and imprecise, we estimate that the costs grow over time to exceed $2 trillion over 20 years.

The Deal Squanders Recent Deficit Reduction

Although lawmakers have been adding to the debt repeatedly for the past few years, the $680 billion tax deal is easily the largest step backwards and is comparable in magnitude to the deficit reduction lawmakers enacted between 2011 and 2013. The deal easily swamps the net savings from the 2013 Ryan-Murray agreement, almost equals the revenue raised in the fiscal cliff agreement, amounts to three-quarters of the sequester savings, and is more than two-thirds of the savings from the Budget Control Act spending caps.

December 17, 2015

The negotiations that concluded this week produced two major pieces of legislation. The most consequential for the budget is the $680 billion package of tax cuts that includes tax extenders and several other provisions. The second is the omnibus appropriations bill that will fund the government for the rest of FY 2016. Leaving aside the fact that the omnibus includes some tax cuts to maximize votes, it is largely about funding the government at the limits already set in the earlier budget agreement. But it still has fiscal consequences because of the use of familiar appropriations gimmicks.

The first is the use of changes in mandatory programs (CHIMPs), which allow lawmakers to appropriate funds above the spending caps by making cuts to mandatory programs. However, as has been the case in recent years, the vast majority of the $18.6 billion in CHIMPs in this omnibus bill won't actually save any money, either because the budget authority they cut was never going to be spent or because the money is simply shifted into next year so it doesn't count against this year's spending limits (and will likely be shifted again next year). Specifically, $5 billion of the changes come from cuts in budget authority that don't produce real savings in the form of lower outlays and $13 billion comes from spending that is shifted into next year, while only $0.6 billion of the savings are real.

December 16, 2015

Today, the Federal Open Market Committee, the Fed's interest rate setting and deliberative body that meets eight times a year, could announce that they will raise the federal funds rate to be above near-zero for the first time in seven years. There has been much debate about the appropriateness of a rate increase for the economy, but the decision also has budgetary consequences, which we discuss in an updated analysis Interest Rates and the Debt.

Read the full paper here.

With interest rates likely to return to more normal levels at some point, spending on interest on the debt will increase significantly as a result. If debt rises as it is projected to do in the future, we risk further increases in interest rates that will put greater pressure on the budget. Ultimately, the best way to guard against interest rate risks is to put debt on a downward path to lessen the negative effect of interest rate increases.

December 16, 2015

Lawmakers have announced a negotiated package of business and individual tax breaks costing about $680 billion over ten years. After interest, we project the cost at about $830 billion over ten years. The package is split between two bills, one extending most of the tax breaks, and the omnibus bill providing discretionary spending for the rest of the fiscal year.

The deal largely focuses on reviving tax breaks that expired at the end of 2014, making some permanent and extending others for either two or five years. However, it also permanently extends three refundable tax credit expansions that would have expired in 2017, originally enacted in the 2009 stimulus bill. The bill also pauses or delays three taxes from the Affordable Care Act, opening the door to further delays or possible repeal of the taxes, undermining the health care law's deficit-reduction and cost-control efforts. Specifically, it would pause the medical device tax for 2016 and 2017, pause the health insurance tax for 2017, and delay implementation of the so-called "Cadillac tax" for two years while subsequently making the tax deductible against a company's corporate income tax (and tasking a study of how the tax's thresholds are indexed). If these three taxes are subsequently repealed, it would cost a combined $257 billion over ten years:

December 15, 2015
Democratic Whip Vows Opposition

House Minority Whip Steny Hoyer (D-MD) took to the House floor on Tuesday to assert his opposition to a potential tax extenders deal, citing a recent piece by CRFB president Maya MacGuineas to back up his opposition.

He cited a large increase in deficits that would result from the package and the double standard between spending and tax cuts when it comes to offsets, an argument also made in a recent letter by a group of Senate Democrats.

The cost of such a package runs in the $600 - $800 billion range – none of which is paid for, ballooning our deficits in a way that reinforces a misguided double standard that investments in the growth of jobs and opportunities must be offset, but tax cuts are always free.

December 11, 2015

The $700 billion price tag on the rumored deal to permanently extend expired tax breaks might actually be underselling just how expensive the package could end up being. If some of the delays in the deal beget permanent tax cuts (as at least many members of Congress intend), the price tag would grow substantially.

The reported package would delay three separate Affordable Care Act (ACA) taxes for two years, including one of the law's most important cost-control mechanisms. Although the two-year delays don't cost very much money on paper now, the cost of continuing to delay or completely repealing these taxes could climb over $1 trillion over the next 20 years. In a "fiscal worst case scenario," where the remaining tax extender provisions that expired after two years were also continued, the ultimate 20-year cost of this deal could be $4.1 trillion.

