The Bottom Line

August 7, 2015

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

At last night’s Republican presidential debate in Cleveland, 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 released yesterday with Fix the Debt, many others touched on important fiscal policy topics. Below contains our analysis of these new claims.

1. Reagan expanded Medicaid "three or four times"

Gov. John Kasich (R-OH) defended his decision to accept the Medicaid expansion in his home state of Ohio in part by saying that “President Reagan expanded Medicaid three or four times.”

This statement is true. President Reagan signed legislation expanding Medicaid on several occasions. From 1982 to 1988, Reagan signed legislation mandating coverage for children and pregnant women receiving cash assistance, mandating emergency treatment of illegal immigrants who would otherwise be eligible for Medicaid, and expanding the low-income populations that states could choose to cover, among other expansions. For more information, see a brief history of Medicaid from the Kaiser Family Foundation.

August 6, 2015

As the 2016 election officially kicks off with the first Republican presidential primary debates in Cleveland tonight, our friends over at Fix the Debt will be live-tweeting both debates along the way.

August 6, 2015

The next President will need to confront a number of budgetary challenges and will likely sign into law many federal tax and spending changes. But election campaigns are often about telling voters what they want to hear rather than what they need to know. Today we released our new report, Fiscal FactCheck: 16 Budget Myths to Watch Out For in the 2016 Campaign, in which we identified 16 myths that may come up during the campaign. The myths span things we think candidates from both parties may say or have said about matters related to our national debt, taxes, health care, Social Security, and one-size-fits-all solutions that they think will dismiss the need for real action. The myths report is the first of a Fiscal FactCheck series that will fact check candidates on their statements throughout the 2016 campaign.

The 16 myths are:

August 6, 2015
Debunking Budget Myths Before They Become Part of 2016 Campaign

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.

Politicians tend to want to give easy answers and painless solutions to budget problems, which means that budget myths abound.

August 6, 2015

Lawmakers have so far been reluctant to pay for the group of temporary tax cuts known as the "tax extenders," instead generally just adding the cost of extending them to the debt in recent years. And often, they reach for excuses not to pay for extensions, sometimes even claiming that the positive economic effects of the extenders would generate enough revenue to pay for themselves (or at least a significant part of the cost). However, the Joint Committee on Taxation (JCT) in a new estimate now shows that dynamic scoring would only signal a slightly smaller cost for the tax extenders than a conventional score would.

The JCT estimate looks at the Senate Finance Committee extenders package, which revives the extenders for 2015 and extends them through 2016 at a cost of $97 billion (the previous $95 billion cost included $2 billion of revenue-raisers that were used in the highway/veterans' law). JCT finds that the business provisions, in particular bonus depreciation, would increase business capital by 0.3 percent in the first five years and would increase output by 0.1 percent. Later in the ten-year period, the effects would fade and in the second and third decades would turn negative as a result of the increased debt caused by enactment.

August 5, 2015
Why Health Cost Growth Increases after Estimators Say it’s Slowing: Observer Effects and Feedback Loops

Dr. Eugene (Gene) Steuerle is the Richard B. Fisher chair and Institute Fellow at the Urban Institute and a member of the Committee for a Responsible Federal Budget.  He wrote a commentary this week on his blog - The Government We Deserve. It is reposted below.

"Health cost growth has slowed down, we think. So let's increase health costs." This is the federal government’s apparent response to some recent sanguine estimates about the future of health cost growth. We might call this response a policy version of the “observer effect,” where the mere observation of reality changes that reality. In this case, the observation that health care costs may be increasing more slowly than expected creates a political reality in which fewer efforts are exerted to keep costs under control.

Projections based on past historical trends are fraught with danger. The influence of government policy sits near the top of that danger list. Since federal and state spending plus tax subsidies now cover about 60 percent of the health care budget, government legislation decides much of what the nation will pay for health care.  Speaking technically, policy is endogenous to—or influential on—the past trends we measure.

August 4, 2015

The Chicago Tribune Editorial Board recently highlighted First Budget -- an initiative co-sponsored by the Campaign to Fix the Debt and the Concord Coalition -- in a piece titled "The Next President's Debts." First Budget aims to make solving the nation’s debt problem a high priority for the 2016 presidential candidates.

