The Bottom Line

October 28, 2015
Tonight’s Resource for Candidates’ Claims on Fiscal Matters

We are pleased to launch the Fiscal FactCheck series, a project of the Committee for a Responsible Federal Budget. Beginning during tonight’s presidential debate and continuing throughout the 2016 campaigns, our experts in budget, tax, health, and spending policy will evaluate the truthfulness of the candidates’ claims on fiscal and economic issues.

October 28, 2015

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.

October 27, 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.

Today, Republican presidential candidate and former Florida Governor Jeb Bush unveiled a new plan – among the most detailed we have seen so far from any presidential candidate – to reform Social Security and Medicare. According to our estimates, Gov. Bush's plan would save about $285 billion (including interest) over ten years and very roughly $2.7 trillion over twenty years. It would also close Social Security's shortfall over 75 years and beyond.


October 27, 2015

Lawmakers are currently considering a budget deal that would increase appropriated spending, suspend the debt limit until March 2017, reallocate revenue to the Social Security Disability Insurance trust fund, and avoid a spike in some Medicare premiums. Although this bill is being hailed as a fiscally responsible sequester replacement bill, we estimate that when interest is added and gimmicks are removed, only half of the bill's cost is truly paid for.

The legislation includes about $80 billion of direct sequester relief and another $8 billion of Medicare premium relief. But when you include the additional $31 billion increase in war spending (a gimmick that lets policymakers backfill discretionary spending without offsets) and $36 billion of interest costs, the total cost of the bill rises to $154 billion.

Of this $154 billion, about $78 billion is paid for honestly: through a combination of Medicare reforms, reductions in farm subsidies, increases in PBGC premiums, asset sales, tax compliance measures, and other changes (plus the subsequent interest savings). The legislation also includes $20 billion of phony or double-counted savings, mainly from pension smoothing and other timing gimmicks but also from $3 billion of crop insurance savings that lawmakers have promised to repeal later. And the remaining $56 billion of the legislation – mostly the war spending increase and interest costs – is not paid for at all.

October 26, 2015

Over the weekend, the Washington Post editorial board wrote a piece praising the sequester plan that Rep. Scott Rigell (R-VA) released last week. The plan replaces three-fourths of the sequester's discretionary spending cuts and repeals the mandatory sequester while offsetting the $765 billion cost with $820 billion of smarter savings.

The Post notes that the looming threat of the sequester has been paralyzing the budget process, so lawmakers will need to come together to agree on funding levels for FY 2016 (and beyond). Rigell's plan is a reasonable way forward, proposing smart entitlement reforms with potential bipartisan support to replace the blunt sequester cuts:

Ideally, Republicans and Democrats would work on a long-term plan to lift sequestration for both military and domestic programs, paid for with a mix of taxes and savings — the latter including entitlements, which are the true cause of the country’s fiscal predicament.

Anyone looking for ideas should read the bill Rep. Scott Rigell (R-Va.) introduced Wednesday. Mr. Rigell’s proposal would restore 75 percent of the sequester cuts, a total of $765 billion in restored spending (over 10 years), divided evenly between defense and domestic priorities, just as President Obama wants. It would pay for $200 billion of this through new revenues, achieved by eliminating tax breaks for upper-income Americans and applying the more accurate “chained CPI” inflation adjustment to the tax code — huge concessions to the Democrats from a member of the no-new-taxes party.

The vast majority of the remaining savings in Mr. Rigell’s plan come from entitlements, including a series of Medicare reforms, many drawn from Mr. Obama’s past proposals, worth $455 billion. He would apply the chained CPI to Social Security, thus reducing future cost-of-living adjustments, but with built-in protections for the poorest beneficiaries. Mr. Rigell unfortunately gives back about $25 billion by repealing the medical device tax, but other than that shortsighted attack on Obamacare’s funding, the bill is a remarkably balanced, non-ideological approach.

