The Bottom Line

November 25, 2015

A fiscally irresponsible bipartisan deal is emerging to re-instate, make permanent, and in some cases expand many expired tax breaks known as tax extenders. According to several press reports (behind paywall), the deal could cost $700 billion over a decade. When interest is included, the emerging tax extenders deal could add nearly $850 billion to the debt this decade and $2.3 trillion by 2035.

Although details are scarce and negotiations ongoing, we have attempted to itemize our best understanding of the emerging deal. The deal would likely build on House legislation passed earlier this year to permanently continue various costly tax breaks and significantly expand one of the most expensive ones – the research and experimentation (R&E) credit. These tax breaks, which go largely to businesses, would be paired with the extension of low-income tax credit expansions scheduled to expire at the end of 2017. The deal would also reportedly include a two-year delay of the "Cadillac tax" on high-cost health insurance plans and the medical device tax.

By our estimate, this deal could increase the debt in 2025 by about $840 billion, bringing debt to GDP to 80 percent – 3 percentage points higher than currently projected.

Policy Ten-Year Cost
Extend and Expand Research Credit* $180 billion
Extend Refundable Tax Credits^ $195 billion
Extend Provisions for Multinational Corporations: Active Financing Exception and CFC Look-through $100 billion
Extend Section 179 Small Business Expensing $70 billion
Extend State & Local Sales Tax Deduction $40 billion
Delay Medical Device Tax and Health Insurance Cadillac Tax for Two Years $15 billion
Other Provisions $100 billion
Subtotal ~$700 billion
Interest Costs ~$140 billion
Grand Total ~$840 billion

All of these numbers represent very rough estimates due to uncertainty over which provisions are in the reported deal.
Estimates based on Congressional Budget Office and Joint Committee on Taxation projections.
*Press reports aren’t clear whether the deal includes the $70 billion House expansion, but it is assumed here.
^We assume the extension of all expiring refundable credits, though press reports only definitively include two of the three: the Earned Income Tax Credit and Child Tax Credit expansions, excluding the American Opportunity Tax Credit

November 25, 2015

By the end of the year, lawmakers will likely to try to revive the “tax extenders,” a set of more than 50 tax breaks that expired at the end of 2014 for individuals and businesses, ranging from broad breaks for research, renewable energy, and small businesses to narrower breaks for film production, teachers, and racehorses. Extending these tax provisions will further add to the debt if they are not offset, compounding the effects of the fiscally irresponsible budget deal that only offset half of its cost

The House and Senate have taken two different approaches to tax extenders. The Senate Finance Committee approved a bill in July that would cost almost $100 billion to temporarily extend most of them for 2015 and 2016, while the House has passed bills to permanently expand and extend a small amount of provisions.

Newly appointed House Ways and Means Chairman Kevin Brady (R-TX) has said he wants to permanently extend certain tax provisions, and the House has been working to do so in a piece-meal fashion. In mid-September, the Ways & Means Committee approved tax breaks costing nearly $420 billion over ten years, or almost $520 billion with interest. Along with other proposals approved earlier in the year, the Committee’s tax cuts would add about $1 trillion to the debt.

No matter which of these provisions lawmakers chose to keep, they should all be paid for. At this point, neither side of Congress appears willing to stand up for fiscal responsibility, as each chamber has shown it wants to extend the tax breaks without offsets. If these bills are not paid for, here are some of the problems that may result.

November 25, 2015

As the House and Senate are conferencing their highway bills, a debate has broken out over how to spend the $78 billion of offsets. Setting aside the fact that the offsets themselves largely come from a budget gimmick, lawmakers have a choice between funding six years of spending at current levels or five years of spending at elevated levels.

Increasing highway spending in the context of the current bill, though, would be a costly mistake.

Although there is no problem with increasing infrastructure spending and paying for the costs, the proposal under discussion would effectively result in a permanent cost increase and pay for it only over the next five years. As a result, the future shortfall between highway spending and revenue, of which the largest contributor is the gas tax, would grow even larger than it is today.