What is First Budget doing? The Chicago Tribune Editorial Board explains the premise of the group:

Haven't heard of First Budget? You would if you attended candidates' events in ... early caucus and primary states. The nonpartisan group's respected ancestors include the Concord Coalition, Fix the Debt and the Committee for a Responsible Federal Budget, aka CRFB. Its members are pressing, politely but relentlessly, for answers about America's perilous finances from the men and women who would be our 45th president.

August 4, 2015

Steven Rattner wrote an article in yesterday's The New York Times discussing the financial problems facing millennials. Rattner writes that millennials, those currently aged between 18 and 34 years old, are expected to earn less than previous generations and face greater college debts. Looking further out, the rising national debt means this generation is likely to face a combination of higher taxes and lower benefits than generations before them.

In line with Rattner's argument, we’ve written previously about how waiting to reduce the debt increases the costs of doing so and shifts the burden onto fewer people.

Rattner acknowledges that the bleak outlook for millennials is partly the result of bad timing, noting that “those who graduate in weaker economic times typically earn less than those who enter the work force during more robust periods. Starting behind often means never catching up.” He also cites large increases in student debt as weighing on their future prospects.

August 3, 2015
Social Security disability reform: An issue that can’t wait

Former U.S. Representatives Jim McCrery (R-LA) and Earl Pomeroy (D-ND) are the co-chairs of the McCrery-Pomeroy SSDI Solutions Initiative, a project of the Committee for a Responsible Federal Budget. They wrote a commentary that appeared on The Hill's Congress Blog. It is reposted here.

When it comes to shoring up the Social Security Disability Insurance (SSDI) trust fund, one thing is certain: Time is running out.

The Social Security trustees recently released their annual report on the financial state of the trust funds, and the findings confirmed what many have known for a long time – that the SSDI trust fund faces imminent depletion. Lawmakers have a little over one year to figure out how to fund scheduled disability benefits before the program is forced to enact across-the-board cuts of nearly 20 percent. As former chairmen of the House Ways and Means Subcommittee on Social Security, we see this as both a serious issue that needs to be quickly addressed as well as an opportunity to make improvements to the program.

The trustees first made their prediction about the 2016 exhaustion date 20 years ago; little has changed for the program’s finances since. Failure to act on these warnings has left policymakers with limited options to avoid DI insolvency, which serves as a reminder of the dangers of delaying decision-making on Social Security financial challenges. The recent Trustees report warns that the old age and survivors trust fund faces greater long-term shortfalls than the disability trust fund, with the expected depletion in combined insolvency date in 2034.

August 3, 2015

The beginning of the 114th Congress was marked by a great deal of rhetoric about fiscal responsibility and passage of a budget resolution promising a balanced budget within ten years. Now that Congress has adjourned for the August recess it is timely to examine how their actions have compared to their rhetoric. Unfortunately, almost all of the legislative actions taken so far this year directly affecting spending or revenues would increase the deficit.

After adding $100 billion to the debt last year, so far they have added $180 billion to the debt through 2025 this year, and there is a high probability that Congress will add even more to the debt by the end of the year. Here's how they've done it this year.

The centerpiece of the deficit increase is the physician payment law (HR 2) that replaced the Sustainable Growth Rate (SGR) formula with steady payment increases and incentives for using alternate payment models. The law only included offsets for about one-third of the gross costs, thus adding $141 billion to deficits through 2025. Although some defenders of the legislation replacing the SGR argue that the costs of the bill over ten years will be offset by savings over the long term, the bill would add $500 billion to debt over the next 20 years and would not result in net savings in any single year for over 30 years.

August 3, 2015
Let's debate getting our fiscal house in order

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, and Mr. Sandy Cutler, chairman and CEO of Eaton Corp., wrote a commentary that appeared on Cutler also serves as a co-chair of the 2016 Republican National Convention and as a member of the Campaign to Fix the Debt CEO Fiscal Leadership Council. The column is reposted here.

The 2016 presidential primary debate season is upon us, and on Thursday, Republicans will kick things off with their first debate in Cleveland. As the horse race continues, with GOP presidential hopefuls jockeying to be among the 10 selected debate participants, it is important that Ohio and the rest of the country not lose sight of one of the more important issues that should be discussed in the debate: the national debt.

