The Bottom Line

September 2, 2015

Much of the press coverage of the updated projections issued by the Congressional Budget Office last week focused on the fact that the deficit would be $59 billion lower in FY 2015 than it was in FY 2014. But those headlines overlooked a major reason the deficit is projected to decline: Congress is waiting until after the fiscal year ends to revive a host of expired tax breaks. These tax breaks expired last year but are expected to be taken up by the end of the year, adding potentially over $150 billion to the 2016 deficit.

CBO's current law baseline, which assumes these "tax extenders" expire, shows deficits declining for the next two years. Given likely action on the extenders however, those projections may be unrealistic. If lawmakers continue the extenders for two years, as legislation approved by the Senate Finance Committee would do, the 2016 deficit would be about $150 billion (37%) larger than CBO's projections. Increased deficits means it's important to offset the cost for any action on extenders, unlike what lawmakers did last year.

Allowing these tax breaks to expire and retroactively extending them one or two years at a time is one way Congress masks the extenders' impact on the deficit. More than half of the deficit's drop between FY 2014 and FY 2015 is explained by the delay of Congress in extending these tax breaks beyond 2014. If the provisions had already been extended, the deficit would have only declined to $468 billion in FY 2015, instead of $426 billion. However, because the tax breaks will not show up on the government's balance sheet until FY 2016, their costs will be shifted. Ultimately, this would push the deficit in FY 2016 to $566 billion. One stimulus provision, bonus depreciation, represents 60 percent of the package's cost in the next two years.

September 1, 2015

CBO's recent budget projections show debt growing in the latter half of the decade as deficits widen. Entitlement spending will continue to grow as a result of an aging population and increased health care costs, and revenues are projected to remain relatively flat, leaving the budget with ever-growing deficits and increasing interest payments. By 2025, annual deficits will reach $1 trillion for the first time since 2012.

September 1, 2015

CBO’s latest budget baseline projects ten-year deficit numbers to be slightly smaller than previously estimated, despite the passage of legislation increasing the deficit. The biggest cause: a drop in projected interest rates, which lead CBO to revise down total interest spending by $385 billion, or about 7 percent, through 2025.

CBO now expects rates on three-month Treasury bills to be lower for the next three years before stabilizing at 3.4 percent in 2020, one year later than projected in January. CBO expects longer-term bonds to pay permanently lower interest rates, with ten-year notes ultimately reaching only 4.3 percent instead of 4.6 percent.

This downward revision represents the continuation of a trend we noted last year. Compared to its March 2011 projections, CBO now sees $2.2 trillion less interest spending over the 2011-2021 period, a drop of nearly 40 percent. About 90 percent of that drop is due to lower projections for interest rates and technical factors, and the rest is due to lower debt levels than projected in 2011.

August 31, 2015

The Bipartisan Policy Center (BPC) recently convened a Disability Insurance Working Group and released their recommendations to address the upcoming exhaustion of the Social Security Disability Insurance (SSDI) trust fund. The group brought together diverse stakeholders that spanned from disability community advocates and former policymakers to academics and business leaders to find consensus recommendations that involved tradeoffs from all perspectives of the situation in order to make a comprehensive proposal.

The Working Group, guided by 11 principles for their decision-making process, agreed that the immediate funding need would need to be addressed by reallocating payroll tax revenue from the Old-Age and Survivors' Insurance trust fund to the SSDI trust fund, and they also suggested the following program recommendations:

August 27, 2015

Our recent analysis of the Congressional Budget Office's (CBO) August baseline focused on CBO's official current law baseline projections, which show debt declining very slightly in the near term from 74 percent of Gross Domestic Product (GDP) this year to 73 percent by 2018 and then rising to 77 percent by 2025. As it turns out, however, the situation could be notably better or notably worse depending on how policymakers handle a few outstanding matters – many a part of the gathering fiscal storm Congress will face this fall.