At current spending levels, the Highway Trust Fund (HTF) faces a shortfall of about $150 billion through 2025. The House bill includes $78 billion of offsets (largely from a Federal Reserve gimmick) -- enough to continue current spending (adjusted for inflation) for six years. Yet some are pushing to instead spread the $78 billion over 5 years at a higher level.

November 20, 2015

The Brookings Institution's Center on Children and Families held an event this week highlighting eight big issues the presidential candidates need to address in the 2016 campaign. Eight papers were prepared on the various issues by scholars in their relevant areas. One of the featured issues included the growing federal debt, which was addressed by Bob Bixby, executive director at the Concord Coalition, and Maya MacGuineas, president of the Committee for a Responsible Federal Budget and head of the Campaign to Fix the Debt. Their paper, "Why the Federal Debt Must Be a Top Priority for the 2016 Presidential Candidates," points out why this issue transcends partisan agendas and why candidates should be putting forth proposals in preparation for becoming the next president.

November 16, 2015

Biennial budgeting was the subject of a recent Senate Budget Committee hearing, the second in a series on budget process. Testifying were Senator Johnny Isakson (R-GA), Senator Tom Carper (D-DE), and Representative David Price (D-NC), as well as Mr. William G. Batchelder, the former speaker of the Ohio House of Representatives, and Mr. Robert L. Bixby, the Executive Director of the Concord Coalition.

CRFB generally supports the concept of biennial budgeting, although it is not a substitute for the difficult policy choices that must be made to address the long-term debt. CRFB President Maya MacGuineas has testified on multiple occasions before Congress on the matter. This past spring, she published a letter praising legislation introduced by Rep. Reid Ribble (R-WI) and Rep. Kurt Schrader (D-OR). Rep. Ribble will testify when the House Budget Committee holds a hearing on biennial budgeting on Wednesday.

November 16, 2015

This blog is part of a series of "Policy Explainers" for the 2016 presidential election, where we explain some of the candidates' policy proposals that affect the federal budget.

Republican Presidential candidate Senator Rand Paul (R-KY) recently released his Fair and Flat Tax Plan. His plan would dramatically overhaul the tax code by eliminating most preferences and replacing existing income taxes with a 14.5 percent flat tax for individuals, businesses, and investments. He would also eliminate other taxes including payroll taxes, estate taxes, and tariffs. Two outside groups have evaluated the costs of his plan, finding a wide range of revenue losses between $1.8 trillion and $15 trillion.

Individual Income Tax Reform

On the individual side, the 14.5 percent flat tax would apply to wages, salaries, dividends, capital gains, rents, and interest. The plan would maintain the mortgage interest deduction, charitable deduction, the Earned Income Tax Credit, and the Child Tax Credit. It would increase the standard deduction and dependent exemption in such a way that a family of four would not be taxed on its first $50,000 of income (up from $28,600 now). By providing one flat rate of 14.5 percent, taxpayers currently in the 15 percent bracket would only see a very small reduction in their marginal rates, while the rates of the highest income individuals would fall by over 25 points.

November 12, 2015

This blog is part of the “Fiscal FactCheck” series designated to examine the accuracy of budget-related statements made during the 2016 presidential campaign.

Tuesday night's Republican presidential debate featured some of the first real discussions on how candidates would tackle the growing national debt. As with the previous three debates, we ran fiscal claims through Fiscal FactCheck, and during the debate, we followed along live on Twitter at @FiscalFactCheck. (You can check out our summary from the last debate here.) Our Fiscal FactChecks from this debate are summarized below:

1. John Kasich Has a Plan to Balance the Budget in Ten Years.

Moderator Maria Bartiromo asked Ohio Governor John Kasich what his specific steps to balancing the budget would be if he were elected. Kasich responded by highlighting his balanced budget plan, claiming that he would balance the budget by the end of his second term. While Kasich's plan lacks important details on how he would specifically slow Medicare growth and pay for tax cuts, it appears to add up to on-budget balance. On-budget balance most importantly excludes Social Security, which is expected to run deep deficits over the next 10 years. So while Kasich's plan may reach on-budget balance, it fails to achieve complete balance as he suggests it would.

