The Bottom Line

October 7, 2015

Adding to the list of things lawmakers want to get done before the end of the year, Congress may take up a relatively obscure Medicare issue that could have significant consequences for some Medicare beneficiaries. Earlier today, House Democrats held a press conference calling for lawmakers to avert a significant Medicare premium increase that could hit a small subsection of beneficiaries next year, and a resulting increase in deductibles for all Medicare beneficiaries.

The issue at stake is the "hold harmless" provision that bars annual increases in Medicare Part B premiums from exceeding the dollar amount of a beneficiary's Social Security cost-of-living adjustment (COLA) for most enrollees. The provision usually does not come into play because Social Security benefits are generally much larger than Medicare premiums, meaning that even a small COLA should cause a large enough benefit increase to clear the bar.

However, with gas prices falling and remaining well below last year's prices, the Social Security Trustees predicted during the summer that there would be no Social Security COLA at all this year since there would be zero inflation. At the same time, Medicare Part B premiums will increase for 2016 because they are calculated for most beneficiaries as being roughly one-quarter of the average per-person Part B costs, which have grown; the deductible grows at the same rate.

Roughly 70 percent of Medicare Part B beneficiaries, therefore, will be protected from premium increases in 2016 due to the hold harmless provision, but the remaining 30 percent would have to shoulder the entire increase necessary to keep premiums at 25 percent of program costs (although the majority of these have their entire premium covered by Medicaid). These 30 percent include:

  • High-income beneficiaries who pay higher premiums at 35-80 percent of program costs;
  • New beneficiaries;
  • Beneficiaries who have not started receiving Social Security;
  • Low-income beneficiaries who have their premiums paid by Medicaid; and
  • Certain state and local employees who do not participate in Social Security.
October 6, 2015

The Urban Institute published a new report showing that younger generations will receive much more in lifetime Social Security and Medicare benefits than today's retirees, and all generations will receive more benefits than they have paid in taxes, leading to ballooning economic shortfalls in the two programs.

The study, by CRFB board member Eugene Steuerle and Caleb Quakenbush, shows that benefits for an average-earning couple retiring today are valued at $1 million and expected to be $2 million for millennials turning 30 this year. Left unchanged, this trend will continue to rise for future generations.


October 6, 2015

Last week, the Technical Panel to the Social Security Advisory Board issued a report on the assumptions and methods used by the Social Security Trustees Report. The Technical Panel's role is to improve the way the Trustees analyze the health of the Social Security program. This year's findings and suggested changes to the technical assumptions would result in a worse than the originally projected outlook for Social Security's financial wellbeing.

The Technical Panel publishes reports every four years with suggestions for improving the methodology, presentations, and assumptions used by the Trustees to estimate the future financial health of the Social Security Trust Fund.  The 2015 Trustees Report projected the 75-year shortfall of the program was 2.7 percent of payroll. Using the more pessimistic assumptions recommended by the Technical Panel, the 75-year shortfall is 3.4 percent. The effects of the panel's recommended assumptions grow larger over time, making the shortfall in the final year of projections (the 75th year) 30 percent higher at 6.1 percent of payroll instead of 4.7 percent.

October 5, 2015
A Republican Congressional Legacy

Judd Gregg, a former Republican senator from New Hampshire, served as chairman of the Senate Budget Committee from 2005 to 2007 and ranking member from 2007 to 2011. He recently wrote an op-ed featured in The Hill. It is reposted here.

Senate Majority Leader Mitch McConnell (R-Ky.) has declared that there will be no shutdowns and no gamesmanship as we go into this fall and the next round of debt-ceiling governance. 

October 5, 2015

Update: CBO has released scores of the three reconciliation bills showing net ten-year savings of $57 billion but a deficit increase of $1 billion in 2025. The blog has been updated to reflect these numbers, and the second-decade numbers have been updated base on the official estimates.

Since Republicans took full control of Congress in the 2014 midterm elections, there has been plenty of discussion about the use of reconciliation, a fast-track process that most critically allows the Senate to pass legislation with 51 votes by allowing it to bypass the 60 vote requirement needed to end a filibuster, for repealing parts of the Affordable Care Act (ACA).

