The Bottom Line

July 28, 2015

Our analysis of the 2015 Social Security Trustees' report noted that "As time goes on, it will be more difficult to secure the Social Security programs for current and future generations with thoughtful changes instead of abrupt benefit cuts or tax increases." We previously detailed how much bigger changes need to be to keep Social Security solvent if lawmakers wait for in both the 2013 and 2014 reports. While the 2015 report showed a slight improvement in the program's projected finances, making the necessary changes slightly smaller, the problem with delaying change remains.

The Trustees state that it would take a 2.62 percentage point increase in the payroll tax to make the program solvent over 75 years, making the rate over 15 percent instead of the current 12.4 percent. Delaying the increase by ten years raises the necessary increase to 3.3 percentage points for a new rate of 15.7 percent. Lawmakers could also undertake gradual payroll tax rate increases, but those rates would need to be slightly higher, particularly if they waited until 2026. Finally, waiting until 2034, when the Trustees project the trust fund to become insolvent, would require a 4 percentage point tax increase for a new rate of 16.4 percent. By then, a gradual increase would not be able to keep the trust fund solvent.

July 27, 2015

Although the Social Security Trustees estimate the program's financial outlook has slightly improved relative to last year, the Congressional Budget Office (CBO) takes a different view. As with Medicare, CBO is far more pessimistic about Social Security's future. This is true relative to last year, but especially relative to the Social Security Trustees. Indeed, while the Trustees project a 2034 insolvency date (on a combined basis) and 2.7 percent of payroll 75-year shortfall, CBO estimates insolvency will come five years earlier, and that the program will have a 75-year shortfall of 4.4 percent of payroll.

The difference between CBO and the Trustees represents a widening gap between the two scoring agencies that first appeared in 2013. In that year, CBO estimated the shortfall to be 25 percent larger than the Trustees' estimate. In 2014, they estimated it to be nearly 40 percent larger than their counterparts. And this year, they estimate it to be nearly two-thirds larger. The bulk of this difference can be explained by four differences in assumptions:

July 27, 2015

Just hours in advance of the release of Wednesday's 2015 Social Security Trustees' Report, Rep. Xavier Becerra (D-CA), Ranking Member of the Ways & Means Social Security Subcommittee, and 22 Democratic co-sponsors introduced H.R. 3150, the One Social Security Act, a bill that would merge the Social Security Disability Insurance (SSDI) and Old-Age and Survivors' Insurance (OASI) trust funds into one combined Social Security trust fund. Aimed at averting the impending depletion of the SSDI trust fund, combining the trust funds would result in one insolvency date of 2034, according to the 2015 Trustees' Report.

As one of the Fiscal Speed Bumps that Congress will need to address before the end of the session, the SSDI trust fund will be unable to pay the full amount of the program's scheduled benefits by the end of 2016. The One Social Security Act would change the structure of the Social Security trust funds, merging the disability and old-age funds into one that collects the entire 12.4 percent of payroll taxes rather than the current split of 1.8 percent to the disability fund and 10.6 percent to the old-age fund. By combining the funds, insolvency for the combined program would be in 2034, reducing the OASI program's solvency by 1 year and extending SSDI's solvency.

July 23, 2015

There was plenty of focus on the Social Security Trustees' report yesterday, but the Medicare report, released at the same time, contains very important information and projections as well. The report shows some improvement from last year, despite the incorporation of this year’s “doc fix” legislation for the first time. The Hospital Insurance (HI) Trust Fund for Medicare Part A remains scheduled to become exhausted in 2030, although the shortfall within HI is smaller. Over the longer term, Medicare spending is down due to lower cost growth assumptions.

Hospital Insurance Trust Fund

The HI Trust Fund was projected to become exhausted by 2024 as recently as 2012 and by 2017 in the 2009 report before enactment of the Affordable Care Act (ACA). The improvement in the Trust Fund’s finances since 2009 stems from the combination of the ACA’s Medicare cuts and HI payroll tax increases, the impressive recent slowdown in Medicare spending growth, and a general shift in the health care system from inpatient (covered by the HI Trust Fund) to outpatient care.

While the Trust Fund’s exhaustion date is unchanged, the 75-year actuarial shortfall shrank again this year to 0.68 percent of taxable payroll, down from the 0.87 percent projected in last year’s report, and from 1.11 percent the year before that. This year’s decline stems almost entirely from lower predicted long-range Medicare cost growth, somewhat offset by higher projected enrollment in Medicare Advantage (MA) plans.