Our Ruling: It's Complicated

November 12, 2015

The transportation bill that the House passed last week contains a budget gimmick worth almost $60 billion (Wall Street Journal Paywall). The provision eliminates the $29.3 billion in the Federal Reserve's capital surplus account and prevents surplus funds going forward from being used to replenish the capital surplus account, even though the federal government would have eventually received all of the Federal Reserve's profits anyway. This results in one-time savings on paper but no actual change in the amount of revenue the Treasury would receive over the long term.

Both the Washington Post Editorial Board and Former Fed Chairman Ben Bernanke have recently written that the liquidation of the Federal Reserve’s surplus account leads to no actual government savings. As Bernanke says, "the additional highway spending would be reflected dollar for dollar in increased current and future budget deficits."

The surplus account is an off-budget account where the Federal Reserve holds treasury bonds as surplus capital. The money both provides working capital and is available to offset any losses from selling securities, which could be more relevant in the future as the Fed normalizes policy. Since this money is “off-budget,” transferring it to the Treasury appears to increase revenue. 

November 10, 2015

It's hard to believe that two weeks have already passed by and the next #GOPDebate is upon us. Tonight we will continue to keep the candidates honest by providing live Fiscal FactChecks and follow up on the fourth debate with a full analysis tomorrow.

Since our last debate analysis, we've added a few new Fiscal FactChecks, including:

November 10, 2015

With Rep. Paul Ryan (R-WI) being elected as Speaker of the House, the Ways & Means (W&M) Committee Chair has gone to Rep. Kevin Brady (R-TX). In an interview with the Wall Street Journal, Brady said that lawmakers should permanently extend a select group of tax extenders, the 50-plus provisions that expired at the end of 2014 that are temporarily extended year after year. It is quite possible that one of the policies permanently extended is bonus depreciation, which the Ways & Means Committee voted to permanently extend and expand in September. This provision, which has been used several times during recessions, was most recently reinstated in 2008 and has since been extended six times. It has cost over $200 billion through 2015 and will cost about $450 billion through 2025 if it is permanently extended.

Bonus depreciation allows businesses to write off 50 percent of the cost of capital investments immediately (the rest is deducted over time according to normal depreciation schedules). It was originally enacted and has been extended temporarily to provide stimulus while the economy is weak. Because bonus depreciation is largely a timing shift, a one-year extension would have substantial immediate costs that would be largely recovered over time, but a permanent extension would cost $245 billion over ten years (the W&M version costs $280 billion).

From 2008 through 2015, bonus depreciation has cost $200 billion (including interest), and that doesn't even include the cost of extending the provisions for 2015. If bonus depreciation remains expired, that cost would be partially recovered over time as businesses would not be able to take the deductions they have already accelerated, leading the total cost to fall to $135 billion by 2025. However, if it is extended permanently, bonus depreciation would cost nearly $450 billion through 2025.

November 9, 2015

In light of recent developments, the Congressional Budget Office (CBO) has updated its estimate of the health care reconciliation bill (previously described here) that has now passed the House. The previous estimate showed that the bill would reduce ten-year deficits by $79 billion, or by $130 billion if economic effects were included, but it also estimated deficit increases beyond the first ten years (we estimated a $400 billion deficit increase in the second decade). The latest estimate shows a similar story: the bill reduces deficits by $78 billion, or $129 billion when economic effects are included, but we estimate that it would increase total deficits by around $250 billion in the second decade.