If lawmakers ignore fiscal responsibility as they have been recently, debt will rise much more rapidly. In our paper we estimated an Alternative Fiscal Scenario (AFS) based on past assumptions CBO has used. The AFS extends expired and expiring tax provisions and permanently repeals the sequester-level discretionary spending caps. And under the AFS, debt will rise continuously every year from about 74 percent of GDP today to 78 percent by 2020 and 85 percent by 2025. Earlier this year, CBO estimated that this level of debt growth could shrink the economy by as much as 7 percent by 2040 compared to the baseline.

August 26, 2015

CRFB has released its analysis of CBO's latest ten-year budget projections, detailing the important facts from the report and how it has changed from previous estimates. As we noted earlier, the new baseline is very similar to the previous one released in March, showing a relatively subdued outlook for debt in the short term but growing deficits and debt for several years thereafter.

Click here to read our analysis.

Debt is projected to decline slightly in the near term from 74 percent of GDP in 2015 to 73 percent by 2018 before rising to 77 percent by 2025. Extrapolating further, we estimate that debt held by the public would exceed the size of the economy by 2040.

There is a similar story for deficits, which will fall to a low of 2.1 percent of GDP in 2017 before rising to 3.1 percent in 2020 and 3.7 percent in 2025, when the deficit will reach $1 trillion. These widening deficits in later years are the result of spending rising – driven by increases in health care, Social Security, and interest spending – while revenue stays largely flat.

August 25, 2015

The Congressional Budget Office (CBO) just released its August baseline, updating budget projections from March and economic projections from January. CBO continues to show debt on an unsustainable path, rising continuously as a percent of GDP after 2018. Combined with its long-term projections released last month, the agency shows the clear need to enact deficit reduction to avert a huge rise in debt over the long term. 

While debt will improve slightly in the near term, declining from last year's post-war record of 74 percent of GDP to 73 percent by 2018, it will then rise to 77 percent of GDP by 2025. Based on our calculations of the assumptions in CBO's Alternative Fiscal Scenario, debt will reach 85 percent of GDP by 2025. These estimates are very similar to the March projections.

Under CBO's current law projections, deficits will fall to $426 billion this year and a low of $414 billion in 2016, but then begin to rise with $1 trillion deficits returning in 2025. Over the course of the next decade, deficits will average 3.1 percent of GDP, including 3.7 percent of GDP deficits in 2025. By comparison, the 50-year historical average level for deficits is 2.7 percent of GDP.

August 24, 2015

On Tuesday, August 4, 2015, the McCrery-Pomeroy SSDI Solutions Initiative hosted its SSDI Solutions Conference, presenting the 12 papers commissioned by the initiative as well as various discussions around improvements that can be made both to the program and to the larger role that government plays in supporting people with disabilities. The day-long conference, attended by nearly 200 people and watched via livestream by over 900, featured remarks from Senate Finance Committee Chairman Orrin Hatch (R-UT) and Center for Budget and Policy Priorities (CBPP) President Bob Greenstein, panel discussions with the authors and disability research experts, and a closing panel discussion with the Co-Chairs and Social Security experts. With the Social Security Disability Insurance (SSDI) trust fund set to exhaust its reserves by the end of 2016, many experts have begun discussing long-term changes that could be paired with short-term funding options that alleviate the impending 19-percent across-the-board cut to benefits if nothing were to be done. The program for the event can be found here.

The event kicked off with opening remarks from Congressmen Jim McCrery (R-LA) and Earl Pomeroy (D-ND), co-chairs of the initiative, discussing the opportunity presented by the imminent legislative action needed on SSDI. Both stressed that no idea would be perfect nor would any idea alone solve the problems facing the program, but they envisioned these ideas as part of a broader discussion to improve SSDI both financially and effectively for the people who rely on it. While avoiding trust fund exhaustion may be the reason for the congressional action that will take place in the next year, the co-chairs reiterated their commitment to making the SSDI Solutions Initiative about helping people with disabilities.

August 24, 2015

CBO released its estimate of the economic effects of the President's budget late last week, doing dynamic scoring for the President's budget. Like last year, CBO finds that the budget would mostly affect the economy through immigration reform. Overall, the budget would increase real GNP by 1.1 percent on average over the next ten years and by 2.4 percent in 2025 alone. At the same time, it would reduce real GNP per capita by 0.7 percent by 2025 since the increase in population from immigration reform would outpace the real GNP effects.

