The Bottom Line

June 7, 2016

In addition to producing its own estimate of the budgetary effects of the President's budget, CBO typically estimates the economic effects of the budget as well, in essence producing a dynamic score of the President's proposals. This year's Macroeconomic Analysis of the President's Budget draws a similar conclusion as the previous few: the labor supply effect of immigration reform increases the size of the economy somewhat while other factors on net slightly reduce it, leaving higher Gross National Product (GNP) overall but lower GNP per capita. Overall, the budget would increase real GNP per 1 percent on average over the next ten years (and by about 2.5 percent in the last year), but GNP per capita would be about 0.7 percent lower over the same time period. Dynamic effects not already accounted for would increase deficits by $32 billion over ten years.

It's worth noting that CBO's previous estimate of the President's budget already incorporated the effect of immigration reform on labor supply (from increased population) into its numbers, finding $101 billion of deficit reduction over ten years as a result. The economic analysis incorporates more indirect effects of the increased labor supply, specifically that the larger labor force would increase the return to capital, which in turn would increase productivity by 0.7 percent in 2026. The increased return to capital would, however, also raise interest rates on federal debt.

Other factors would hurt economic growth. In particular, the budget's net tax increases, which are larger than in years past, would raise marginal tax rates by around 3 percent on labor income and around 3.5 percent on capital income when the increases are fully phased in. CBO also finds that the budget's investments would reduce economic growth in the short term, particularly since the increased higher education spending would encourage people to drop out of the labor force and attend school. Most of the investments' effects on productivity would occur beyond the ten-year window.

June 3, 2016

In a speech in Elkhart, Indiana on Wednesday, President Obama discussed retirement security, saying, "We can’t afford to weaken Social Security. We should be strengthening Social Security. And not only do we need to strengthen its long-term health, it’s time we finally made Social Security more generous, and increased its benefits so that today’s retirees and future generations get the dignified retirement that they’ve earned. And we could start paying for it by asking the wealthiest Americans to contribute a little bit more. They can afford it. I can afford it."

He did not specify what the expanded benefits or tax increases would look like, but broad-based benefit increases would not be the best use of resources and would put the cart before the horse in terms of ensuring solvency. In addition, increasing taxes on the rich would help Social Security's finances but would not fully ensure 75-year solvency and would become a more inadequate solution over time, especially if it is enacted along with benefit increases.

The Opportunity Cost of Increasing Social Security Spending

Targeted benefit enhancements for Social Security recipients who need them most certainly should be considered in the context of a reform plan, and indeed they have been included in a number of bipartisan plans put forward in recent years.

But before advocating for broad expansions that would increase overall costs, policymakers must recognize that both costs and benefits are already growing rapidly. As recently as 2008, the program's costs consumed only 11.6 percent of payroll, well below the nearly 13 percent raised by the payroll tax and other sources. By 2035, that cost will grow to 16.6 percent according to the Social Security Trustees and almost 19 percent according to the Congressional Budget Office (CBO). Both the number of beneficiaries and benefit levels (as we discuss below) will grow significantly over time.

May 27, 2016

When the Senate considers this year's National Defense Authorization Act (NDAA), Senate Armed Services Committee Chairman John McCain (R-AZ) is expected to offer an amendment to increase authorized defense spending for fiscal year 2017 by $18 billion. Although the amendment would not technically break the discretionary spending limits because the funds would still need to be appropriated, adoption of the McCain amendment would set the stage for busting the caps in the defense appropriations bill.

Last year's Bipartisan Budget Act of 2015 partially reversed the effects of the sequester, which lowered the spending caps by $90 billion per year, by increasing caps on defense and non-defense discretionary spending by $50 billion in 2016 and $30 billion in 2017, equally divided between the two categories.  The increased spending was ostensibly offset by mandatory savings, but in reality only half of the increased spending was paid for.

The House version of the NDAA complied with the discretionary caps on paper while providing additional funding through a shell game with the Overseas Contingency Operations (OCO) account by only authorizing funding for seven months of true war spending, an approach we criticized. The House bill artificially reduces OCO spending by $18 billion and uses this “savings” to shift $18 billion of non-war defense spending to the OCO account. The $18 billion needed to cover the remaining five months of true war costs would be made up later in the year with supplemental appropriations.

To his credit, Senator McCain is taking a more honest and transparent approach to increasing non-war defense spending instead of using the OCO designation to hide new spending and circumvent the spending limits. Nonetheless, his amendment would undermine budget discipline in a few ways.

May 24, 2016

Currently, Congress is debating if and how to provide emergency funding to fight the Zika virus. While the President has requested $1.9 billion in emergency funding this February to fight the mosquito-borne illness, the Senate has offered $1.1 billion in emergency funding and the House would provide $622 million from already-existing funds.

