The Bottom Line

January 22, 2016
What CBO’s Debt Projections Suggest About Congress and the Budget Process

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

It should be no surprise that the Congressional Budget Office projections published this week are as bad as they have become. More than $100 billion was added to the deficit projection for this year alone, much of it from the spending-and-tax-cuts bonanza Congress and the president went on last year. Going forward, more than $10 trillion is projected to be added to the debt by 2026.

This makes putting together a meaningful budget resolution all the more difficult. Last year Republicans passed a budget resolution that got to balance by 2024. But it was so tough to stick to that policy makers ignored many of the major components of their own budget. They failed to follow through on any major entitlement savings and ultimately passed almost $700 billion worth of taxcuts that weren’t in their budget. The same lawmakers who agreed to a budget that had $5.8 trillion in savings over 10 years added $750 billion to the debt instead.

January 22, 2016

The Congressional Budget Office's (CBO) summary of their upcoming budget projections showed a much worse ten-year outlook for deficits and debt, so it should come as no surprise that the long-term outlook looks worse too. CBO provides little detail at the moment about the long-term picture but does say that debt held by the public would grow to 155 percent of Gross Domestic Product (GDP) in three decades. That would be much higher than the historical record of 106 percent in 1946 and well above the 110 percent that CBO projected for the mid-2040s last year.

While CBO does not provide a detailed long-term outlook, we have constructed a rough long-term budget projection based on their ten-year numbers and the long-term debt number they do give. As expected, long-term debt, which was already set to rise rapidly, is on a much sharper upward trajectory now. We roughly project it will exceed the size of the economy in the early 2030s (compared to the late 2030s in last year's projection) and will double the size of the economy by around 2060, something that would not have occurred in last year's projection until around the turn of the next century.

Driving this increase in debt are the same forces behind the ten-year numbers. Social Security and health care spending will rise, especially over the next few decades, due to population aging and health care cost growth. Revenue will also rise but from a lower starting point and at a slower rate. And as debt rises, interest spending will do so as well.

January 21, 2016
Modernizing Social Security and Medicare Starts with Leadership

Maya MacGuineas, president of the Committee for a Responsible Federal Budget and head of the Campaign to Fix the Debt, was interviewed by the George W. Bush Institute and appeared in The Catalyst. It is reposted here.

Social Security, Medicare, and other entitlement programs face an uncertain future as the funds that run the programs dwindle. Strong leadership will be needed to save these programs.

We asked Maya MacGuineas, president of the Committee for a Responsible Federal Budget and head of Campaign to Fix the Debt, these questions about one of America’s most pressing domestic challenges: reforming entitlement programs.

MacGuineas has spent a large part of her professional career working on budget issues, advising members of both parties on tax and spending policies. As she makes it clear, modernizing these programs starts with strong leadership.

January 21, 2016
Balancing the Budget is Now an Even Harder Goal

Tuesday’s release of the topline numbers for this year's Congressional Budget Office (CBO) baseline is a gut punch to congressional budget writers. The already-difficult task of balancing the budget is now far harder, requiring nearly $1.4 trillion to plug the deficit in Fiscal Year (FY) 2026 alone. By our math, that would mean about $8 trillion of ten-year deficit reduction to balance the budget, and it would take $3.5 trillion just to stabilize the debt at its current record-high levels.

As we show in our paper on the CBO baseline, the debt is on an even more unsustainable path than previously projected, with deficits expected to rise every year going forward, reaching over $1 trillion by 2022. When comparing the 2016 to 2025 budget window in the January report to last August's numbers, the deficit is now expected to be $1.5 trillion worse than projected. Lower interest rate projections will also, somewhat counterintuitively, make budget goals more difficult to achieve since direct spending cuts and increases in revenue will now receive less credit for interest savings.

As a result, last year's budget resolution, which reached balance by 2024, would fall short this year. In fact, enacting the same budget resolution as last year would now lead to a $300 billion deficit in 2024 and a $400 billion deficit in 2026. Getting to balance will now require more than $2.2 trillion more in savings than last year's congressional budget resolution produced – bringing the total to about $8 trillion.* To put this in perspective, Congress would need to cut primary spending by 15 percent, raise revenue by 17 percent, or some combination of the two.