This country's large and growing debt continues to hang like an albatross around the neck of the economy, making it difficult for the country to undergo a sustained recovery. Under current law, the federal debt held by the public is $13 trillion — 74 percent of GDP — or about $105,000 per household. And if nothing is done to change course, the debt will exceed the size of the entire economy in the next 25 years — perhaps even sooner.

Along with excessively high levels of debt will come slower income growth; fewer jobs; and rising interest rates on mortgages, student loans, and credit card payments; and there will be no room for important public investments. And record-high debt levels make it much harder to weather an economic crisis when one next comes along.

July 31, 2015

Charles Blahous, one of the public trustees for Medicare and Social Security, has released a Guide to the 2015 Social Security Trustees Report. The summary explains why Social Security's finances are unsustainable, citing rising beneficiary-to-worker ratios and growth in per-capita benefits, and urges policymakers to act now to fix the problem so that the required changes are not as sudden or burdensome.

Why are Social Security's Finances Unsustainable?

The summary outlines two underlying reasons for the unsustainability of Social Security's finances.

  • The beneficiary population is forecast to grow faster than the worker population. This rise is driven by the decline in birth rates over the past 50 years and because people are living longer but retirement ages have not been increased commensurately.
  • Per-capita benefits are scheduled to grow faster than inflation. This is because initial benefits grow with average wages, which tend to rise faster than inflation.


July 31, 2015

The Office of the Actuary (OACT) at the Centers for Medicare and Medicaid Services (CMS) has released its latest National Health Expenditure (NHE) projections. Although the latest numbers show that 2013 spending growth was very low at 3.6 percent, CMS continues to predict a pick-up in growth beyond that as the coverage expansions in the Affordable Care Act go into full effect and recent favorable trends at least partially reverse. The overall NHE projections are very similar to the previous ones in September of last year, with 2014-2023 health spending now about $95 billion (0.2 percent) lower than they previously estimated and spending as a share of Gross Domestic Product (GDP) slightly higher in the short term.

After recording the lowest spending growth in the post-recession period at 3.6 percent in 2013, NHE growth is estimated to have picked up to 5.5 percent in 2014 and is projected to remain around 5 to 6 percent in the years after that through 2024. Health spending will outpace GDP growth in every year over this period, particularly after 2018, although coverage is also expanding in the next few years as a result of the Affordable Care Act (ACA). As a result, NHE as a share of GDP will increase for the first time since 2009 from 17.4 percent in 2013 to 17.7 percent by 2014 and increase thereafter to 19.6 percent by 2024. While NHE growth shows somewhat of a bounceback from the low levels during and following the Great Recession, it would still generally be below the growth rates that prevailed for much of the 1990s and 2000s.

July 31, 2015
A simple pledge to tackle our exploding debt

Charlie Stenholm is a former member of Congress from Texas and is a member of the Committee for a Responsible Federal Budget. He wrote a commentary that appeared in The Hill. It is reposted below.

There is a group called Fix the Debt (of which, under full disclosure, I am supportive) that is working in Iowa, New Hampshire and South Carolina, using tried-and-true political tools: Their slogan is "What will your first budget look like?" and their T-shirts say "First Budget?"

All of the candidates for president, in both parties, are constantly being asked this simple question by an electorate that must educate itself in piecemeal fashion (i.e., we learn as we go which answers we like and which responses leave us questioning the capability of a candidate to solve very real challenges for our country). Perhaps highest on the list of challenges is our exploding long-term debt and what it will mean for the future of America. We need a new group of leaders committed to being serious about resolving our budget imbalance.

July 31, 2015
Medicare at Middle Age

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.

Medicare hits an important marker today — its 50th birthday. To make sure it reaches its 100th, policymakers must remain vigilant in improving the program for generations to come.

July 30, 2015

We commended the Senate last week for seeking a long-term solution to the highway funding shortfall and for funding its proposal with real offsets. That said, the bill's current form has a few problems. In particular, the bill actually worsens the structural mismatch between revenue and spending in the Highway Trust Fund (HTF) by increasing spending levels in the baseline without a corresponding increase in revenues and approving six years of funding but only paying for the first three, increasing the pressure for a future bailout of the fund. While the short-term patch passed by the House is more likely to become law in the near term, it is worth considering these issues in more detail because they are likely to arise again when negotiations on a long-term solution resume.