The relevant committees in the House of Representatives, this week, finally detailed their plans, but the proposed reconciliation package may run into trouble in the Senate because it appears to increase deficits in the second decade by in the range of $400 billion.

The bulk of the package comes from the Ways and Means Committee, plus some smaller policies from the other two relevant committees. The bills eliminate:

  • The individual mandate;
  • The employer mandate;
  • Auto-enrollment in health insurance for employers with 200 or more employees;
  • The Independent Payment Advisory Board (IPAB);
  • The medical device tax;
  • The Cadillac tax on high-cost insurance plans;
  • The Prevention and Public Health Fund; and
  • Funding for Planned Parenthood (which would be redirected elsewhere).
October 2, 2015

Yesterday evening, Treasury Secretary Jack Lew indicated that the extraordinary measures Treasury is using to avoid breaching the debt limit will run out on about November 5, sooner than previously thought.

In the spring, we published a paper through our Better Budget Process Initiative making recommendations to improve the debt limit, and in July the Government Accountability Office released proposals for reform.

October 2, 2015

In light of the recent reconciliation package that repeals the Cadillac tax on high-cost health insurance plans and Democratic Presidential candidate and former Secretary of State Hillary Clinton's (D-NY) call for repeal, 101 economists -- including CRFB board members Robert Reischauer, Alice Rivlin, and Eugene Steuerle -- wrote a letter to the Chairmen and Ranking Members of the House Ways and Means and Senate Finance Committees recommending that they spare the tax.

The letter cites three main reasons to keep the tax. First, the tax will help control health care costs by discouraging overly generous employer-provided health insurance plans. Second, it could help wage growth by reducing the share of employee compensation that goes toward insurance. Finally, repealing the tax would cost $91 billion over the next ten years. The letter concludes that:

We, the undersigned health economists and policy analysts, hold widely varying views on other provisions of the Affordable Care Act, and we recognize that measures other than the Cadillac tax could have been used to restrict the open-ended health insurance tax break. 

But, we unite in urging Congress to take no action to weaken, delay, or reduce the Cadillac tax until and unless it enacts an alternative tax change that would more effectively curtail cost growth.

October 1, 2015

Senators Tom Cotton (R-AR) and Joe Manchin (D-WV) wrote an op-ed that appeared on Fox News Tuesday advocating for measures to help those who do or could receive Social Security Disability Insurance (SSDI) benefits return to work. Warning of the upcoming exhaustion of the SSDI trust fund (one of the Fiscal Speed Bumps the 114th Congress will need to address before the end of 2016), the senators would like to make SSDI more effective for those who are temporarily disabled to ensure its long-term sustainability for workers with permanent disabilities. 

Cotton and Manchin state their goal: to help those who are temporarily disabled to return to work and preserve the funds for those who have serious, long-term disabilities. They note that almost 11 million Americans depend on SSDI, but the program has been paying out more than it has been receiving in recent years – $155 billion more since 2009.

Cotton and Manchin note:

According to the 2015 annual report from the Social Security system’s trustees, the SSDI trust fund will run out in late 2016. Unless Congress acts, every one of those 11 million people will see a 19 percent cut in benefits. This will mean the average beneficiary will receive $230 less per month – moving from barely above to below the poverty line.

September 29, 2015

Republican presidential candidate Donald Trump announced his tax reform plan yesterday to lower tax rates and simplify the tax code with the goal of promoting economic growth. It cuts taxes for both individuals and businesses, lowering tax rates across the board and eliminating the income tax for some people while scaling back or eliminating some tax preferences and changing international taxation to offset some of that cost. The campaign has stated that the plan will be revenue-neutral, though outside organizations have estimated it could cost as much as $12 trillion.

Individual Income Tax Reform

On the individual tax side, Trump's plan would reduce the number of tax brackets from seven rates ranging from 10 percent to 39.6 percent down to three rates of 10, 20, and 25 percent so that nearly every taxpayer would face a lower marginal tax rate. This is similar to but more aggressive than Gov. Bush's plan to reduce rates to 10, 25, and 28 percent.

September 25, 2015

The Senate Appropriations Committee earlier this week posted a draft bill that would extend government funding until December 11 and avert a government shutdown. Unfortunately, it also uses the war spending account as a budget gimmick to provide a backdoor increase in defense spending above budget caps. There are no offsets for the additional spending.