July 23, 2015

Following the release of the 2015 Social Security Trustees' report yesterday, CRFB has released a report summarizing the myriad statistics and projections that the Trustees published. Our report discusses the solvency of both the disability and old-age portions of the program, the long-term shortfall of the program, and how the projections changed since last year.

The report shows a similar, though slightly improved, outlook to last year for the program. The Social Security Disability Insurance (SSDI) trust fund is still projected to be exhausted in late 2016, leading to a 19 percent cut in benefits. The insolvency dates for the old-age and combined trust funds have been pushed back one year to 2035 and 2034, respectively, at which point benefits would be cut by 21 percent for all beneficiaries. The program faces a 2.68 percent of payroll shortfall, or 0.96 percent of Gross Domestic Product (GDP), that lawmakers must close to ensure solvency over the next 75 years.

Click here to read the full paper.

As our report explains, these financial issues are the result of an already-existing and widening gap between spending and revenue.

As the number of beneficiaries in the program continues to grow, outlays have already increased from 10.4 percent of payroll (4.0 percent of GDP) in 2000 to 14.1 percent of payroll (5.0 percent of GDP) today. The Trustees project they will continue to grow to 16.7 percent of payroll (6.0 percent of GDP) by 2040, dip slightly, and then grow to 18.0 percent of payroll (6.2 percent of GDP) by 2090.

Meanwhile, revenues will fail to keep up – growing slightly as a percent of payroll from 12.8 percent today to 13.3 percent in 2090, while actually falling slightly as a percent of GDP after the 2020s from 4.8 percent in 2030 to 4.6 percent by 2090.

July 22, 2015

The Social Security and Medicare Trustees have released their reports on the long-term finances of each program, showing those programs remain financially unsound and on the road toward insolvency. The reports project the Social Security Disability Insurance (SSDI) trust fund being exhausted late next year, the Medicare Hospital Insurance Trust Fund to run dry in 2030, and the theoretically combined Social Security trust funds to deplete their results by 2034.

Overall, the Trustees project Social Security to be in somewhat better health than projected last year – when the insolvency date was 2033 – but still in need of a significant course correction.

According to the Trustees, Social Security faces a 75-year shortfall of 2.68 percent of payroll (0.96 percent of GDP), meaning the payroll tax would have to be raised immediately from 12.4 to about 15 percent to ensure 75-year solvency. By 2090, the payroll tax would need to rise further to about 17 percent. Alternatively, policymakers could reduce benefits by about 16 percent today, with reductions growing to 27 percent by 2090.

July 22, 2015

The Senate is discussing a bill that would reauthorize highway programs for six years and provide $47.6 billion of funding to cover the Highway Trust Fund shortfall for the first three years. The money is a transfer of general revenue to the fund offset with real savings.

These are the provisions used to offset the $47.6 billion cost:

Offsets in Senate Transportation Bill
Policy Ten-Year Savings
Reduce the fixed dividend rate the Federal Reserve pays larger banks $17.1 billion
Sell 101 million barrels of oil from the Strategic Petroleum Reserve $9.0 billion
Index customs fees for inflation $5.7 billion
Extend current budget treatment of TSA fees from 2023 to 2025 $3.5 billion
Use private debt collectors to collect overdue tax payments $2.4 billion
Extend Fannie/Freddie guarantee fees $1.9 billion
Require lenders to report more information on outstanding mortgages $1.8 billion
Rescind TARP funds for the Hardest Hit Fund $1.7 billion
Close an estate tax loophole about the reporting of property $1.5 billion
Clarify the statute of limitations on reassessing certain tax returns $1.2 billion
Devote civil penalties for motor safety violations to the Highway Trust Fund $0.6 billion
Revoke or deny passports for those with seriously delinquent taxes $0.4 billion
Stop paying interest when companies overpay for mineral leases $0.3 billion
Adjust tax-filing deadlines for businesses $0.3 billion
Allow employers to transfer excess defined-benefit plan assets to retiree medical accounts and group-term life insurance $0.2 billion
$47.6 billion
July 21, 2015
Package of 50+ Tax Breaks Add $95 Billion to Debt

The Senate Finance Committee today approved a package of 50-plus tax breaks that expired last year known as "tax extenders." Unfortunately, they chose to extend almost all of them for two years by adding the costs of the tax cuts to the national debt.

The tax breaks are called the "tax extenders" because Congress typically only extends these expiring provisions a year or two at a time, but many of these provisions are quasi-permanent. (The research credit, for instance, has been extended at least 15 times since its creation in 1981.)  The provisions expired at the end of last year, but Congress can extend them retroactively because most people do not pay their 2015 taxes until 2016.

