Other CRFB Papers

CRFB Analysis of CBO’s January 2010 Baseline

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From CBO's January 2010 Budget and Economic Outlook, baseline estimates now show that public debt will increase from 53 percent of GDP in 2009 to 67 percent in 2020. Yet as troubling as this scenario is, it is almost certainly optimistic. If we assumed current policies were to continue as they have in the past, the debt would reach nearly 100 percent of GDP in 2020.

CRFB Supports Creating a Statutory Commission

CHAIRMAN
Bill Frenzel
Tim Penny
Charlie Stenholm

 
PRESIDENT
Maya MacGuineas
­­­
 
DIRECTORS
Barry Anderson
Roy Ash
Charles Bowsher
Steve Coll
Dan Crippen
Vic Fazio
Willis Gradison
William Gray, III
William Hoagland
Douglas Holtz-Eakin
Jim Jones
Lou Kerr
Jim Kolbe
James Lynn
James McIntrye, Jr.
David Minge
Jim Nussle
Marne Obernauer, Jr.
June O'Neill
Rudolph Penner
Peter Peterson
Robert Reischauer
Alice Rivlin
Martin Sabo
Gene Steuerle
David Stockman
Paul Volcker
Carol Cox Wait
David M. Walker
Joseph Wright, Jr.
 

SENIOR ADVISORS
Elmer Staats
Robert Strauss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


CRFB Supports Creating a Statutory Commission
January 25, 2010
 

The Committee for a Responsible Federal Budget (CRFB) supports creating a statutory commission to help deal with the nation’s budgetary challenges.

As part of the discussion on whether to increase the debt ceiling, the Senate is scheduled to vote this week on an amendment offered by Senator Kent Conrad (DND) and Senator Judd Gregg (R-NH) to create a task force that would make specific recommendations for how to address the nation’s fiscal imbalances. President Obama endorsed the commission this weekend.

It has long been the Committee for a Responsible Federal Budget’s preference that Congress directly addresses these urgent budget challenges, but given the seeming unwillingness to do so under regular order, CRFB thinks a commission would be beneficial.

“A commission is certainly not a cure-all,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “Our leaders must still make hard tax and spending choices, and sell them to the American people. But a commission can help to jump-start the critical process of crafting a sensible fiscal plan for the country, and make that process just a little bit easier.”

A budget commission offers a number of potential advantages including:

  • Sending a credible signal to creditors and financial markets that the US is serious about tackling its fiscal challenges 
  • Establishing a shared fiscal goal
  • Creating a bipartisan forum in which to discuss budget issues
  • Establishing a process to ensure that the recommendations are considered
  • Lending political cover

“The country now faces both medium- and long-term budget challenges. A commission will probably need to work toward two goals: stabilizing the debt in the medium term, and then bringing it down to manageable levels over the longer term,” MacGuineas said.

“The most important ingredient for success is that there is bipartisan buy-in. Nothing should be taken off the table in establishing a commission, both to help facilitate broad buy-in and because the problem is so large that all policy options will have to be considered” said MacGuineas.

 

Click here for a pdf version of this release.

For press inquiries, please contact Kate Brown at (202) 596-3365 or brown@newamerica.net.

 

Controlling Discretionary Spending

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Over the past decade, discretionary spending has grown faster than mandatory. Between 1999 and 2008 discretionary spending grew annually, on average, by 7.5 percent – from less than $570 billion to over $1.1 trillion. Although the CBO baseline makes it appear as if discretionary spending will grow only modestly, more realistic assumptions tell a different story. Just holding discretionary spending growth to inflation would be a positive step. In the 1990s, it was these types of caps, along with pay-as-you-go rules, strong economic growth, slower-than-usual health care cost growth, and a commitment to deficit reduction that led to budget surpluses.

Follow the House's Lead: Pay for the Extenders

CHAIRMAN
Bill Frenzel
Tim Penny
Charlie Stenholm

 
PRESIDENT
Maya MacGuineas
­­­
 
DIRECTORS
Barry Anderson
Roy Ash
Charles Bowsher
Steve Coll
Dan Crippen
Vic Fazio
Willis Gradison
William Gray, III
William Hoagland
Douglas Holtz-Eakin
Jim Jones
Lou Kerr
Jim Kolbe
James Lynn
James McIntrye, Jr.
David Minge
Jim Nussle
Marne Obernauer, Jr.
June O'Neill
Rudolph Penner
Peter Peterson
Robert Reischauer
Alice Rivlin
Martin Sabo
Gene Steuerle
David Stockman
Paul Volcker
Carol Cox Wait
David M. Walker
Joseph Wright, Jr.
 