January 20, 2016

The era of declining deficits is over. That's the conclusion of our analysis of the Congressional Budget Office's (CBO) January 2016 Budget and Economic Outlook summary. The report shows that deficits will once again start increasing by $105 billion from Fiscal Year (FY) 2015 to 2016. They will balloon to $1.4 trillion by FY 2026. Trillion-dollar deficits will reappear as soon as FY 2022 – 3 years earlier than CBO projected in August.

Read the full analysis.

The paper discusses how this year's forecast is much worse than last year's, largely due to lawmakers' fiscally irresponsible behavior – including passage of the unpaid-for tax extenders and omnibus legislation in December – as well as a gloomier economic picture. At this rate, public debt levels are expected to reach 86 percent of Gross Domestic Product (GDP) by 2026 – an even-more unsustainable level than our current debt of 74 percent of GDP.

January 19, 2016

Update: You can view our full analysis here.

The Congressional Budget Office (CBO) just released baseline projections showing rapidly rising deficits and debt rising in the coming years – at a much faster pace than previously projected. CRFB will release a full analysis later today, but the report makes it abundantly clear that the near record-high national debt is on an unsustainable path.

CBO now projects deficits more than tripling, from $439 billion in 2015 to $1.37 trillion by 2026, with trillion dollar deficits returning by 2022 – three years earlier than prior projections.

Debt held by the public, meanwhile, will grow by over $10 trillion from $13.1 trillion at the end of 2015 to $23.8 trillion by 2026. As a share of Gross Domestic Product (GDP), debt will grow from 74 percent of GDP in 2015 – already twice its pre-recession levels – to 86 percent of GDP in 2026. By comparison, August projections showed debt on track to reach roughly 77 percent of GDP, or $21 trillion, by 2025.

 

January 15, 2016

Congressman Mark Sanford (R-SC) wrote a piece in The Fiscal Times that highlights the paucity of substantive discussion from the 2016 presidential candidates on the debt, deficit, and government spending. As he says:

There have been debates, bluster, TV coverage, and more, but you know what’s been lacking in this Presidential race…a serious discussion of the debt, deficit, and government spending. It’s been skipped, and the degree to which this issue is not in vogue these days fits with what I have seen since I came back to the US Congress two and a half years ago.

Candidates have been asked about this issue on the campaign trail, several have sat for a thirty-minute television interview on Fiscal Fridays to discuss their positions on fiscal responsibility, and the debate moderators have been asking tough questions about balanced budgets, entitlement reforms, and fiscally-sound tax proposals. 

January 12, 2016

President Obama's final State of the Union address is tonight at 9 p.m. ET. In preparation for his speech, we've brought back our State of the Union fiscal bingo game - DEBT-O!

Play with your friends and keep track of budget-related words and terms used by the President. Although the speech will cover many issues, President Obama should highlight how he'd like to address the nation's fiscal issues in his speech, previewing what is to be expected in his budget that will be released in a few weeks. Our partners at Fix the Debt also wrote the Top 7 Ways President Obama Can Strengthen His Fiscal Legacy.

Click here for a printable PDF of five different boards.

 

January 5, 2016

Kicking off the new year in style, the Congressional Budget Office (CBO) released its latest estimate of the reconciliation bill passed by the Senate that aims to repeal parts of the Affordable Care Act (ACA), updating its numbers to account for the enactment of last year's tax deal. The bill repeals many key provisions of the ACA, including:

  • Coverage expansions, including subsidies to purchase private insurance and the Medicaid expansion (starting in 2018);
  • Certain other spending changes (such as the Prevention and Public Health Fund and the reductions in Disproportionate Share Hospital payments);
  • Individual and employer mandates; and
  • Most of the law's tax increases.
December 24, 2015

It’s the end of the year and like so many organizations, CRFB wanted to share with you our top 10 list: a look back at Congress’s 10 top fiscal achievements of 2015.