The draft did contain language removing funding from Planned Parenthood, which drew a veto threat from the President, but that version did not receive the 60 votes necessary to proceed in the Senate. Press reports indicate that the same continuing resolution (CR) without the section defunding Planned Parenthood will be voted on Monday.

Regardless of the politics on Planned Parenthood, the bill sets regular discretionary levels at the previously-approved levels of $1.017 trillion. It does so by taking the spending levels for Fiscal Year (FY) 2015, which totaled $1.022 trillion after certain one-time savings in the FY 2015 appropriations bills are excluded, and applied a reduction of 0.5 percent (of which about 0.2 percent was an across-the-board reduction and the remaining is from net reductions fromcuts reffered to as "anomalies"). Colloquially, "the sequester" is back in full effect; the sequester refers to the reduced discretionary spending caps mandated after the 2011 "Super Committee" failed to produce savings.

September 25, 2015

Here we go again. With government funding set to expire in one week and no clear plan appearing yet, it is possible that the government will shut down for the second time in three years. The Senate voted down a continuing resolution (CR) that would have funded the government through December 11 but also defunded Planned Parenthood, a non-starter for Democrats and the Obama Administration. Senate Majority Leader Mitch McConnell (R-KY) is working on a plan for a clean CR, but whether that move will succeed or not is uncertain. To help prepare for the shutdown, CRFB has released a new primer on the consequences of a government shutdown, updating a report it last issued before the 2013 shutdown.

The Q&A goes through the funding process and the budgetary, economic, and administrative consequences of a shutdown. It answers 15 different questions:

September 24, 2015

Over the past few weeks, the two leading Democratic candidates for President, former Secretary of State Hillary Clinton and Senator Bernie Sanders (I-VT), have both released plans aimed at tackling the rising cost of prescription drugs. The issue has taken on increased importance in 2015 with new, highly-expensive medications hitting the market and the prices of a number of drugs skyrocketing, including the recent high-profile case of Turing Pharmaceuticals' Daraprim price being raised from $13.50 per tablet to $750 before the company backtracked.


High and rising prescription drug prices have become a major story in the past few years. Between 2010 and 2013, Total drug spending averaged only two percent growth as many blockbuster drugs lost patent protection and was a major driver of the health care slowdown in the late 2000s through 2013. However, drug spending bounced back in a big way with 12.6 percent growth in 2014. Over the next decade, system-wide prescription drug spending is expected to grow slightly faster than overall health spending (6.3 percent annually versus 5.8 percent). This is also true in Medicare, where Part D prescription drug coverage is projected to be the fastest growing part of the program.

September 22, 2015

According to a new Department of Transportation (DOT) estimate, the Highway Trust Fund will likely last until late next summer instead of at the end of the year as previously thought. The DOT estimate now shows that the deadline for action on the Highway Trust Fund would occur in the 4th quarter of fiscal year 2016 (July, August, or September of next year).

The last highway bill, passed on July 28, authorized transportation programs through late October and transferred $8.1 billion into the Highway Trust Fund, paid for with a hodgepodge of different revenue-increasing policies. At the time, lawmakers thought the money would extend the life of the trust fund only to December. Transportation officials realized they would be able to stretch the funds until late next summer with the slowdown of construction projects in the winter.

While a more permanent fix is needed, in the short term Congress needs to reauthorize highway programs before October 30, 2015, or states will no longer receive funding from the federal government. With the new estimate, lawmakers are now able to extend the highway bill for several months without having to find additional financing for the trust fund, similar to the situation they faced earlier this year.

September 18, 2015

This blog is part of the “Fiscal FactCheck” series designed to examine the accuracy of budget-related statements made during the 2016 presidential campaign.

At Wednesday's Republican presidential debate in California, a number of claims were made related to the budget and fiscal policy. While only a few were related to the 16 Budget Myths to Watch Out For in the 2016 Presidential Campaign that we previously released with Fix the Debt, many others touched on important fiscal policy topics. Below is our analysis of these claims.