SENIOR ADVISORS
Elmer Staats
Robert Strauss
 
 
 


Follow the House's Lead: Pay for the Extenders
December 10, 2009



Yesterday, the House passed a $31 billion “tax extenders” bill to renew a number of tax rates for another year. The last minute passage of this legislation is part of an all too regular end of year crunch, since a number of expiring tax and spending provisions have not yet been renewed.

Often in the past, in the rush to leave town for the holidays, the House and Senate have simply extended the programs for a year without regard for cost. We commend the House for fully offsetting the costs of their tax extenders bill, but worry that other changes may be deficit-financed. This year, given the fiscal crisis facing the nation, we urge Congress to avoid the easy solution and find ways to offset the full cost of their actions.

“Ideally, policymakers would sit down and make rational decisions about what provisions are worth keeping in the first place,” said Maya MacGuineas, President of the Committee for a Responsible Federal Budget. “But if they are going to insist on a band-aid solution, the least they could do is pay for it.”

Among the other major items likely to be extended are:

  • An Alternative Minimum Tax (AMT) Patch. Because the AMT is not indexed to inflation, it threatens to hit an increasing number of middle-income and upper-income earners each year. To avert this scenario, Congress regularly “patches” the AMT. Last year’s patch, enacted as part of the stimulus bill, cost almost $70 billion.
  • A Medicare Physician Payment Update. Under current law, payments to physicians are scheduled to fall by 21 percent next year. In past years though, policy makers have replaced these cuts with a payment freeze or a small increase. A one-year fix would probably cost more than $10 billion.


 

 


  • Unemployment Benefits. The American Recovery and Reinvestment Act (ARRA) both extended and expanded unemployment benefits significantly. This program is set to expire at the end of the year. Unemployment rates remain persistently high and Congressman Jim McDermott has introduced legislation which would extend these benefits through March of 2011. According to press accounts, this would cost about $85 billion.
  • COBRA Subsidies. The ARRA also included a 65 percent subsidy for unemployed workers who held on to their health care benefits through COBRA rules. Since these subsidies could only be taken for nine months, they have recently lapsed for some individuals; and by the end of the year, no new individuals will be eligible for the subsidy. According to press accounts, renewing these subsidies would cost about $15 billion.
  • The Estate Tax. Under current law, the estate tax is expected to disappear at the end of the year, and then come back the next year, with a higher rate and much lower exemption than currently exists. Few policymakers or experts support this disappearing-reappearing act. Keeping it at 2009 levels next year would actually raise money. But if such a freeze were made permanent, as the House has proposed, it would cost almost $235 billion over the next decade.
  • Payments to Seniors. Because prices have fallen, Social Security beneficiaries will receive no cost of living adjustment (COLA) this year. This has led the administration and others to call for a second round of the $250 payments to seniors originally enacted in the ARRA. These payments would likely cost a little less than $15 billion.

Including the tax extenders bill, renewing these measures could cost more than $225 billion, mostly spent over one year. Fortunately, the tax extenders legislation was passed with offsetting revenue raisers.

“Kudos to the House for paying for this policy” said MacGuineas.

But Congress may use gimmicks to pay for some of these other measures (for example, using TARP money), and might not offset other changes at all. Congress should avoid such tactics and simply pay for whatever legislation they pass.

“Two hundred and twenty-five billion dollars? It seems like every year is worse than the last,” MacGuineas said. “When the Bush tax cuts expire next year, we’ll be talking about trillions. We’re in fiscal trouble here, and I don’t see things getting any better without a major change of course. Let’s at least make sure we aren’t making things worse.”


Click here for a pdf version of this release.

For press inquiries, please contact Kate Brown at (202) 596-3365 or brown@newamerica.net.

 

Op-Ed: Congress' Bad Record of Passing Appropriations Bills Shows Need for Budget Process Reform

The Hill | Dec. 10, 2009

 

In the next few days, the House and Senate will engage in their usual end-of-year dance and vote on two massive omnibus appropriations bills to keep the government funded. The bills will help avoid another series of stopgap Continuing Resolutions that have kept the lights on in much of the federal government since October 1—the start of the new fiscal year. Lawmakers, anxious to leave for the year and smelling the proverbial jet fumes, will consider the omnibus bills “must-pass” since they include seven of the “regular” appropriations bills needed to fund everything from veterans’ benefits to railroad safety.

