The Bottom Line

October 19, 2015

September 30th marked the end of the Fiscal Year, and the final numbers are in.  The deficit for last year was $439 billion, according to the final report by the Treasury Department (a previous estimate from the Congressional Budget Office (CBO) had projected the deficit at $435 billion). We've released a short paper FY 2015 Deficit Falls to $439 Billion, but Debt Continues to Rise that shows even though this is roughly 10 percent below the FY 2014 deficit and nearly 70 percent ($439 billion) below its 2009 peak ($1.4 trillion), the country remains on an unsustainable fiscal path.

Click here to read the full paper

The decline in deficits from 2009 to 2015 was largely expected as a result of the recovering economy and the fading of measures intended to boost the recovery. While legislated spending reductions, tax increases, and other factors have played a role in reducing short-term deficits, the long-term challenge is still largely unaddressed: growing mandatory spending and relatively flat revenue are projected to cause deficits and debt to rise over the next decade and beyond, with trillion-dollar deficits returning by 2025, if not sooner.

October 15, 2015

Republican Presidential candidate Gov. John Kasich (R-OH) has released an "Action Plan" that plots a path to (on-)budget balance by 2025. Perhaps not surprisingly for a former House Budget Committee chairman, his plan is more akin to a Congressional budget resolution, laying out numbers and some specifics but not all of the policies necessary to get to those numbers. His plan includes reforming the tax code, downsizing some federal programs, retaining non-defense discretionary spending restraint, and provides general ideas for Medicare. Overall, it is an encouraging commitment to deficit reduction, and we look forward to seeing more details to achieve the savings he calls for.

Kasich's plan calls for the on-budget deficit – the deficit excluding Social Security and the Postal Service – to be eliminated by 2025, leaving about a $250 billion total budget deficit. His plan calls for $2.6 trillion of savings through 2025, mostly concentrated in health care and apparently revenue. These savings would put debt on a downward path to 67 percent of Gross Domestic Product (GDP) by 2025, about 10 percentage points lower than CBO's baseline.

Kasich's tax reform plan intends to raise $1 trillion of revenue through 2025, judging by its revenue totals, despite specifically mentioning cutting taxes and detailing many more changes that would cut taxes than ones that would raise taxes. It is not clear whether the plan relies on aggressive assumptions about economic growth to raise revenue or relies on reducing unspecified tax breaks.

October 14, 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.

Last night marked the first Democratic Presidential debate, held in Las Vegas, and the candidates debated a number of different issues. While they did not mention any of our 16 Budget Myths to Watch Out For in the 2016 Presidential Campaign, there were other claims that related to the federal budget. Below is our analysis of these claims, and be sure to check our other fact checks of the first and second Republican debates.

Eliminating the Payroll Tax Cap Could Extend Solvency to 2061 and Allow for Expanded Benefits

Sen. Bernie Sanders (I-VT) discussed his plans to increase Social Security benefits and extend the program's solvency by saying "And the way you expand it is by lifting the cap on taxable incomes so that you do away with the absurdity of a millionaire paying the same amount into the system as somebody making $118,000. You do that, Social Security is solvent until 2061 and you can expand benefits." He is presumably referring to his plan that the Social Security Administration (SSA) evaluated in 2013, a plan that taxed all income over $250,000 and allowed the current payroll tax cap to eventually catch up so that all income was taxed. This plan did extend solvency to 2061 -- leaving a deficit of 1.5 percent of payroll in 2062, growing to 2 percent by 2090 -- but did not also increase benefits. If it had increased benefits, the insolvency date would be sooner.

October 14, 2015

In an op-ed for the Washington Post, Robert Samuelson called attention to a new report by the National Academies of Sciences, Engineering, and Medicine which found a notable increase in the life expectancy gap. In his piece, Samuelson points out the disparity means more federal spending going towards wealthy retirees who may not need help.

October 13, 2015

This blog is part of a series of "Policy Explainers" for the 2016 presidential election, where we will explain some of the candidates' policy proposals that affect fiscal issues.

One of Democratic presidential candidate Hillary Clinton's first major policy proposals focused on college affordability. Called the "New College Compact," Clinton offered a two-pronged plan that aims to reduce costs for new students and reduce debt for past students. The plan is fully paid for and includes several ideas that have already been suggested by policymakers.

The Basics

The two major goals of Clinton's plan aim to make college more affordable for both new and current college students and lessen the burden of student loan debt by: (1) controlling the rising costs of higher education and (2) reducing educational debt for those already with student loans.