1. The National Debt is $19 Trillion

Quite a few candidates in last night's debate mentioned the size of the national debt, but not all were able to do so successfully, with some saying $18 trillion and some saying $19 trillion

To clarify, the U.S. gross debt as of September 15, 2015 stood at $18.15 trillion. Gross debt is a measure of all outstanding bonds, including those the government owes to itself – such as the bonds that the Social Security Trust Fund holds. 

However, if we exclude the money the government owes to itself, it results in a concept called debt held by the public. This number is about $5 trillion lower, totaling approximately $13.15 trillion. Currently, debt held by the public is about 74 percent of the size of the economy, and is projected to rise to 77 percent by 2025.

2. It Would Cost Hundreds of Billions to Deport All Unauthorized Immigrants

September 17, 2015
Cost of This Year's Legislation Reaches $1 Trillion

The House Ways & Means Committee today approved tax and health breaks costing nearly $420 billion over ten years, or almost $520 billion with interest. Most of these provisions are part of the "tax extenders" that are routinely extended and most recently expired at the end of 2014. These bills would revive and permanently extend the breaks, with the revenue loss added to deficits. Taken together with other tax bills approved by the Ways & Means Committee earlier this year, they would cost about $1 trillion (or $1.2 trillion) with interest.

About two-thirds of the costs arise from the permanent extension and expansion of bonus depreciation. This provision, enacted in 2008 as a temporary stimulus measure and then repeatedly continued, would cost over $280 billion in lost revenue over the next ten years. We've written previously about how bonus depreciation should be treated separately from the rest of tax extenders because its rationale was to provide stimulus when the economy was weak. We've also pointed out that making it permanent is best done in tax reform because of interactions with other parts of the tax code.

Two other provisions being made permanent allow American corporations to defer paying taxes on their overseas profits, and a third continues a deduction for teachers who buy school supplies.

September 17, 2015

Alan Auerbach and William Gale at the Tax Policy Center recently released their frequently-updated budget projections. Their new outlook is familiar to those following the official CBO numbers: a somewhat stable near-term outlook but continuously rising debt over the long term. Beyond the overall debt numbers, their report contains a number of interesting tidbits about the composition of the budget and considerations for policymakers in addressing deficits and debt.

Auerbach and Gale's projection shows debt remaining at around 75 percent of GDP over the next three years before rising steadily to 81 percent by 2025. This is somewhat higher than CBO's 2025 debt level of 77 percent of GDP largely due to different policy assumptions the authors make. Specifically, they assume that temporary tax provisions -- including the tax extenders that expired at the end of last year -- are permanently extended and that lawmakers will grow appropriated spending with inflation rather than having it limited by the sequester-level caps. On the other hand, it assumes that war spending is drawn down rather than increased with inflation.

The authors make a number of observations about this ten-year outlook. Maybe most notable is the fact that unlike previous large debt run-ups, like those during wars, the current outlook does not show debt returning to a more normal level after the increase following the Great Recession; debt will continue increase from its already high level.

September 16, 2015
CRFB Releases Sequester Offset Solutions Plan

On October 1, lawmakers will have to pass new appropriations or a continuing resolution, or the government will shut down for the second time in two years. This is one part of the four-part "gathering storm" that lawmakers face over the remainder of the year. One of the sticking points in funding the government is the return of the sequester-level spending caps, which will essentially hold FY 2016 spending to the previous year's level. Both parties have proposed higher spending levels, but have done so in different ways. To show a way around the impasse, CRFB has released the Sequester Offset Solutions (SOS) plan, which provides $300 billion of sequester relief that is fully offset.

The SOS plan consists of four parts:

  • Sequester Relief: The plan repeals about half of the sequester over the next two years, then allows the spending caps to grow with inflation after 2017. This provides $300 billion of sequester relief in total with smaller amounts of relief over time.
  • Offsets for Two-Year Relief: To offset the $90 billion cost of the two-year sequester relief, the plan outlines $110 billion of savings split roughly equally between policies that build off the 2013 Ryan-Murray deal and targeted mandatory program savings and receipts from the President's budget. The savings are slightly higher than the cost to account for the interest costs associated with the upfront relief.
September 10, 2015

Presidential candidate Governor Jeb Bush (R-FL) announced his tax reform plan to trim deductions and lower tax rates yesterday. It is one part of his self-described plan to raise economic growth to 4 percent per year. The "Reform and Growth Act of 2017" cuts taxes for both individuals and corporations, lowering tax rates while reducing or eliminating some deductions. According to three different estimates, the plan would reduce taxes on net and would increase deficits over a decade by between $1.2 and $7.1 trillion, depending how it is estimated.

