Domestic Spending

Five Gimmicks Only Budget Wonks Get

The Bipartisan Budget Act of 2015, signed into law earlier this week, is fully offset over the next ten years, according to the scoring conventions of the Congressional Budget Office. However, we showed that the deal truly offsets only half its cost if you include interest costs and exclude the savings from several budgetary gimmicks. This blog explains the five gimmicks used in the deal.

Fiscal FactCheck: A 3-Year Spending Freeze Would Balance the Budget

This blog has also been posted at our Fiscal FactCheck website. Be sure to check out the site or find us on Twitter (@FiscalFactCheck) for more on the 2016 campaign.

Republican Presidential candidate Ben Carson has frequently talked about constraining the growing national debt, and this summer said that "you could balance the budget by just not spending one penny more than we do today each year for the next three years. No cuts, just no growth for three years. Surely, serious adults could agree on that." This claim is technically correct, but unrealistic as it lacks context of what it would actually take to freeze all spending.

According to CBO, the federal government spent $3.68 trillion in FY 2015, which would be $50 billion lower than the $3.73 trillion of projected revenue in 2018. Yet freezing total spending is not as easy as Carson suggests. It would mean allowing spending to erode relative to inflation, population growth, GDP growth, and other pressures. In fact, relative to projected spending, it would represent a $500 billion spending cut in 2018 alone – a 12 percent cut to total spending and 13 percent to non-interest spending.

Rigell Releases Sequester Replacement Plan

Congressman Scott Rigell (R-VA) released a plan today we might like even better than our own Sequester Offset Solutions (SOS) plan. Congressman Rigell's America First Act would permanently replace about three-quarters of the sequester-level cuts with a combination of mandatory spending cuts, Medicare reforms, limits on tax expenditures, and the savings and revenue from the adoption of the chained CPI. All told, it would reduce the debt by about $135 billion after a decade and according to our estimate nearly $2.5 trillion over twenty years.

Rigell's Plan would raise discretionary caps by about $630 billion over ten years and repeal $135 billion in mandatory sequester cuts, for a total cost of $765 billion. He would more than offset these costs with $820 billion of savings – including $620 billion from spending (and user fees) and $200 billion from tax revenue. He would also save $125 billion over ten years from Social Security, reducing the shortfall by approximately 15 percent.

To achieve these savings, Rigell's plan focusses largely on slowing the unsustainable growth of federal health spending. His plan includes over $450 billion of health savings. About one-third of this comes from beneficiary-oriented changes such as modernizing cost-sharing, restricting Medigap coverage, encouraging the use of generic drugs, and increasing means-tested Medicare premiums. Another half of the savings come from providers, where his plan would bundle payments for post-acute care, reduce hospital payments for medical education, equalize payments for services performed in different settings, reduce reimbursements for bad debts, and "rebase" nearly all payments to post-sequester levels.

The $165 billion of remaining spending reductions in the Rigell plan come from a variety of sources, many of which we recommend in our Sequester Offset Solutions (SOS) plan. For example, his plan would index various user fees to inflation, increase federal employee retirement contributions, increase PBGC premiums, and adopt the chained CPI for other spending, among other changes.

Fiscal FactCheck: The First Democratic Debate

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.

Clinton's College Affordability Proposal, Explained

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.

Funding Challenges Continue For Pension Insurer

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.

Senate Funding Bill Would Rely on OCO Gimmick

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.

How to Get This Year's Budget Process Back on Track

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

The SOS plan consists of four parts:

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

Congress Might Gladly Pay You in 2022 for Sequester Relief Today

A recent press report (paywall) indicates that Republicans may be looking to pay for increased defense spending next year by promising defense cuts starting in 2022. This type of approach to sequester-level cap replacement is at best disingenuous and at worst a blatant gimmick.

The report suggests the possibility of sequester relief in Fiscal Years 2016 and 2017 paid for with extended and lowered caps from 2022 to 2025. Although the press report didn’t specify how this sort of trade off would work, there are three basic possibilities:

The first would be to offset cap increases in 2016 and 2017 by extending the spending caps beyond 2021 below the level the Congressional Budget Office (CBO) assumes (the 2021 cap adjusted for inflation). While this could be technically argued as a legitimate offset, there is little reason to believe that Congress would reduce discretionary spending below an extension of the sequester-level caps in future years when they want to raise those sequester-level caps today. This would be the budgetary version of Wimpy's “I’ll gladly pay you Tuesday for a hamburger today.”

The other two possibilities would rely on an even more blatant gimmick by claiming savings relative to an artificially-inflated baseline. One of these approaches would involve using the President’s budget assumption that discretionary spending bounces back to pre-sequester levels after 2021 and claim savings relative to that baseline.

CBO Forecasts Costs of Climate Change

The Congressional Budget Office (CBO) has released new estimates of the cost of climate change, specifically as it relates to hurricanes. The report forecasts hurricane damage in 2075 to cost an expected $156 billion in today's dollars, more than five times larger than costs under current climate conditions. Hurricane damage in 2075 is forecasted to cost between $104 billion and $226 billion annually, four to eight times larger than under current conditions.

The increased costs that CBO projects reflect two factors, which are captured in two different scenarios:

  • Rising sea levels and increased hurricane frequency and intensity as a result of climate change.
  • Greater coastal development, which increases the value of property at risk from hurricanes.
Expected Annual Cost of Hurricane Damage (Billions, 2015 Dollars)
  2025 2075
Under current conditions (baseline) $29 $29
Scenario with climate change only $32 $60
Scenario with climate change and increased coastal development $37 $156

Source: CBO

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