The problem is, we couldn’t. Even pooling the creative minds of our entire staff, we could not produce 10 solid Congressional actions that reduced the national debt or deficit, or were a clear step toward a responsible federal budget.

Compiling a list of the year’s 10 greatest fiscal follies was a lot easier, so we are delighted to share that with you now. 

December 22, 2015

The Joint Committee on Taxation (JCT) recently released its latest estimate of tax expenditures covering the years 2015-2019. Based on the summed cost of each tax break, tax expenditures cost over $1.2 trillion in 2015, about two-thirds the size of total individual and corporate income tax revenue. This total is $50 billion higher than the 2014 total but also $65 billion lower than JCT had previously projected for 2015. The total is also about $100 billion lower than the $1.35 trillion of tax expenditures that the Treasury Department estimates for 2015.

Below are some interesting facts about the tax expenditure estimates and how JCT has changed them compared to previous tax expenditure data from August 2014. Note that these numbers were published before the tax deal was enacted, and that package should increase both the size and number of tax expenditures.

Total Tax Expenditures are $6.7 Trillion Over Five Years

JCT's estimate covers the 2015-2019 period, and the sum of each tax expenditure totals $6.7 trillion over that time period. This sum is 66 percent of income tax revenue for 2015-2019 and the 2019 total of is 68 percent of all the income taxes scheduled to be collected in that year. The cost of tax expenditures grows each year, from $1.2 trillion in 2015 to $1.6 trillion by 2019. Although these tax expenditure totals are the sum of each provision, so they do not account for interactions between multiple provisions and do not reflect the revenue that would be raised from repealing them.

December 22, 2015

With debt already around its highest level as a share of Gross Domestic Product (GDP) other than around World War II and estimated to grow with no end in sight, the least one could have hoped for from lawmakers would be to stop digging the hole deeper. But 2015 proved even that low bar to be too lofty a goal.

December 22, 2015

As it often does in December, CBO has released its detailed long-term projections for Social Security that build off the ones released with their long-term outlook in June. The projections generally show a worse picture for the trust fund and the 75-year shortfall than the Social Security Trustees expect. Notably, these are the first estimates since the Bipartisan Budget Act reallocated revenue to Social Security Disability Insurance (SSDI) and extended that trust fund's solvency through Fiscal Year (FY) 2021.

The combined Social Security trust fund is projected to be exhausted in 2029, five years earlier than the Trustees expect. At that point, benefits would be cut across-the-board by 29 percent to bring spending in line with revenue. The 2029 date is the median outcome of a range of possibilities, with CBO estimating a 10 percent chance that the trust fund is exhausted by 2026 and a 99 percent chance that it runs out by 2040.

The SSDI trust fund is projected to be exhausted by FY 2021, at which point benefits would be cut by 21 percent. If lawmakers reallocate revenue from the old-age program to extend SSDI solvency, it would bring forward the old-age program's insolvency date from 2030 to 2029. Notably, the SSDI reallocation that lawmakers undertook in the budget deal appears to have moved the old-age insolvency date from 2031 to 2030, since 2031 was the date CBO projected back in June.

December 18, 2015

With the first session of the the 114th Congress rapidly drawing to a close and the big budget issues being settled, we will take a look at how the actual legislation enacted compared to the Fiscal Year (FY) 2016 Congressional budget resolution.


 

December 18, 2015

Carrying on the tradition of retired Senator Tom Coburn (R-OK), Senator Jeff Flake (R-AZ) this week released the 2015 edition of the Wastebook: The Farce Awakens, where he cites 100 examples of wasteful federal spending totaling more than $100 billion. Sen. Flake's Wastebook is the latest in a series of lawmakers attempting to carry on Sen.

December 17, 2015

It's no surprise that a deficit-financed tax cut deal costing $830 billion after interest would be bad for the budget. We've been describing the emerging deal in various blogs over the last month, but below are the most important charts, updated for the actual numbers from the announced deal.

The Deal Would Add More Than $2 Trillion to the Debt Over 20 Years

The Joint Committee on Taxation has scored the deal as costing $680 billion over ten years, which would rise to $830 billion if interest costs are included. Although 20-year estimates are inherently uncertain and imprecise, we estimate that the costs grow over time to exceed $2 trillion over 20 years.