October 26, 2015
Too much debt, not enough solutions

Alan Simpson is a former Republican senator from Wyoming, former co-chair of the Simpson-Bowles Fiscal Commission, and a member of the Committee for a Responsible Federal Budget. Maya MacGuineas is the president of the Committee for a Responsible Federal Budget. They wrote an op-ed for The Denver Post. It is reposted here.

October 26, 2015

Recent press reports indicate that the ongoing budget negotiations between Congressional leaders and the White House may lean on the use of the Overseas Contingency Operations (OCO), or war funding, account to boost defense spending. Doing so would allow them to spend above the defense budget caps without offsetting the cost.

As policymakers work toward a plan to offset the cost of sequester relief, they should resist the temptation to make their job easier by relying on the OCO gimmick. We recognize that there is significant pressure to increase defense spending above the caps. Indeed, over 100 House Republicans signed a letter insisting on at least $38 billion above the Fiscal Year (FY) 2016 cap for defense, or $561 billion total.

As Congressional Quarterly reported (paywall) recently, the author of the letter, Rep. Michael Turner (R-OH) said:

“We would be willing to do OCO  . . .  As long as we get the aggregate amounts of spending, I think we’re comfortable that we will have funded our national security,” Turner said.

October 23, 2015

The Senate Budget Committee held a hearing this week, the first in a series, on the need to reform the federal budget process. Testifying were Michael Peterson, President and CEO of the Peter G. Peterson Foundation, Douglas Holtz-Eakin, President of the American Action Forum and former Congressional Budget Office (CBO) Director (2003-2005), and Deborah Weinstein, Executive Director for the Coalition on Human Needs.

Chairman Michael Enzi (R-WY), began the hearing pointing out the many problems with our country’s current budget process and how it has failed taxpayers. He highlighted how a well-managed budget process is supposed to strengthen democracy by giving citizens a better idea of government’s role and ensuring that their tax dollars are being spent wisely.

Enzi noted that prior to this year’s balanced budget resolution, the last time one was passed was in 2001. He further explained that once the budget resolution establishes the top spending levels, Congress must pass 12 annual spending bills before the start of each Fiscal Year, but in the past 40 years, the appropriations bills have been done on time in only four years. Enzi noted:

In most years, Congress didn’t even come close to enacting all annual spending bills, in 15 of them, not even one appropriations bill was enacted on time. Instead, there were 173 short-term spending bills (CRs) to prevent government shutdowns, funding the government for an average of 186 days per year, more than half of the year.

October 23, 2015

Senator David Perdue, the junior senator from Georgia, and Maya MacGuineas, president of the Committee for a Responsible Federal Budget, wrote a guest post for The Hill's Congress Blog.  It is reposted here. 

As recently as 2007, our gross federal debt was 63 percent of the economy but has risen to over 100 percent this year and is projected to continue to exceed the size of our entire economy for some time if we don’t act. By the end of President Obama’s tenure in office, the United States will have added over $9 trillion to the national debt. It will require leadership to change course, and the current presidential campaign is an ideal forum to discuss this dangerous trend and to propose serious solutions. 

Unfortunately, the discussion so far has not focused on our national debt. In fact, it has barely been mentioned. With over 70 questions in over five hours of debate in the first two Republican presidential debates – not one single question has been about fixing the debt.

We need a substantive national conversation about our red ink, and the next presidential debate on October 28 among the Republican presidential contenders is a prime opportunity to address this issue. After all, the winning candidate won’t be able to escape the debt. The next president will inherit a gross federal debt of about $19 trillion.  

October 21, 2015

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.

October 20, 2015

We are coming down the home stretch of calendar year 2015, with only a little more than two months left. Lawmakers will have to get to work as they have four "Fiscal Speed Bumps" – mandatory budget deadlines – to deal with. The first comes just next week as the authorization for highway spending will be expired by October 30, or federal highway spending will cease. The Treasury Department has also told Congress that the debt ceiling will need to be raised by November 3, or they will run dangerously low on cash on hand and risk default.

