The Bottom Line

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
July 28, 2015

The Washington Post yesterday issued Congress "a wise prescription for Social Security Disability Insurance," urging lawmakers to use the program's impending insolvency as an opportunity to enact longer-term structural reforms. The Social Security Disability Insurance (SSDI) trust fund is slated for depletion by the end of 2016, at which point benefits would be cut across the board by 19 percent. Lawmakers have repeatedly stated their intent to avert the cut for the nearly 9 million disabled workers and their nearly 2 million dependents who receive SSDI. Many expect that lawmakers will extend solvency by redirecting some of the funds currently going into the Old-Age and Survivors' Insurance (OASI) trust fund to SSDI, extending SSDI's solvency by 17 years according to the Social Security Trustees, while bringing forward OASI's insolvency date by 1 year.

The Post by contrast called on Congress to go beyond just clean reallocation and enact a reallocation “linked to structural changes” that would address flaws they see in the core design of the program:

The problem is that SSDI is far from functioning optimally; while most of the program’s rising cost is, indeed, due to demographics, not all of it is. As recent research in labor economics has shown, some of the growth is due to post-1984 program rules that made it easier to claim disability on the basis of mental or musculoskeletal ailments. Perversely, SSDI provides employers no incentive to keep individuals at work, earning wages, while providing those who get benefits no incentive to return to the workforce. As economist David Autor of MIT has written, “the SSDI program spends too few societal resources helping individuals with disabilities to remain employed and too many resources supporting the long-term dependency of individuals who could be self-sufficient with . . . appropriate accommodation and support.”

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.

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