Individual Income Tax Reform

On the individual (and "pass-through" business) tax side, Gov. Bush's plan would reduce the number of tax brackets from seven rates between 10 percent and 39.6 percent to three rates of 10 percent, 25 percent, and 28 percent.

In addition to the lower rates, the plan has several other tax cuts, including:

  • Repeal of the Alternative Minimum Tax (AMT)
  • Near doubling of the standard deduction
  • An increase in the Earned Income Tax Credit (EITC)
  • A reduction in the top capital gains and dividends rates from 23.8 to 20 percent (interest would also be taxed at 20 percent, instead of as ordinary income)
  • Repeal of two provisions that limit tax benefits for high earners – the Personal Exemption Phase-out (PEP) and the Pease limitation on itemized deductions
September 9, 2015

This blog is part of the “Fiscal FactCheck” series designed to examine the accuracy of budget-related statements made during the 2016 presidential campaign.

Claim: Tax Reform Can Signifcantly Accelerate Economic Growth

Since the 2016 Presidential campaign began, a number of candidates have touted tax reform – either overhauling or replacing the current income tax – as a way to promote economic growth. In fact, well-designed tax reform can and probably would promote economic growth; though perhaps not by as much as some of the candidates claim.

Both the Joint Committee on Taxation (JCT) and Department of Treasury have attempted to measure the economic impact of tax reform. Depending on the type of tax reform, official estimates suggest the size of the economy can be boosted by between 0.1 and 2.4 percent on average over 10 years. This is equivalent to a 0.02 to 0.5 percent change in the annual growth rate, which would increase projected average real economic growth to somewhere between 2.35 and 2.8 percent over the next decade.

Tax reform could help to promote growth in several ways. Most significantly, it can improve incentives to work and invest (increasing labor and capital supply, respectively) by reducing effective marginal rates and can reduce the crowd-out of productive investment by increasing revenue collection for deficit reduction. Tax reform can also eliminate distortions in the tax code to help money flow to activities and investments which produce more welfare or yield greater economic returns, reduce the cost of tax compliance and avoidance, encourage certain pro-growth activities such as research and development, or improve America's global competitiveness.

September 8, 2015

The New York Times Editorial Board's Teresa Tritch posted a piece last week on short-term solutions to avert next year's depletion of the Social Security Disability Insurance (SSDI) trust fund reserves. She opposes interfund borrowing that would loan money from the Old-Age and Survivors' Insurance (OASI) trust fund and instead supports reallocating tax revenue from one to the other. Although we don't have a stance on which is better, we couldn't help but notice that Tritch used many misleading claims to support her position, many of which we previously discussed in Dispelling Common Myths in the SSDI Debate and Debunking 8 Social Security Myths on its 80th Birthday.

Below, we correct the record where Tritch relied on myths:

  1. Reallocation "would enable both funds to pay full benefits until 2033, plenty of time" for action on long-term program health.
  2. Tritch is basically correct that reallocation would ensure combined solvency for about 20 years, with the Social Security Trustees estimating insolvency in 2034 and the Congressional Budget Office estimating around 2029. But there is not "plenty of time" for long-term action. The earlier that a plan is enacted, the more it can protect vulnerable beneficiaries, introduce changes gradually, and give people time to prepare. As the deadline gets closer, it becomes more difficult to avoid steep benefit cuts or tax increases. As we explained in Delaying Social Security Changes Ties Policymakers' Hands, a shortfall that could be solved with a 2.6 point tax increase or 16 percent benefit cut today would require a 4.0 point tax increase or 23 percent benefit cut if delayed until the date of insolvency. Indeed, if lawmakers wanted to protect current beneficiaries, it would be impossible to achieve solvency – even with fully eliminating benefits for new beneficiaries – by 2034. Even waiting ten years will hamstring the ability of lawmakers to make gradual changes which give beneficiaries time to plan and adjust.

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