In December, lawmakers will need to agree on FY 2016 spending levels and fund the government before December 12 either with full appropriations bills or another continuing resolution. Without a funding deal, the government would shut down. And by the end of the year, lawmakers face a soft deadline for retroactively reviving the 50+ tax breaks, called the extenders, which expired at the end of 2014.

October 19, 2015

September 30th marked the end of the Fiscal Year, and the final numbers are in.  The deficit for last year was $439 billion, according to the final report by the Treasury Department (a previous estimate from the Congressional Budget Office (CBO) had projected the deficit at $435 billion). We've released a short paper FY 2015 Deficit Falls to $439 Billion, but Debt Continues to Rise that shows even though this is roughly 10 percent below the FY 2014 deficit and nearly 70 percent ($439 billion) below its 2009 peak ($1.4 trillion), the country remains on an unsustainable fiscal path.

Click here to read the full paper

The decline in deficits from 2009 to 2015 was largely expected as a result of the recovering economy and the fading of measures intended to boost the recovery. While legislated spending reductions, tax increases, and other factors have played a role in reducing short-term deficits, the long-term challenge is still largely unaddressed: growing mandatory spending and relatively flat revenue are projected to cause deficits and debt to rise over the next decade and beyond, with trillion-dollar deficits returning by 2025, if not sooner.

October 15, 2015

Republican Presidential candidate Gov. John Kasich (R-OH) has released an "Action Plan" that plots a path to (on-)budget balance by 2025. Perhaps not surprisingly for a former House Budget Committee chairman, his plan is more akin to a Congressional budget resolution, laying out numbers and some specifics but not all of the policies necessary to get to those numbers. His plan includes reforming the tax code, downsizing some federal programs, retaining non-defense discretionary spending restraint, and provides general ideas for Medicare. Overall, it is an encouraging commitment to deficit reduction, and we look forward to seeing more details to achieve the savings he calls for.

Kasich's plan calls for the on-budget deficit – the deficit excluding Social Security and the Postal Service – to be eliminated by 2025, leaving about a $250 billion total budget deficit. His plan calls for $2.6 trillion of savings through 2025, mostly concentrated in health care and apparently revenue. These savings would put debt on a downward path to 67 percent of Gross Domestic Product (GDP) by 2025, about 10 percentage points lower than CBO's baseline.

Kasich's tax reform plan intends to raise $1 trillion of revenue through 2025, judging by its revenue totals, despite specifically mentioning cutting taxes and detailing many more changes that would cut taxes than ones that would raise taxes. It is not clear whether the plan relies on aggressive assumptions about economic growth to raise revenue or relies on reducing unspecified tax breaks.

October 14, 2015

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.

October 14, 2015

In an op-ed for the Washington Post, Robert Samuelson called attention to a new report by the National Academies of Sciences, Engineering, and Medicine which found a notable increase in the life expectancy gap. In his piece, Samuelson points out the disparity means more federal spending going towards wealthy retirees who may not need help.

October 13, 2015

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.

October 13, 2015

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.

October 12, 2015

Republican presidential candidate Louisiana Governor Bobby Jindal announced his tax reform plan with a centerpiece that promises to ensure every American pays at least a little tax. The plan cuts taxes for individuals and eliminates the corporate tax and estate tax.  Finally, it taxes capital gains and dividends as ordinary income under three consolidated brackets. According to one estimate, the plan would cost $9 to $11.4 trillion, which represents about one-quarter of all government revenue.

Individual Income Tax Reform
Governor Jindal’s plan would consolidates the tax brackets from seven to three – 2 percent, 10 percent and 25 percent, with most citizens falling into the middle bracket of 10 percent instead of the 15 and 25 percent brackets they're taxed at today. This plan is similar to, but reduces rates more aggressively than, either Jeb Bush’s or Donald Trump’s plans.