The Deal Squanders Recent Deficit Reduction

Although lawmakers have been adding to the debt repeatedly for the past few years, the $680 billion tax deal is easily the largest step backwards and is comparable in magnitude to the deficit reduction lawmakers enacted between 2011 and 2013. The deal easily swamps the net savings from the 2013 Ryan-Murray agreement, almost equals the revenue raised in the fiscal cliff agreement, amounts to three-quarters of the sequester savings, and is more than two-thirds of the savings from the Budget Control Act spending caps.

December 17, 2015

The negotiations that concluded this week produced two major pieces of legislation. The most consequential for the budget is the $680 billion package of tax cuts that includes tax extenders and several other provisions. The second is the omnibus appropriations bill that will fund the government for the rest of FY 2016. Leaving aside the fact that the omnibus includes some tax cuts to maximize votes, it is largely about funding the government at the limits already set in the earlier budget agreement. But it still has fiscal consequences because of the use of familiar appropriations gimmicks.

The first is the use of changes in mandatory programs (CHIMPs), which allow lawmakers to appropriate funds above the spending caps by making cuts to mandatory programs. However, as has been the case in recent years, the vast majority of the $18.6 billion in CHIMPs in this omnibus bill won't actually save any money, either because the budget authority they cut was never going to be spent or because the money is simply shifted into next year so it doesn't count against this year's spending limits (and will likely be shifted again next year). Specifically, $5 billion of the changes come from cuts in budget authority that don't produce real savings in the form of lower outlays and $13 billion comes from spending that is shifted into next year, while only $0.6 billion of the savings are real.

December 16, 2015

Today, the Federal Open Market Committee, the Fed's interest rate setting and deliberative body that meets eight times a year, could announce that they will raise the federal funds rate to be above near-zero for the first time in seven years. There has been much debate about the appropriateness of a rate increase for the economy, but the decision also has budgetary consequences, which we discuss in an updated analysis Interest Rates and the Debt.

Read the full paper here.

With interest rates likely to return to more normal levels at some point, spending on interest on the debt will increase significantly as a result. If debt rises as it is projected to do in the future, we risk further increases in interest rates that will put greater pressure on the budget. Ultimately, the best way to guard against interest rate risks is to put debt on a downward path to lessen the negative effect of interest rate increases.

December 16, 2015

Lawmakers have announced a negotiated package of business and individual tax breaks costing about $680 billion over ten years. After interest, we project the cost at about $830 billion over ten years. The package is split between two bills, one extending most of the tax breaks, and the omnibus bill providing discretionary spending for the rest of the fiscal year.

The deal largely focuses on reviving tax breaks that expired at the end of 2014, making some permanent and extending others for either two or five years. However, it also permanently extends three refundable tax credit expansions that would have expired in 2017, originally enacted in the 2009 stimulus bill. The bill also pauses or delays three taxes from the Affordable Care Act, opening the door to further delays or possible repeal of the taxes, undermining the health care law's deficit-reduction and cost-control efforts. Specifically, it would pause the medical device tax for 2016 and 2017, pause the health insurance tax for 2017, and delay implementation of the so-called "Cadillac tax" for two years while subsequently making the tax deductible against a company's corporate income tax (and tasking a study of how the tax's thresholds are indexed). If these three taxes are subsequently repealed, it would cost a combined $257 billion over ten years:

December 15, 2015
Democratic Whip Vows Opposition

House Minority Whip Steny Hoyer (D-MD) took to the House floor on Tuesday to assert his opposition to a potential tax extenders deal, citing a recent piece by CRFB president Maya MacGuineas to back up his opposition.

He cited a large increase in deficits that would result from the package and the double standard between spending and tax cuts when it comes to offsets, an argument also made in a recent letter by a group of Senate Democrats.

The cost of such a package runs in the $600 - $800 billion range – none of which is paid for, ballooning our deficits in a way that reinforces a misguided double standard that investments in the growth of jobs and opportunities must be offset, but tax cuts are always free.

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