Once again, the much-vaunted “regular order” has been thrown out the window. But in January, members will return to the Capitol and promise that things will be different. The appropriations bills will be finished on time. But will they? The last time Congress was able to complete all of the appropriations bills individually by the start of the new fiscal year was 1994. Republicans love to blame the Democrats for the mess and Democrats take every opportunity to blame the Republicans. But neither party has managed to find a way to make the trains run on time.

Now, this may all seem like inside baseball, but the impact is serious. Managers of federal programs, already well into developing their next year’s budgets, still do not have their final Fiscal 2010 funding levels. Then there’s the question of whether lawmakers seriously discuss federal priorities when spending programs are lumped into a huge piece of legislation. If Congress cannot not even pass the annual appropriations bills on time, how can we expect it to deal with the unsustainable fiscal path that awaits us over the next decade?

Is there a better way to do things? Can a process be developed that will work even with sharp partisan divides on Capitol Hill? The Peter G. Peterson Foundation, The Pew Charitable Trust and the Committee for a Responsible Federal Budget believe that there is a better way and have established The Peterson-Pew Commission on Budget Reform This commission will make recommendations for how best to improve the nation’s fiscal future.

Copyright 2009, The Hill

Five Steps to Cut the National Debt

Sphere | Dec. 10, 2009

 

Earlier this week, lawmakers confirmed that they will increase the national debt ceiling by as much as $1.8 trillion – raising it to more than $13 trillion – so the federal government can keep borrowing to cover its huge deficit.

As daunting as those numbers are, Congress has no choice. Fail to raise the debt limit and the government would default on its debt, sparking an immediate financial and economic crisis far worse than the one we just experienced.

But raising the debt ceiling only postpones that crisis. And if lawmakers want to avoid it, they have to get serious about bringing the nation's debt under control.

In the last year alone, the total government debt grew from almost $10 billion to nearly $12 trillion. The total government debt is on course to reach 100% of GDP by the early 2020s. Such high debt levels are likely to slow economic growth, dampen wages and harm jobs. Choosing this path is a sure-fire recipe for lower standards of living in this country.

It is true that much of our recent debt accumulation is either a direct or indirect result of the economic crisis, and acting to cut the debt too soon could damage the precarious economy. But the cost of waiting too long to change course would also be dire.

So, how does the U.S. gets its debt under control? The hard truth is that spending has to be cut and taxes have to go up.

I know, I know, that is exactly the opposite of what politicians like to promise, but there is no getting around it. Here are five ideas we should consider:

1) Raise the retirement age. Over the past 50 years or so, life expectancy has increased from 70 years to 78. Yet the average retirement age has fallen from 65 to 62. Raising the retirement age for Social Security would not only reduce the program's obligations, but would likely encourage people to work longer. And a larger work force means more taxable income and stronger overall economic growth.

2) Cap discretionary spending. Over the past decade or so, discretionary spending has grown far faster than the economy, even excluding defense spending. To ensure that politicians make tough decisions in this area of the budget, we must have strong enforceable spending caps in place. Even just limiting growth rates to levels of inflation could save $1 trillion or more relative to what would otherwise happen.

3) Require well-off seniors to pay more of their share of Medicare. To be affordable, there is no question that Medicare needs a major overhaul. But the chances of us getting there with health care cost control alone are extremely low – some benefits will need to be cut. To protect low-income seniors, we need to boost premiums and cost-sharing for wealthier seniors. That's already started in Medicare Part B, but we have to be more aggressive.

4) Don't extend so many of the Bush tax cuts. By the end of next year, nearly all the tax cuts passed over the past decade will expire. Renewing them all will cost around $2.3 trillion. Renewing them for everyone making less than $250,000 annually – with President Obama proposes – would still cost $1.8 trillion. We should go through the tax cuts one by one to decide which ones are worth keeping and which we simply can't afford.

5) Enact an energy tax. We are unlikely to stabilize our debt with spending cuts alone, and the current tax system is too inefficient to raise all needed revenue. An energy tax can make up some of the difference. By taxing carbon emissions or gasoline, as opposed to work and investment, we can reduce deficits and address climate change without hurting the economy too much.

I recognize that few of these options are easy, and frankly none are popular. Getting our fiscal house in order will be an exercise in hard choices. But our fiscal future depends on it.

Copyright 2009, Sphere

Troubled Asset Relief Program: Year-End Review

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On December 9, Secretary Geithner requested that TARP be renewed through October 3, 2010. Having spent a net of $386 billion, the $700 billion program is generally considered to have helped stabilize financial markets and the real economy. However, problems and risks remain.  

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