Under current budget rules, the emergency designation exempting Zika from the budget caps is appropriate, though it is often abused – for example, to pay for the Census in 2000. The Zika outbreak has been sudden and unforeseen, and a funding response to mitigate its effects is both necessary and urgent but would not be permanent. 

Yet the fact that Congress continues to debate this is partially the result of a broken budget process that relies on an ad-hoc and somewhat inconsistent funding system for various emergencies. As Congress discusses ideas for improving the budget process, policymakers would be wise to develop a better system to budget for emergencies. 

One example comes from a paper by the Peterson-Pew Commission on Budget Reform, Budgeting for Emergencies, which proposes a fiscally responsible reserve fund that would require Congress to set aside money each year to be withdrawn in case of a emergency like the Zika outbreak. In the long term, a reform like this could prevent unnecessary debate over whether emergency spending should be offset by ensuring that it is offset well in advance of a crisis. 

Identifying the funds to pay for new Zika spending shouldn’t be that difficult – and all things being equal, doing so is almost always preferable, even if not required by budget rules. The House bill would offset its proposed Zika funds by reallocating unobligated funds from the 2014 Ebola outbreak and other unobligated funds from the Department of Health and Human Services. Even fully funding the President’s request would cost less than 0.2 percent of total discretionary spending for FY 2017. If paid for over ten years, costs could easily be covered through very small tax or spending changes, many of which have broad bipartisan support. 

Some examples of possible offsets include: 

Potential Offsets for Zika Funding
Policy Savings
Reduce FY 2017 budget caps by 0.17 percent $2.0 billion
Increase the Medicare sequester from 2.0 percent to 2.04 percent $2.0 billion
Eliminate enhanced Medicaid funding for prisoners  $2.0 billion
Reform inland waterway funding $1.3 billion
Increase customs and courier fees $1.2 billion
Reform oil and gas management and leasing as in the President’s Budget $1.2 billion
Rebase Medicaid DSH payments $700 million
Eliminate payments for abandoned mines $520 million
Require universities to report the amount that students must report to claim the American Opportunity Tax Credit $500 million
Properly account for lottery winnings and other lump-sum income when determining Medicaid eligibility $475 million
Increase agriculture user fees $472 million
Increase collection of non-tax debts owed to the federal government $400 million
Require businesses to withhold taxes on payments to certain contractors, similar to taxes withheld on wages $424 million
Use border-crossing data to prevent improper payments to those that have left the country $200 million
Reduce drug abuse in Medicare Part D $200 million
Strengthen state child support enforcement $174 million
Increase information sharing to administer excise taxes $151 million
May 23, 2016
We need smart solutions, not glib gimmicks

Maya MacGuineas, president of the Committee for a Responsible Federal Budget and head of the Campaign to Fix the Debt, wrote an op-ed that appeared in the New York Daily News. It is reposted here.

May 19, 2016
Queen of Washington's Budget Wonks

Alice Rivlin is a former director of the Congressional Budget Office and Office of Management and Budget. She has served as a member of the National Commission on Fiscal Responsibility (Simpson-Bowles) and a co-chair of the Domenici-Rivlin Debt Reduction Task Force. She is currently on the board of the Committee for a Responsible Federal Budget and is a Senior Fellow at the Brookings Institution.

May 18, 2016
Opportunity for All Isn’t Gonna Happen on This Path

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

May 16, 2016
Neither Chamber has Passed a Budget Resolution

April 15 is the annual statutory deadline for passing a conferenced budget resolution though the House and Senate, which is intended to formally kick off the appropriations process. This year's deadline has already passed without a budget resolution coming from either chamber, but the appropriations season is still moving forward. How does the appropriations process move forward without a budget?

The budget resolution imposes discipline on the appropriations process by providing a topline number for discretionary appropriations known as a 302(a) allocation, which refers to that particular provision in the Congressional Budget Act of 1974 and is the total amount that the Appropriations Committees can spend. Once the 302(a) allocation is set through the budget resolution, the Appropriations Committees divide the topline amount among each of the twelve appropriations subcommittees using 302(b) allocations.

Without a budget resolution, there is no 302(a) allocation setting the total amount for the Appropriations Committees to spend, and in turn means the Appropriations Committees cannot establish 302(b) allocations to divide the topline spending among their twelve subcommittees. There is also no enforcement mechanism for violating these allocations, however there is a point of order against appropriations that exceed the statutory discretionary spending caps, applied to the appropriations bill that caused the excess (which is typically the last appropriations bill considered by the House).