The bill costs $95 billion over ten years to extend all 50-plus provisions for two years (retroactively for 2015 and forward for 2016). The Committee did not offer a way to pay for the cost, so the amount will be added to the deficit. In markup, the Committee did slightly expand more than a dozen of the provisions and the expansion was paid for, as opposed to extenders legislation in the House of Representatives which dramatically expanded some provisions by adding to the deficit.

July 20, 2015

The House Budget Committee Democrats jumped into the transportation debate last week with a proposed surface transportation reauthorization that mirrors the President's proposal. The six-year bill includes $478 billion of spending, which would increase spending above current levels by about $56 billion over six years and $93 billion over ten years based on the score of the President's budget. The Highway Trust Fund is funded with $41 billion of revenue from limiting inversions, enough to keep the trust fund solvent through FY 2017.

The inversion policy change would lower the threshold for determining when a U.S. company has inverted and is still treated as a U.S. company for tax purposes. Currently, when a U.S. and foreign company merge, the new company is still treated as a U.S. company if 80 percent or more of the shares remain American-owned. Last fall the Treasury Department introduced rules to prevent companies from gaming the current threshold, while this new bill would lower it to 50 percent. The $41 billion of revenue would fund part of the transportation reauthorization, although it is much less than the $210 billion one-time tax on U.S. companies' foreign-held earnings that the President proposed to keep the Highway Trust Fund solvent into 2023.


July 17, 2015

CBO's Long-Term Budget Outlook, released last month, included updated projections for Social Security and Medicare, including individuals' expected benefits and taxes paid. The Social Security trust fund projections are very similar to last year's: the Social Security Disability Insurance Trust Fund is scheduled to be insolvent sometime in Fiscal Year 2017 (which starts in October 2016) and the larger Old Age and Survivor's Insurance Trust Fund is expected to run out of money in 2031. If the two programs are considered as one (if Congress reallocates funds from one to another as necessary), the combined fund will be exhausted in 2029, one year sooner than projected in last year's report.

Some information that wasn't in last year's report (but was in a separate publication on Social Security) explains that each succeeding generation will get more out of Social Security than they paid in. Individuals born in the 1940s are expected to, on average, receive $1.03 for every dollar paid in Social Security taxes. This amount increases over time, with those born in the 1980s scheduled to receive $1.40 in benefits for every $1 paid in taxes, up from $1.03 for those born in the 1940s. These amounts assume that Social Security will continue to pay full benefits even after the trust fund runs out.

July 16, 2015

Reps. Ron Kind (D-WI), Reid Ribble (R-WI), Tammy Duckworth (D-IL), and Pat Tiberi (R-OH) introduced a bipartisan bill (H.R. 3077, the Giveback Deficit Reduction Act) this week to cut a little fat out of Congressional budgets. The bill would require that unspent allowances be returned to the Treasury to be used for deficit reduction.

July 16, 2015

As we move past the midpoint of 2015, several fiscal deadlines are fast approaching. Congress is preparing to act on two important Fiscal Speed Bumps in Congress: the pending insolvency of the Highway Trust Fund, and the upcoming deadline for the retroactive renewal of tax extenders. Our updated infographic illustrates these and other Fiscal Speed Bumps ahead.

The U.S. House of Representatives on Wednesday passed the bill extending highway funding through December 18. The transportation package, introduced by House Ways and Means Chairman Paul Ryan (R-WI), replenishes the Highway Trust Fund by $8 billion. To offset the $8 billion cost, the bill includes provisions such as adjusting tax filing deadlines for businesses, extending the current dedication of TSA fees to deficit reduction, increasing reporting requirements for outstanding mortgages, and requiring the value of an estate to be reported the year that it is inherited.

July 15, 2015

Last week, the Government Accountability Office (GAO) released a new report to Congress on the debt limit, showing that the failure to raise the debt limit in a timely fashion in 2013 had costs for the federal government. The report also contains proposals for reforming the debt limit. The Better Budget Process Initiative (BBPI) released a paper this spring with proposals for debt limit reform that mirror and answer some of GAO's options and concerns.