Since CBO's original estimate already took the labor market effect of immigration reform into account, the primary new information is an analysis of other ways the budget affects growth (including other effects from immigration reform). CBO's estimate lists changes to other economic factors, including short-term aggregate demand, marginal tax rates on labor and capital, national saving, and interest rates.

August 24, 2015
Ensuring Social Security’s Future

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 a letter to the editor published in the New York Times as a response to a column by Paul Krugman. Gregg's letter is reposted here.

August 21, 2015
Could income-share agreements help solve the student debt crisis?

Mitch Daniels is the president of Purdue University, a former governor of Indiana, a former director of the Office of Management and Budget, and a co-chair of the Committee for a Responsible Federal Budget.  He wrote an op-ed that appeared in the Washington Post. It is reposted below.

Anyone who is unaware that we face a massive problem involving college student debt, contact Earth at your first convenience. The troubling facts are almost universally known: After tripling in 10 years, this debt totals more than $1.3 trillion, which is more than the debt for credit cards, auto loans and any other category except home mortgages. Default rates parallel those for the subprime housing loans of the financial crisis, and the debt numbers show no signs of decelerating, growing again this year by an estimated 8 percent.

August 20, 2015

Lawmakers have dealt with several Fiscal Speed Bumps – budgetary deadlines – throughout the year, but quite a few will appear over the next few months, making for an eventful fall. CRFB's latest report, "The Gathering Storm: Fiscal Clouds Amass This Fall" details what policymakers have to address and the stakes associated with each remaining Speed Bump.

Click here to read the full report.

There are four big deadlines remaining for the rest of 2015:

  • The end of 2015 appropriations and return of sequestration (October 1)
  • The expiration of the highway bill and insolvency of the Highway Trust Fund (October 30)
  • The exhaustion of extraordinary measures to avoid raising the Debt Ceiling (mid-Fall)
  • The deadline to renew tax extenders retroactively (December 31)
August 19, 2015
Reforming Disability Policy: Tough Choices Required

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 last week on his blog - The Government We Deserve. It is reposted below.

Setting disability policy is tough. Very tough. It’s tough empirically to measure and distinguish among degrees of disability or need. It’s tough legally and administratively to draw boundaries without excluding some sympathetic person or giving an inappropriate level of benefits to someone whose needs can’t fully be assessed. It’s tough economically to transfer resources to people with disabilities without setting up perverse incentives that separate them from the workplace and their fellow workers. It’s tough socially because the needs are so great.

Disability policy has gotten increased attention recently because the Social Security Disability Insurance (SSDI) trust fund is unable to pay our current benefits through 2016. But reform should involve more than money. By defining eligibility for benefits partly by the inability to work, SSDI and other federal disability policies effectively discourage recipients from trying to support themselves. If they work, they lose their benefits. This needs to be fixed. But how?

August 19, 2015

With Social Security’s recent 80th birthday behind us, a debate has arisen over whether or not Social Security benefits are "modest" for a typical retiree. Although this is not one of the 8 Social Security myths we addressed last week, it is a claim worth considering.

On one side of the debate is Bryann DaSilva of the Center on Budget and Policy Priorities (CBPP), who recently made the case that Social Security benefits are modest both in absolute terms and by international standards. On the other side is former Social Security Deputy Commissioner Andrew Biggs, who responded that Social Security's actual replacement rates – the amount of one's pre-retirement income it provides – are much higher than the numbers provided by SSA's chief actuary.

While much has been written on the right way to measure replacement rates,* there has been relatively little discussion about how Social Security compares internationally.

DaSilva's claim that benefits in the U.S. are “modest by international standards” stems from a 2013 piece by CBPP’s Kathy Ruffing that compares replacement rates provided by Social Security to those provided by similar programs in other Organisation for Economic Co-operation and Development (OECD) countries. Ruffing includes an excellent graph that shows the U.S. ranks “31st place among the 34 OECD member countries.”

August 19, 2015

Adam Rosenberg, a policy analyst with the Committee for a Responsible Federal Budget, wrote a guest post that appeared on the RealClearPolicy blog. It is reposted here.