In addition to lower rates, the plan identifies several other tax cuts including:

  • Repealing the Alternative Minimum Tax (AMT)
  • Consolidating existing savings incentives into a tax-free savings account with a cap of $30,000 per year.  Currently uncapped accounts like 529 plans, would not be subject to the new restrictions.
  • Eliminating the marriage penalty (and increasing marriage bonuses).
  • Eliminating all Affordable Care Act taxes.

Jindal’s plan would be partially paid for by:

  • Eliminating the personal exemption and standard deduction, but adding a new, nonrefundable dependent credit
  • Eliminating all itemized deductions except for the charitable and mortgage interest deductions, while reducing the cap for the mortgage deduction by 50 percent.
  • Taxing all capital gains at ordinary rates (the top rate would increase from 23.8 to 25 percent)

Interestingly, this plan is one of the few campaign plans so far to address the largest tax break – the unlimited exclusion for employer-provided health insurance, which would be replaced with a new standard health deduction available to anyone with health insurance.

October 7, 2015

Lawmakers may be taking action to prevent a steep premium and deductible hike for some Medicare beneficiaries next year, but should make sure to be fiscally responsible in doing so. Although some lawmakers claim acting before October 15 will reduce the cost, in reality it will only hide the cost and thus increase deficits.

As we explained previously, Medicare premiums typically rise every year, but this time it's complicated by the fact that there will likely not be a Social Security cost-of-living adjustment (COLA) for next year. That will will put into motion a "hold harmless" provision that exempts most Medicare beneficiaries from the standard annual premium increase. As a result, other Medicare beneficiaries will shoulder the entire increase that would have been split by everyone, resulting in a 52 percent increase in premiums for those beneficiaries.

Lawmakers are considering options to avert the increase. The cost of any relief should be fully offset, but some lawmakers appear eager to take advantage of a quirk in Congressional Budget Office (CBO) scoring procedures that would allow them to avoid paying for most of the roughly $8 billion cost if they act before October 15. House Minority Leader Nancy Pelosi (D-CA) referred to this in her remarks at a press conference earlier today:

For reasons that I won’t go into – if we act by October 15th, this will cost the taxpayer less in the overall budget. If we act before October 15th, it will have less of an impact on states. We must act so that we stop the pain that will be inflicted upon our seniors.

October 7, 2015

Adding to the list of things lawmakers want to get done before the end of the year, Congress may take up a relatively obscure Medicare issue that could have significant consequences for some Medicare beneficiaries. Earlier today, House Democrats held a press conference calling for lawmakers to avert a significant Medicare premium increase that could hit a small subsection of beneficiaries next year, and a resulting increase in deductibles for all Medicare beneficiaries.

The issue at stake is the "hold harmless" provision that bars annual increases in Medicare Part B premiums from exceeding the dollar amount of a beneficiary's Social Security cost-of-living adjustment (COLA) for most enrollees. The provision usually does not come into play because Social Security benefits are generally much larger than Medicare premiums, meaning that even a small COLA should cause a large enough benefit increase to clear the bar.

However, with gas prices falling and remaining well below last year's prices, the Social Security Trustees predicted during the summer that there would be no Social Security COLA at all this year since there would be zero inflation. At the same time, Medicare Part B premiums will increase for 2016 because they are calculated for most beneficiaries as being roughly one-quarter of the average per-person Part B costs, which have grown; the deductible grows at the same rate.

Roughly 70 percent of Medicare Part B beneficiaries, therefore, will be protected from premium increases in 2016 due to the hold harmless provision, but the remaining 30 percent would have to shoulder the entire increase necessary to keep premiums at 25 percent of program costs (although the majority of these have their entire premium covered by Medicaid). These 30 percent include:

  • High-income beneficiaries who pay higher premiums at 35-80 percent of program costs;
  • New beneficiaries;
  • Beneficiaries who have not started receiving Social Security;
  • Low-income beneficiaries who have their premiums paid by Medicaid; and
  • Certain state and local employees who do not participate in Social Security.
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