May 16, 2016

Last updated 5/27/16 to reflect the appropriations activity in Congress this week. 

The appropriations process has begun in earnest on Capitol Hill and even though Congress has not yet passed a budget, both chambers are moving forward with appropriations bills. The Senate has laid out its topline spending targets known as 302(b) allocations for the twelve Appropriations subcommittees to direct the appropriations process as provided in the Bipartisan Budget Act of 2015 (BBA). The House is pushing ahead without an official 302(b), though the House Appropriations Committee has said it will move forward with informal allocations based on the top line limit set in the BBA last year. As we did last year, we'll be tracking the bills as they move from committee to the House and Senate floor, and onto the President's desk.

The table below shows the status of each appropriations bill. To learn more about the appropriations process, read our report: Appropriations 101, and read here for more detail about how the House and Senate are moving forward without a Budget Resolution.

Item House Senate
Budget Resolution Approved by full committee 3/16 (20-16) Not yet introduced
302(b) Allocations  Not yet released  Approved by full committee 4/18 (29-1)
Agriculture Approved by full committee 4/19 (voice vote) Approved by full committee 5/19 (30-0)
Commerce, Justice, Science Approved by full committee 5/24 (voice vote) Approved by full committee 4/21 (30-0)
Defense Approved by full committee 5/17 (voice vote) Approved by full committee 5/26 (30-0)
Energy and Water Development Failed the House 5/26 (112-305) Passed the Senate 5/12  (90-8)
Financial Services and General Government Approved by subcommittee 5/25 (voice vote) Hearings held
Homeland Security Hearings held Approved by full committee 5/26 (30-0)
Interior, Environment Approved by subcommittee 5/25 (voice vote) Hearings held
Labor, HHS, Education Hearings held Scheduled for full committee markup on 6/9
Legislative Branch Floor vote expected (week of 6/6) Approved by full committee 5/19 (30-0)
Military Construction, VA Passed the House 5/19 (295-129-9) Passed the Senate 5/19 (89-8)
State, Foreign Operations Hearings held Hearings held
Transportation, HUD Approved by subcommittee 5/18 (voice vote) Passed the Senate 5/19 (89-8)

Sources: House Appropriations Committee, Senate Appropriations Committee, CQ,

As we explained in Appropriations 101, the House and Senate Appropriations Committees approve 302(b) spending levels for each subcommittee after the topline 302(a) levels are determined by the Budget Committees. Below is an excerpt (click here to read the full report).

May 16, 2016

The Internal Revenue Service (IRS) recently released new estimates of the “tax gap” – the amount of taxes owed that go uncollected. They reveal that only 84 percent of the money owed in taxes is collected each year, which resulted in a "net tax gap" of $406 billion per year on average between 2008 and 2010. That amount is a combined $458 billion not voluntarily paid and another $52 billion collected after the IRS contacted those who were delinquent. The net tax gap of $406 billion is about 2.8 percent of Gross Domestic Product (GDP), which would be equivalent to $6.5 trillion over the next decade. 

Most of the tax gap – $387 billion, or 84 percent of the gross amount – comes from taxpayers underreporting income. Approximately half of the net tax gap ($203 billion) comes from underreported pass-through business income, small corporation income, and the self-employment payroll tax.

In addition to underreporting, underpayments accounted for $39 billion of the tax gap and those that didn't file any returns accounted for $32 billion. The vast majority of underpayments and nonfilers ($55 billion) came from individual income taxes, though the IRS does not break out exactly where they came from.

May 13, 2016
Repairing the budget process: Fiscal discipline is impossible when an approved budget can be ignored

Senator David Perdue, the junior senator from Georgia, and Maya MacGuineas, president of the Committee for a Responsible Federal Budget, wrote a commentary that appeared in the Washington Times.  It is reposted here.

Our country is swimming in a sea of red ink, with annual deficits projected to rise rapidly from $534 billion this year to more than $1.3 trillion by 2026 while our national debt is slated to increase by nearly $10 trillion over the next decade. The longer we wait to fix this problem, the more likely we are to have a debt crisis. In order to get our debt under control and put America back on a path toward fiscal responsibility, one of the first things we must do is change the budget process.

May 12, 2016

Republican presidential candidate Donald Trump has made news in the past week with several comments about the national debt. In his remarks, he said that if interest rates on Treasury securities rise, he would buy back debt at a discount. He also said that the US would never need to default because it can always print money to finance debt. As part of our Fiscal FactCheck project, we explained how Trump's debt buybacks would work and discussed his comments about printing money.

Read the full explainer at Fiscal FactCheck.