October 13, 2015

A recent Wall Street Journal article highlighted the shortfalls facing the Pension Benefit Guaranty Corporation (PBGC), which guarantees defined-benefit pensions in the private sector. The financial condition of PBGC has improved due to a recovering economy and increased premiums brought about in the Murray-Ryan budget agreement. In 2013, before the agreement, the projected ten-year shortfall of the PBGC was $32 billion in 2013; it was $7.6 billion in 2014 after the agreement.

Nonetheless, the PBGC continues to face funding challenges. The improvement in PBGC finances has only delayed the date by three years at which the multiemployer fund is projected to be exhausted (with the expected date in 2025 instead of 2022), meaning that further action by policymakers will be necessary to ensure the PBGC can meet its commitments without relying on a general fund bailout.

The PBGC is tasked with stepping in when pensions fail to provide minimum pension benefits and is financed by premiums paid by employers. The PBGC offers two insurance programs with different premiums, rates, and payout rules: one for single employer plans, and another for multiemployer plans. Lawmakers have already raised PBGC premiums twice recently, first in 2012 in the highway bill and again in 2013 with the Murray-Ryan budget agreement. Last year's CROmnibus also gave pension plans the authority to reduce benefits to avoid needing a PBGC bailout. Still, the multiemployer fund has financial problems.

In February, the Government Accountability Office (GAO) put out a report, estimating the PBGC had a combined financial long-term deficit of $61.8 billion for 2014. GAO’s report estimates PBGC’s potential future losses at $184 billion, mostly stemming from the multiemployer fund.

October 12, 2015

Republican presidential candidate Louisiana Governor Bobby Jindal announced his tax reform plan with a centerpiece that promises to ensure every American pays at least a little tax. The plan cuts taxes for individuals and eliminates the corporate tax and estate tax.  Finally, it taxes capital gains and dividends as ordinary income under three consolidated brackets. According to one estimate, the plan would cost $9 to $11.4 trillion, which represents about one-quarter of all government revenue.

Individual Income Tax Reform
Governor Jindal’s plan would consolidates the tax brackets from seven to three – 2 percent, 10 percent and 25 percent, with most citizens falling into the middle bracket of 10 percent instead of the 15 and 25 percent brackets they're taxed at today. This plan is similar to, but reduces rates more aggressively than, either Jeb Bush’s or Donald Trump’s plans.

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

  • Repealing the Alternative Minimum Tax (AMT)
  • Consolidating existing savings incentives into a tax-free savings account with a cap of $30,000 per year.  Currently uncapped accounts like 529 plans, would not be subject to the new restrictions.
  • Eliminating the marriage penalty (and increasing marriage bonuses).
  • Eliminating all Affordable Care Act taxes.

Jindal’s plan would be partially paid for by:

  • Eliminating the personal exemption and standard deduction, but adding a new, nonrefundable dependent credit
  • Eliminating all itemized deductions except for the charitable and mortgage interest deductions, while reducing the cap for the mortgage deduction by 50 percent.
  • Taxing all capital gains at ordinary rates (the top rate would increase from 23.8 to 25 percent)

Interestingly, this plan is one of the few campaign plans so far to address the largest tax break – the unlimited exclusion for employer-provided health insurance, which would be replaced with a new standard health deduction available to anyone with health insurance.

October 7, 2015

Lawmakers may be taking action to prevent a steep premium and deductible hike for some Medicare beneficiaries next year, but should make sure to be fiscally responsible in doing so. Although some lawmakers claim acting before October 15 will reduce the cost, in reality it will only hide the cost and thus increase deficits.

As we explained previously, Medicare premiums typically rise every year, but this time it's complicated by the fact that there will likely not be a Social Security cost-of-living adjustment (COLA) for next year. That will will put into motion a "hold harmless" provision that exempts most Medicare beneficiaries from the standard annual premium increase. As a result, other Medicare beneficiaries will shoulder the entire increase that would have been split by everyone, resulting in a 52 percent increase in premiums for those beneficiaries.

Lawmakers are considering options to avert the increase. The cost of any relief should be fully offset, but some lawmakers appear eager to take advantage of a quirk in Congressional Budget Office (CBO) scoring procedures that would allow them to avoid paying for most of the roughly $8 billion cost if they act before October 15. House Minority Leader Nancy Pelosi (D-CA) referred to this in her remarks at a press conference earlier today:

For reasons that I won’t go into – if we act by October 15th, this will cost the taxpayer less in the overall budget. If we act before October 15th, it will have less of an impact on states. We must act so that we stop the pain that will be inflicted upon our seniors.

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 three outside organizations have provided estimates of the plan, which 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.

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