The debt limit technically returned in March of this year, though “extraordinary measures” that the Treasury can take will delay the ultimate deadline until late fall. As possibly the most disruptive fiscal speed bump facing the country, it’s important to look into ways that the debt limit can be used to bring attention to our unsustainable debt path while limiting unproductive brinksmanship. The GAO report found that the delay in passing an increase in the debt ceiling during the 2013 government shutdown very much concerned investors. These concerns translated into some financial firms being unwilling to hold Treasuries with expirations immediately after the end of the Treasury department’s ability to continue “extraordinary measures” (we noted an increase in the one-month Treasury yield at the time). GAO found that this increased borrowing costs for the government by between $38 million and just over $70 million. GAO’s communications with investors indicate those investors are prepared to take similar measures if policymakers drag their feet again this fall.

In addition to the analysis on the increased costs, GAO provided recommendations of policy changes to reduce the damage from a future debt limit debate. The proposals include: linking action on the debt limit to the budget resolution, providing the administration with the authority to increase the debt limit subject to congressional disapproval, and delegating broad authority to the administration to borrow as necessary.  In March, our BBPI paper “Improving The Debt Limit” put forward several detailed proposals that were consistent with broad recommendations in the GAO report or were variations on the GAO recommendations.

July 14, 2015

The Office of Management and Budget (OMB) today released the FY 2016 Mid-Session Review (MSR), which updates the President's budget for new data and assumptions. The MSR shows a very similar picture to the budget's estimate in February, with debt stabilizing at just under 75 percent of the economy for much of the next ten years. The MSR shows 2015-2025 deficits that are very similar ($9 billion higher) to the President's budget, although lower economic growth means that 2025 debt is about 1 percentage point higher than OMB projected in February.

In the MSR, deficits would total $5.8 trillion over the 2016-2025 period, or 2.5 percent of Gross Domestic Product (GDP), and would stabilize at 2.7 percent of GDP for the last five years. Debt would fall slightly from 75.3 percent of GDP in 2015 to 74.6 percent by 2018, where it would remain through 2025. This is in contrast to the February estimate that had debt on a very slight downward path to 73 percent by 2025.

July 14, 2015

The Chief Actuary for the Center for Medicare and Medicaid Services (CMS) recently released the 2014 Medicaid Actuarial Report forecasting Medicaid enrollment and spending for the next ten years. The report contains some good news, showing lower spending projections than last year's, but also some signs that the program may increasingly strain federal and state budgets in the coming years.

Medicaid spending is projected to grow on average by 6.2 percent per year over the next ten years, increasing total spending from $499 billion in 2014 to $835 billion by 2023. This growth rate is somewhat faster than GDP growth, thereby increasing spending as a share of GDP from 2.9 percent in 2014 to 3.1 percent in 2023. Enrollment is projected to grow by about 2 percent per year, meaning that per-person costs will rise by about 4 percent per year, roughly in line with the actuaries' projections of GDP per capita growth. Enrollment growth is concentrated more in the early years of the projection window as the Medicaid expansion covers more and more people.

The federal government will account for 60 percent of this spending each year, up from the historical share of about 57 percent that prevailed prior to the Affordable Care Act (ACA). Federal Medicaid spending is projected to grow from $300 billion in 2014 to $497 billion by 2023. The $3.9 trillion of total spending projected over the 2014-2023 period is $237 billion less than the Congressional Budget Office (CBO) expects for the same time period.

July 14, 2015

Here at CRFB we spend a lot of time reviewing responsible options to offset the cost of new bills and have provided many to lawmakers. So when current Ways & Means Chairman Paul Ryan (R-WI) announced an $8 billion transportation package to extend the life of the Highway Trust Fund until the end of the year, we were pleased that almost all of the savings ideas came from options we had previously identified as areas of consensus between former Ways & Means Chairman Camp's Tax Reform Act of 2014 and the President's Budget.

Many of the tax compliance ideas, dealing with mortgages, filing dates, an estate tax loophole, and a statute of limitations, were included in both plans. Three of the four were also in our PREP Plan as a way to pay for the tax extenders at the end of last year. And the single largest source of funds, to continue devoting some of current TSA fees to deficit reduction, had not been included in any previous legislation (that we are aware of) before we suggested it in The Road to Sustainable Highway Spending.

Offsets in House Ways & Means Transportation Plan
Policy Savings/Costs (-)
Extend current budget treatment of TSA fees from 2023 to 2025 $3.2 billion
Require lenders to report more information on outstanding mortgages $1.8 billion
Close an estate tax loophole about the reporting of property $1.5 billion
Clarify the statute of limitations on reassessing certain tax returns $1.2 billion
Adjust tax-filing deadlines for businesses $0.3 billion
Allow employers to transfer excess defined-benefit plan assets to retiree medical accounts and group-term life insurance $0.2 billion
Equalize taxes on natural gas fuels -$0.1 billion
$8.1 billion

Source: House Ways & Means Committee

July 14, 2015

The House Ways & Means Committee held a hearing last week to investigate possible changes to the Social Security Disability Insurance (SSDI) program that would encourage beneficiaries to return to work when possible. The hearing, the first on the program for the full committee since 2008, launches a larger conversation on possible improvements to SSDI as depletion of the trust fund's reserves approaches at the end of 2016.