The three health-related delays currently rumored in the deal are the Cadillac tax, medical device tax, and the health insurer excise tax. Although our estimates are very rough and simply based on press reports about what is being considered, the two-year delays of each revenue source would cost about $40 billion over ten years. But if those delays become permanent, they would cost about $250 billion over ten years and $1.1 trillion over 20 years.

December 10, 2015

Faced with the possible opposition over a $700 billion deal to extend permanently some of the expiring "tax extenders", Congress may consider a bill that would only extend them for two years. Yet the legislation introduced in the House, despite its lower price tag, would still be fiscally irresponsible – not only because it would add to the debt without offsets, but because it would actually expand a number of tax breaks beyond their traditional cost.

According to the Joint Committee on Taxation, simply reinstating all recently expired tax breaks for two years (2015 and 2016) would cost about $96 billion. The House bill by itself would cost $12 billion more, or $108 billion. Even more troubling, the House bill sets the stage for continued expansions; and if made permanent those would cost $860 billion  – that is $120 billion more than a permanent extension of all provisions, and nearly $160 billion more than the permanent deal we discussed last week.

December 10, 2015
Senators Baldwin, King, Whitehouse, Reed, and Warren Sent Letter to Finance Committee

Last week Senators Tammy Baldwin (D-WI), Sheldon Whitehouse (D-RI), Jack Reed (D-RI), Angus King (I-ME), and Elizabeth Warren (D-MA), sent a letter to Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) making the argument that tax extenders legislation should be paid for by closing tax loopholes.

This excerpt captures the argument of the letter spearheaded by Sen. Baldwin (full letter here):

Last month, Republicans and Democrats were able to come together in a bipartisan manner to pass legislation preventing harmful cuts to federal programs for two years. However, that legislation also included a variety of spending cuts and revenue increases to ensure that the federal spending would not add to the deficit. Therefore, extending expired tax breaks, or making them permanent, without offsetting the cost is a troubling double standard whereby tax cuts and credits don’t need to be paid for but investments in education, job training, infrastructure, research and innovation must be paid for. Not requiring the same standard for these mostly business tax cuts is not only unfair, it would also add to the deficit and increase pressure to make additional cuts to domestic programs.

Instead of passing tax cuts and credits that increase the deficit, we urge you to offset the cost of extenders by closing loopholes in the tax code.

December 10, 2015
Tax Extenders Deal Could Undermine the ACA

Loren Adler, Research Director for the Committee for a Responsible Federal Budget, wrote a guest post that appeared on the RealClearPolicy blog. It is reposted here.

It's sadly no surprise that lawmakers are working on an irresponsible package of tax cuts without any pretense of caring about the massive $700 billion cost, but hidden in that negotiation is an attempt to undermine the Affordable Care Act's cost-control efforts and deal a huge blow to workers' pocketbooks.

The deal reportedly includes a two-year delay of the excise tax on high-cost, employer-provided insurance plans — commonly referred to as the "Cadillac tax" — along with a similar delay of the medical-device tax, in exchange for fully funding the ACA's "risk corridor" program (which limits insurers' losses if their costs to cover enrollees end up significantly exceeding the premiums charged, and vice versa). On top of that, last week, the Senate voted 90-10 to fully repeal the Cadillac tax.

Ironically, this news comes not long after the Congressional Budget Office detailed just how costly ACA repeal would be, adding $5 trillion to the debt over the next 20 years, and amid growing evidence that the ACA is playing a role in the current health-care spending slowdown. Controlling health-care costs, as the ACA sought to achieve, will prove critical to our ability to afford other priorities like a strong social safety net and important investments.

December 9, 2015

As we face an end-of-the-year legislative crunch that promises to be fiscally irresponsible, former Research Director of the Committee for a Responsible Federal Budget Jason Peuquet advises us not to lose sight of the importance of the federal budget process. The budget debates are an annual opportunity to evaluate spending priorities across the full spectrum of federal programs.  Discretionary spending programs are the primary focus of the federal budget, and reconciliation measures provide a chance to debate most entitlement spending programs (except for Social Security). 

With discretionary spending declining and entitlement spending on the rise, Peuquet also discusses the need to invite stakeholders for all federal spending programs to offer their positions in order to ensure a robust and complete debate on spending priorities. 