Treasury buybacks have been done a few times historically during periods of large surpluses, most recently being undertaken from 2000 to 2002. The purpose of these buybacks has been to bring the amount of Treasury securities in line with borrowing needs and ensure that new more highly-traded Treasury securities continue to be issued. By contrast, Donald Trump’s proposed buybacks would be occurring in the context of deficits rather than surpluses. These buybacks could happen if interest rates increase as expected, providing an opportunity to buy back old debt at a discount.

May 12, 2016
Paul Ryan’s Chance to Move Donald Trump on Entitlement Reform

Maya MacGuineas, president of the Committee for a Responsible Federal Budget and head of the Campaign to Fix the Debt, wrote a commentary that appeared in the Wall Street Journal Washington Wire. It is reposted here.

May 10, 2016

In a recent blog, New York Times columnist and economist Paul Krugman criticized Donald Trump's recent suggestion that he'll "negotiate forgiveness on U.S. debt." We too have questioned that idea. He also questioned why politicians are worrying about the debt in the first place. Unfortunately, Krugman completely misses the mark on this latter criticism by not showing the whole picture when it comes to interest spending and our nation's long-term debt challenges.

In his blog, Krugman uses data from the Congressional Budget Office (CBO) to show that federal net interest payments have declined in the last two decades. As he points out in a related column, "federal interest payments are only 1.3 percent of G.D.P." in 2015.

Yet Krugman's graph focuses only on today and fails to look at what is projected to happen tomorrow. When using CBO projections as well as historical data, it shows that interest rates are projected to grow significantly in the coming years. CBO projects interest payments to grow from 1.3 percent of Gross Domestic Product (GDP) last year to 3.0 percent by 2026 and 6.1 percent by 2050. In other words, interest payments will hit a post-war record-high by 2027 and nearly quintuple relative to GDP by 2050. These aren't the signs of a sustainable debt situation.

May 10, 2016
Dangers in Donald Trump’s Debt Suggestions

Maya MacGuineas, president of the Committee for a Responsible Federal Budget and head of the Campaign to Fix the Debt, wrote a commentary that appeared in the Wall Street Journal Washington Wire. It is reposted here.

May 10, 2016
Candidates, Stop Perpetuating Social Security Myths. Start Offering Solutions.

Marc Goldwein is the Senior Vice President and Senior Policy Director of the Committee for a Responsible Federal Budget. He wrote a guest post that appeared on the RealClearPolicy blog. It is reposted here.

May 10, 2016
It's Time for Action on Social Security Disability Insurance

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.

May 9, 2016

Our Fiscal FactCheck project released updated analyses of Donald Trump's and Senator Bernie Sanders's campaign proposals today, reflecting new policies and new baseline projections. These analyses are now fully comparable to our estimates of Secretary Hillary Clinton's proposals published last week. Based on our analyses, all three candidates would allow debt to grow from its current level of about 75 percent of Gross Domestic Product (GDP). By 2026, debt would likely grow to 86 percent of GDP under Secretary Clinton's plans, between 94 and 140 percent of GDP under Senator Sanders's plans (depending on the cost of his health care plan), and 129 percent of GDP under Donald Trump's plans.

May 4, 2016

In a recent op-ed in TIME, Michael A. Peterson, the president and CEO of the Peter G. Peterson Foundation, outlined why millennials need the next president to be worried about the debt. He argues the fiscal policies of the next president will have the greatest impact on the single largest American generation, which could face less economic opportunity, less earning power, and be less able to pay back student loans, buy a home, or start a business as a result of a high national debt. 

Peterson points to the fact that millennials are already more likely to have debt burdens, with four-year tuition costs up by 68 percent and student loan debt tripling between 1993 and 2013. He explains that they also continue to be left behind in the slow post-recession recovery with a persistent high youth unemployment rate and wages that haven’t increased in the past ten years. 

May 4, 2016

Democratic presidential candidate and former Secretary of State Hillary Clinton has proposed numerous new spending & tax cut policies that are largely offset by her proposals to raise taxes on the wealthy and cutting other spending, according to a new analysis posted as part of our Fiscal FactCheck project.

Read the full analysis on our Fiscal FactCheck website.

Using independent estimates from the Congressional Budget Office (CBO), the non-partisan Tax Policy Center (TPC), and elsewhere, we estimate that Secretary Clinton’s proposals would cost $1.8 trillion over a decade with interest, and they would be nearly fully paid for with $1.6 trillion of offsets – primarily from taxes on high earners. The $200 billion shortfall from Secretary Clinton’s proposals can be fully explained and would be more than fully covered by the $275 billion of corporate tax revenue that the Clinton campaign has called for but has not yet provided enough detail for us to credit.

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