The latest score updates a few aspects of the bill. The first involves repeal of the auto-enrollment provisions, which requires employers with 200 or more employees to automatically enroll their employees in a health insurance plan unless the employee opts out. This provision, which saves $8 billion over ten years, was included in the Bipartisan Budget Act that just became law, so it is no longer available for this bill. The second involves repeal of the Independent Payment Advisory Board (IPAB), the panel charged with controlling Medicare spending growth. Lawmakers dropped this provision and its $7 billion ten-year cost prior to passage due to concerns that it would jeopardize the bill's ability to be passed via reconciliation.

Rough Estimate of the House Reconciliation Package
  Ten-Year Cost/Savings (-)
Individual and employer mandate repeals -$181 billion*
Medical device tax repeal $24 billion
Cadillac tax repeal $91 billion
Prevention Fund repeal -$13 billion
Planned Parenthood defunding/Community health centers <$1 billion
Total -$78 billion
Memorandum: Dropped/Nullified Provisions
Auto-enrollment repeal -$8 billion
IPAB repeal $7 billion

Source: CBO, Joint Committee on Taxation
*Includes $12 billion of revenue from interaction between mandates and Cadillac tax repeal

November 9, 2015

CRFB’s new Fiscal FactCheck project released an infographic today comparing the costs of several GOP presidential candidates’ tax plans. So far, the Tax Foundation has scored plans from Bush, Cruz, Jindal, Paul, Rubio, Santorum, and Trump. Although these plans offer a number of thoughtful improvements to the tax code, they would also add trillions to the deficit. See how the candidates stack up below:

November 6, 2015

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.

November 6, 2015

The recently-enacted budget deal does not offset its ten-year cost like advocates have claimed, but what about the longer-term impact?

The deal clearly falls short of fiscal responsibility in the shorter term and relies in part on timing gimmicks, but the costs are temporary and some of the savings do grow over the long term. As a result, by our rough estimate, the bill will eventually pay for itself, but only after 20 years.

Given our country's fiscal situation, this is quite a long time to wait for a bill's costs to get paid back, which is why legislative scoring rules normally require costs to be offset within 10 years.

Moreover, the bill takes even a few years longer to pay for itself if you don't count the Social Security savings that are being used to close 1.5 percent of Social Security's total shortfall. It's with good reason the pay-as-you-go rules do not allow off-budget savings (e.g., from Social Security) to pay for on-budget costs. The same money cannot be used twice. If one accepts trust fund accounting for Social Security, money from the trust fund cannot be used to pay for general costs unless funds are explicitly transferred out of the trust fund.

(See the link for more on the unified budget and on-budget vs. off-budget effects.)

November 5, 2015

The Bipartisan Budget Act of 2015 is now the law of the land. While the law does not necessarily prevent a government shutdown, it does raise the sequester-level discretionary spending caps to provide for eventual full funding of the government. In addition, it utilizes (and possibly expands) the war spending gimmick.

The novelty of Overseas Contingency Operations (OCO) funding in the budget deal is that it allows OCO to be used as a slush fund for nondefense discretionary spending via the State and Foreign Operations appropriations bill. When appropriators write up an omnibus appropriations package, they could conceivably shortchange the State and Foreign Operations bill, subject to budget caps, by about $8 billion while increasing the unoffset and uncapped OCO funding to the full level provided in the budget deal – about $15 billion – thus backfilling State and Foreign Operations. By doing this, it frees up room under the nondefense discretionary spending caps for other nondefense spending. Appropriators would be able to spread about $8 billion over the other subcommittee allocations. For the first time, OCO could seemingly become a slush fund for both the Department of Defense and the rest of the nondefense budget. For more on the FY 2016 appropriations process, see our appropriations watch.

So how did we get here? The section of the budget deal on OCO sets amounts of it for both defense and international nondefense spending for both Fiscal Years (FY) 2016 and 2017 at $58.8 billion for defense and $14.9 billion for international nondefense. Last year’s $74 billion in OCO was divided roughly by $65 billion for defense and $9 billion for international nondefense. Relative to the baseline, which assumes FY 2015 levels adjusted for inflation, the $58.8 billion for defense, if appropriated, wouldn't increase spending, but the $14.8 billion for international nondefense would do so by roughly $5 billion in one year.