As one of the fiscal speed bumps lawmakers must address in the 114th Congress, the impending insolvency of the SSDI trust fund presents both a need to secure additional program funding and an opportunity to make improvements to better serve the disability community and taxpayers. Some experts argue, and survey results have shown, that some SSDI beneficiaries wish to return to the workforce but are hesitant to do so because of the complexities and potential loss of benefits if they do.

July 14, 2015

The Center for Medicare and Medicaid Innovation (CMMI) continues to push forward important delivery system reforms, last week announcing a new initiative -- the Comprehensive Care for Joint Replacement (CCJR) Model -- to bundle payments for hip and knee replacements. The proposed rule will be published in the Federal Register today.

Hospitals in 75 geographic areas would receive a single payment for the joint replacement surgery and 90 days of care thereafter (rather than individual payments for each service involved, hence the term "bundled") and would be eligible for financial bonuses if they are able to reduce costs while meeting quality metrics. Some of the specifications are similar to CMMI's previous iteration -- the Bundled Payments for Care Improvement (BPCI) initiative -- but the key difference is that CCJR is mandatory in those 75 geographic areas.

CCJR would be tested over a five-year period starting in 2016 and would charge hospitals with trying to limit the spending associated with the joint replacement surgery and follow-up. The hospital is being asked to bear the financial risk because they are best suited to coordinate a patient's care and because most of the variation in costs today occurs during post-acute care (after the initial surgery). Presumably, financial and quality incentives will place a much higher onus than exists today on hospitals to tailor the most appropriate recovery plan for their patients and better manage their care.

Given the difficulties voluntary CMMI initiatives can have in producing significant savings and fostering innovation over time, the mandatory nature here is vital. By making the CCJR mandatory, CMMI will also gain valuable knowledge about the effectiveness of bundled payments in Medicare.

Knee and hip replacements make a good first target because, as the Centers for Medicare and Medicaid Services (CMS) notes, hospitalizations for joint replacement surgeries are expensive -- costing Medicare $7 billion in 2013 -- and the cost per episode differed vastly from $16,500 to $33,000.

July 10, 2015
The Second in a Series on the SSDI Program

The McCrery-Pomeroy SSDI Solutions Initiative has published a second brief in its issue brief series on the Social Security Disability Insurance (SSDI) program in preparation for the August 4, 2015 SSDI Solutions Conference. This brief explores the process for determining eligibility for disability benefits as well as how appealing disability decisions works.

To RSVP to the August 4th Conference, click here.

Below is an excerpt from the brief:

The SSDI Program - The Determination & Appeals Process

In order to receive SSDI benefits, workers with disabilities must demonstrate that they fulfilled the work requirements and have an impairment (or combination of impairments) that is expected to prevent them from engaging in substantial work for at least a year (or result in death). Individuals apply at local Social Security Administration (SSA) field offices, but the initial disability decisions are made by state agencies, known as Disability Determination Services (DDS). To decide if an individual is “disabled” as defined in Social Security law, DDS uses a 5-step sequential evaluation process, detailed in Figure 1.

Figure 1 - SSDI Determination Process

Source: Congressional Research Service

July 10, 2015

Congressional Budget Office (CBO) Director Keith Hall testified Thursday before the Senate Homeland Security & Government Affairs Committee in a hearing titled "Understanding America’s Long-Term Fiscal Picture." Senators questioned Hall on the implications of debt and deficit projections for the U.S. economy, the scale of the adjustment needed to put the debt on a sustainable path, and what the Greek debt crisis means for the U.S.

In his testimony, Hall reiterated many of the main points made in CBO’s Long-Term Budget Outlook and in his testimony to the Senate Budget Committee last month. In particular, he noted that high levels of debt will weigh on economic growth through crowding out of private investment, reduce the ability of the government to respond to unexpected events, and increase the risk of a fiscal crisis.

When asked if there were any lessons that the U.S. should take away from the Greek situation, Hall noted that Greece’s experience showed that it was “very difficult to make fiscal policy decisions under the pressure of a financial crisis” and that it should highlight to U.S. policymakers the benefits of acting sooner rather than later. These benefits are explained in our recent blog post.

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