But before we jump into the problems with the Senate’s highway bill, it’s useful to revisit the unique budgetary treatment of the HTF.

The HTF’s unique budgetary treatment

As we wrote last year, highway spending is subject to a unique hybrid of discretionary and mandatory budgetary treatment which effectively allows it to sneak by budget rules. Currently, budget rules limit new discretionary spending through statutory caps on budget authority and limit new mandatory spending by applying pay-as-you-go (PAYGO) rules to mandatory outlays. However, highway spending evades both these limits since its contract authority counts as mandatory, meaning it is not subject to PAYGO, while its outlays count as discretionary.

July 29, 2015

The Committee for a Responsible Federal Budget has named three of the nation's foremost budget experts as its new co-chairs: Mitch Daniels, Leon Panetta, and Tim Penny. We are confident that the organization, as well as fiscal hawks across the country, will benefit greatly from their leadership.

“We are uncommonly lucky to have these three great leaders join together to lead the Committee for a Responsible Federal Budget,” said Maya MacGuineas, president of the Committee. “Between them, they have written several books; led states, congressional committees, and federal agencies; and headed the Office of Management and Budget — not to mention all being well-known leaders in calling for fiscal responsibility.”

July 29, 2015

Last week, the Social Security and Medicare Trustees released their annual reports on the long-term finances of each program, showing that those programs remain financially unsound and on the road toward insolvency. As part of the reports the public trustees, who are appointed members of the public rather than agency heads, release a statement highlighting their thinking around key issues surrounding the trust funds. Three issues stand out in this year’s statement: the need for prompt action to solve the impending exhaustion of the Social Security Disability Insurance (SSDI) Trust Fund; the need for near-term action to solve the imbalance in the Old-Age and Survivors Insurance (OASI) Trust Fund; and the importance of maintaining and building on measures to control Medicare cost growth.

The Impending SSDI Crisis

We’ve written many times about the impending exhaustion of the SSDI trust fund and the need for reform. Given the immediateness of this problem, the trustees note that:

"It is impracticable to reduce DI costs sufficiently to prevent imminent Trust Fund depletion (and thus, sudden benefit reductions for highly vulnerable individuals) without at least a temporary increase in DI Trust Fund resources, irrespective of its source or combination with other measures."

July 29, 2015

Before Congress leaves for August, they must pass a transportation bill extending highway programs and transferring additional money into the Highway Trust Fund. The House posted a revised version of their transportation bill yesterday, which continues to responsibly offset the transfer to the Highway Trust Fund but adds in two deficit-financed tax cuts for veterans. The bill is expected to be voted on today, and Senate Majority Leader Mitch McConnell (R-KY) says the Senate will consider the bill after it is passed by the House.

The previous House bill used a variety of programs to pay for transferring $8.1 billion into the Highway Trust Fund, projected to be enough to continue current highway spending for five months, and presumably, allow Congress to continue negotiations over highway spending when they return in September. The revised bill keeps the same transportation section, although it only extends programs for three months, rather than five. Highway programs would need to be reauthorized by October 29, but Congress would likely be able to pass another extension through December without transferring additional money into the Highway Trust Fund.

However, the revised transportation bill also includes a new section on veterans, which refines and expands some veterans health programs, limits others, allows $3.3 billion of the Veterans Choice program to cover shortfalls within the VA health system, and enacts two small tax cuts. One of these cuts would exempt employers from counting veterans against the employer mandate, so veterans that already have access to health care will not count against the 50 employees that normally would require an employer to offer health insurance to their employees. The other tax cut allows veterans with service-connected disabilities to obtain health savings accounts, despite having medical coverage that would normally disqualify them.

Provisions in July 28 House Transportation & Veterans Bill
Policy Savings/Costs (-)
Transportation Section $0 billion
Transfer $8.1 billion into the Highway Trust Fund -$8.1 billion
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
Veterans Section  -$1.2 billion
Transfer funds from Veterans Choice program to cover VA shortfall $0 billion
Exempt from the employer mandate servicemembers and veterans who already have health insurance -$0.8 billion
Allow veterans to qualify for health savings accounts, even if they receive VA care -$0.4 billion
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