December 9, 2015

As Congress appears to be closing in on a fiscally irresponsible tax extenders deal that's expected to cost $700 billion in the next decade and as much as $2.3 trillion over 20 years, we have released a new infographic showing other ways to spend $700 billion. For their priorities, conservatives could use this money to repeal the Affordable Care Act's employer health insurance mandate, remove the remaining defense sequester, and double border security funding. And liberals may be excited to know that they could double National Institutes of Health (NIH) research spending, provide debt free college, and increase highway spending for the same cost as well. More important than spending $700 billion on any of these would be to responsibly offset the cost of any year-end tax extenders deal.


December 9, 2015
Congress Should Pay for Any Extension of Tax Breaks

Kent Conrad, former Chairman of the Senate Budget Committee, wrote a commentary in The Hill. It is reposted here.

Just under three years ago – in my waning days serving this country in the Senate – Congress and the president enacted an important down payment to fixing our debt by asking the top 1 percent of earners to contribute an additional $600 billion to deficit reduction over a decade. Just three years later, Washington is working toward a bipartisan agreement to give all that revenue away and accelerate the explosion of our national debt.

According to press reports, lawmakers are currently negotiating a package to restore many of the so-called tax extenders which expired last year. Extending these 50-some tax breaks for businesses and individuals for just two years would cost nearly $100 billion – but negotiators want to go way further than that; they are eying a $700 billion package.

Many Republicans want to make permanent and even expand many of these tax breaks, particularly those for businesses. Democrats, meanwhile, want to extend and possibly expand several financial crisis-era low-income tax breaks scheduled to expire in 2017. The compromise, sadly, is to do both – and add the entire cost to the nation’s debt.

With interest, the emerging tax deal could add nearly $850 billion to the debt this decade and $2.3 trillion by 2035. That’s well on the way to giving away all the revenue we’ll raise over the next ten years from the higher taxes on upper-income earners that we passed just three years ago, or most of what we are supposed to save from the so-called sequester.

December 9, 2015

The Conservative Reform Network and Americans for Tax Reform recently hosted a forum where representatives from the Republican presidential campaigns of Gov. Jeb Bush, Sen. Ted Cruz, Gov. John Kasich, Sen. Rand Paul, and Sen. Marco Rubio discussed their candidates’ tax reform proposals. You can read our brief summaries of the candidates' tax plans here.

Cruz and Paul both advocate for flat tax proposals combined with what is essentially a value-added tax, while Bush, Kasich, and Rubio propose reforms to lower corporate and individual rates while broadening the tax base. Bush’s primary goals for tax reform are growth and increasing workforce participation. Cruz wants to fix the broken system with a simplified tax regime. Kasich proposes a three-part test for tax reform: it should increase jobs, growth and freedom; it should be able to pass Congress; and it should unite the Republican Party. Paul argues for eliminating the payroll tax for workers, taxing business on what they produce, and taxing imports while exempting domestic production. Rubio promotes a pro-family policy that also establishes parity among all corporate and non-corporate businesses.

December 8, 2015

The Brookings Institution’s Center on Children and Families recently held an event to discuss issues for the 2016 presidential candidates to emphasize during their campaigns.  Eight papers were presented on topics that will be of significance during this coming election cycle, including one on the federal debt by CRFB president Maya MacGuineas and Concord Coalition executive director Bob Bixby.

Alice Rivlin and Robert Reischauer, board members for the Committee for a Responsible Federal Budget, also wrote about important health care topics in their piece Health Policy Issues and the 2016 Presidential Election, which offers three recommendations for candidates during the campaign season. The paper advises candidates to put forward specific ideas to address the impending insolvency of the Medicare Trust Fund, address healthcare costs that are projected to accelerate in the coming years, and offer firm, cost-effective proposals to improve or replace (depending on the party) the Affordable Care Act.

December 8, 2015
To Keep Expiring Tax Cuts, Congress Considers Another Borrowing Bonanza

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, wrote a commentary that appeared in the Wall Street Journal Washington Wire. It is reposted here.

Congress is contemplating massive borrowing for a year-end bonanza that would make permanent a number of expiring tax cuts. The price tag? $700 billion over the next decade. And this is on top of a year in which Congress already added $245 billion to the debt.

December 8, 2015

Here we go again, again. With government funding set to expire at the end of the week and no deal on the table, it is possible that the government will shut down for the second time in three years or at least require another Continuing Resolution. While the Bipartisan Budget Act of 2015 set topline spending levels above the previous sequester caps, there is no set agreement on exactly how that money should be spent and which policies ought to accompany it in an omnibus appropriations bill. To help prepare for a possible shutdown, CRFB has released an updated primer on what happens in and the the consequences of a government shutdown.

The primer, Q&A: Everything You Should Know About Government Shutdowns, goes through the funding process and the budgetary, economic, and administrative consequences of a shutdown.

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