November 2, 2015

During last week's debate on the Bipartisan Budget Act of 2015, Sen. James Lankford (R-OK) offered up an amendment making many further changes to the Social Security Disability Insurance (SSDI) program beyond the ones already included in the law.

Sen. Lankford's amendment contained a number of well-known ideas for improving the program, including some presented by the McCrery-Pomeroy SSDI Solutions Initiative.

November 2, 2015

The budget deal recently signed into law relied heavily on one-time savings and gimmicks to offset the costs of the package, with less than half of the full cost offset by real savings, but it did include a few permanent savings from real entitlement reforms.

Unfortunately, before the ink was even dry on the agreement there were reports that Congressional leaders had agreed to reverse one of the few real reforms in the package, regarding crop insurance.

CBO Score

The version released last Monday night included crop insurance reforms which the Congressional Budget Office (CBO) estimated would save $3 billion over ten years. The provision would change the target rate of return on investment (ROI) for private companies which sell subsidized crop insurance plans from 14.5% of total premiums to 8.9%.

As Eric Belasco and Vincent Smith of the American Enterprise Institute noted in a post regarding this provision, the effective government guarantee of positive underwriting gains over the long term largely protects private crop insurance companies from risk. Citing a recent USDA study, CBO has said that the current ROI for crop insurance companies is higher on average than that of other private insurance companies.

October 30, 2015
Happy Halloween from CRFB

With the Senate passing the Bipartisan Budget Act of 2015 in the wee hours of the morning the bill now heads to the President's desk for signature. For Halloween we are weighing in on the tricks and the treats in this bill.


October 29, 2015

The recently-introduced Bipartisan Budget Act of 2015 tackles a laundry list of items that lawmakers needed to address over this Congress, including the upcoming exhaustion of the Social Security Disability Insurance (SSDI) trust fund. Because the Social Security Trustees and the Congressional Budget Office (CBO) had estimated that the trust fund would run out of reserves by the end of 2016 and in the beginning of Fiscal Year (FY) 2017, respectively, leaders included a payroll tax reallocation to shore up the trust fund. This is coupled with very modest changes to Social Security, including one that would close loopholes in the Old-Age and Survivors' Insurance (OASI) program as well as a number of measures that affect the disability program.

According to estimates from Social Security's Chief Actuary, the changes would improve long-term solvency of the combined OASDI trust fund by 0.04 percent of payroll over 75 years. Over the next 10 years, the Chief Actuary estimates these changes will save the trust funds between $5 billion and $9 billion, and CBO estimates these changes will save about $3 billion. This bill would close 1.5 percent of the 75-year shortfall and reduce total Social Security costs by about 0.1 percent.

October 29, 2015

This blog is part of the “Fiscal FactCheck” series designated to examine the accuracy of budget-related statements made during the 2016 presidential campaign. 

Last night, the GOP candidates convened for their third debate of this campaign season. This debate highlighted many budget issues including entitlements, debt, deficit, and the economy. We conducted a live analysis of the candidates’ claims on Twitter at @FiscalFactCheck and posted out findings at our fact check site of

For easy reading, we've summarized our coverage below. Full details are available at our FiscalFactCheck page.  

1. Entitlements

Governor Christie again claimed that Social Security will be insolvent in 7 to 8 years, however this is largely false because the Social Security Trustees estimate that the combined trust funds will be depleted by 2034 (in 19 years). Even the Harvard-Dartmouth study that Christie cites does not give a specific insolvency date. Senator Rand Paul was correct to say that the ratio of workers to Social Security beneficiaries has declined from 16:1 to 3:1. Senator Paul also correctly said that the average person pays $100,000 in lifetime Medicare taxes while receiving about $350,000 in benefits.

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