This month marks the 80th birthday of the Social Security program. For decades, the program has been a vital lifeline for retirees, the disabled, and their families and has lifted tens of millions of Americans out of poverty. 

The program faces financial problems, though. The Disability Insurance trust fund is expected to deplete its reserves in late 2016, and even if its finances are intermingled with the old age program, the combined Social Security trust funds are projected to go insolvent by 2034. When these trust funds run out of money, benefit payments will need to be cut or delayed to hold spending to incoming revenue. 

Making Social Security financially secure will require an informed debate about the choices involved, but myths are often recited to obstruct progress on reform. Here are 4 common myths.

August 17, 2015

The McCrery-Pomeroy SSDI Solutions Initiative newly released an issue brief on the financial state of the SSDI program, the third primer in its series on the Social Security Disability Insurance (SSDI) program. After the 2015 Social Security Trustees' Report, more attention has focused on the upcoming shortfall in SSDI funding at the end of 2016 when the program will only be able to pay out 81 percent of scheduled benefits with the payroll tax revenue it receives. This is one of the Fiscal Speed Bumps that lawmakers will need to navigate by the end of the 114th Congress.

The brief examines how SSDI is funded, analyzes the short-term funding gap facing the program, and explores the long-term funding challenges due to the evolving composition of the SSDI program. While there is an immediate funding need through the next few years, there is also a long-term shortfall that parallels the situation facing its Old-Age and Survivors' Insurance counterpart: insufficient revenues to pay out scheduled benefits.

Below is an excerpt from the brief:

Source of Revenue and Spending in the SSDI Program
The Social Security Disability Insurance (SSDI) program is largely a self-funded, pay-as-you-go program which funds current benefits with tax revenue from current workers. Revenue for the program comes primarily from a 1.8 percent payroll tax on a worker’s first $118,500 in earnings (indexed to average wage growth) – 0.9 percent is paid each by the employee and employer. These funds, along with a small amount of money from the partial income-taxation of benefits and interest on trust fund assets, are used to pay benefits to workers with disabilities and their dependents and fund the program’s modest administrative costs.

August 14, 2015

Today marks Social Security's 80th birthday, celebrating the anniversary of the establishment of the old-age portion of the program in the Social Security Act of 1935. To kick off the celebration, CRFB released a new report yesterday, "Debunking 8 Social Security Myths on Its 80th Birthday," that seeks to clear up the conversation about the program.

The 8 myths are:

  • Myth #1: Social Security does not face a large funding shortfall
  • Myth #2: Today’s workers will not receive Social Security benefits
  • Myth #3: Social Security would be fine if we hadn’t “raided the trust fund”
  • Myth #4: Social Security cannot run a deficit
  • Myth #5: Social Security has nothing to do with the rest of the budget
  • Myth #6: We don’t need to worry about Social Security for 20 years
  • Myth #7: Social Security reform is code for slashing benefits, especially for the poor
  • Myth #8: Social Security is too hard to fix
August 11, 2015

The three-month highway law that passed last month was intended to buy time for a more lasting solution for the Highway Trust Fund's finances, so it is encouraging to see Sen. Tom Carper (D-DE) propose a plan to do exactly that. His TRAFFIC Relief Act would gradually raise fuel taxes by 16 cents (bringing the gas tax to 34.4 cents and the diesel tax to 40.4 cents) and index them to inflation. However, the bill falls into the same trap as some other plans by double-counting the revenue going to the trust fund to pay for other tax cuts.

The bill would gradually increase fuel taxes by 16 cents over the next four years and index them to inflation once the 16 cent increase fully phases in. No official revenue estimate is available, but we estimate the fuel tax increases would raise around $200 billion over ten years, enough to fully close the Highway Trust Fund's projected $165 billion shortfall over that period and cover the spending authorized by the Senate highway bill that was considered in July. Importantly, because revenue would continue to grow each year, it would ensure a more lasting solution since revenue would be better able to keep up with spending if it grew with inflation. Because the tax increase is phased in, it would seem to require another revenue source in the short term, although presumably money could be loaned from the general fund and repaid in later years when trust fund revenue will exceed spending.

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.

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