December 19, 2014

Posts on national debt

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Monday, July 26, 2010 - 3:51 PM

New projections released on Friday afternoon by the Obama administration show that the nation’s finances remain in a deep deficit ditch. This was hardly “news,” but it served as a pointed reminder that much hard work needs to be done to get us back on the road to fiscal sustainability.

In updating the President’s Fiscal Year 2011 budget proposals, the Mid-Session Review (MSR) does not pretend that all will be well once the economy recovers or that getting tough with earmarks and waste will meet the fiscal challenge. The MSR assumes a swift economic recovery and a three-year freeze on non-security appropriations. Yet even with these optimistic assumptions, the budget remains on a path that the administration concedes is unsustainable.

As stated in the MSR Summary, “the economy is still struggling; too many Americans are still out of work; and the Nation’s long-term fiscal trajectory is unsustainable, threatening future prosperity.”

Those looking for good news could point to the fact that the deficit for Fiscal Year 2010, which ends Sept. 30, is now projected to be $1.47 trillion instead of $1.56 trillion. However, a deficit equaling 10 percent of the economy (GDP) as opposed to 10.6 percent is hardly cause for celebration.

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Monday, July 26, 2010 - 2:34 PM

Prime Minister David Cameron’s visit last week to the United States underscored the important relationship between the U.S. and Britain, both politically and economically.

Britain’s new coalition government faces tremendous challenges, many of which are similar to the United States’ problems.  Britain’s public debt was 68 percent of GDP at the end of 2009; the comparable figure for the U.S. was 53 percent.

Cameron’s coalition aims to slash government spending over the next five years.  The eventual goal is to cut Britain’s annual budget deficits in half over five years, which will mean some ministries will face funding reductions of up to 40 percent.  Even the popular National Health Service (NHS) will be ordered to make personnel cuts, although overall it will face much lighter cuts than other ministries.  About 75 percent of deficit reduction will be achieved with budget cuts while the other quarter presumably will come from raising revenues.

The proposed cuts in Britain stand in stark contrast to the three-year freeze on domestic discretionary spending President Obama has proposed.  Although broad generalizations cannot—and, indeed, should not—be drawn from these figures, it is clear that both the U.S...

Monday, July 19, 2010 - 2:22 PM

The International Monetary Fund has given Americans a tough-minded analysis of the challenges we face in putting the country on a more responsible fiscal course. While a recent IMF report points to some bright spots in the U.S. economy and praises federal policies in some key areas, it offers less upbeat predictions than the Obama administration has issued. More belt-tightening, the international organization warns, will be needed in the next few years and beyond.

“The (U.S.) authorities’ commitment to halve the budget deficit by 2013, and intention to stabilize public debt at just over 70 percent of GDP by 2015 are welcome, although much remains to be done to achieve these aims,” the report says. “Given that we use less optimistic economic assumptions than the (Obama) administration, we see the need for more ambitious adjustment to stabilize debt than that envisioned by the authorities . . . “

The IMF praises the Obama administration’s plans for a freeze on non-security domestic spending. But it also cautions that more tax revenue will be necessary as well. The report bolsters The Concord Coalition’s long-standing contention that both spending cuts and tax increases will likely be needed...

Wednesday, June 30, 2010 - 2:46 PM

Imagine if Congress held a vote in the next few months on a bill that cut nearly $3.7 trillion in income taxes, added $350 billion worth of loopholes and deductions to the tax code, and increased Medicare spending by $236 billion.

There might be quite an uproar. After all, we are experiencing the largest deficits in history with increasing awareness of our clearly unsustainable long-term outlook.

Yet, this bill is effectively being passed by Congress, sometimes in decisions made on a month-to-month basis and sometimes annually, through multiple bills that contain Medicare doctor payment "fixes," extenders, Alternative Minimum Tax (AMT) patches, and through the big upcoming push to extend some or all of the Bush tax cuts. Members from both parties have voted time and again over the last 10 years for this bill.

Today's release of the Congessional Budget Office (CBO) long-term outlook highlights the deleterious effect of these decisions on the budget outlook both over the short term and the long term. In it, CBO constructs a baseline of where current law would take us and a baseline of...

Thursday, June 24, 2010 - 9:00 AM

A Washington Post editorial today sums up a bunch of different strands of thinking about the federal budget that Concord has been writing about and talking about a lot recently. One is that the country can "walk and chew gum" at the same time when it comes to short-term actions to help the economy that may involve increased deficits and long-term planning to confront the nation's real fiscal challenges. Another is that the current debate in Congress over the cost of tax-extenders is failing to focus on their merits while the overall fiscal challenge continues to go unexamined. A third is that we generally do know what actions need to be taken to reform federal programs over the long run -- but that members of Congress lack the political courage to act, and hopefully the President's fiscal commission can begin to...

Wednesday, June 16, 2010 - 12:23 PM

Debate on the so-called “extenders” bill has focused on the size and duration of unemployment benefits, health insurance assistance for those who recently lost their jobs, Medicare physician payments, state aid for health care and various offsets to mitigate the overall effect on the deficit.

Conspicuously missing from the debate is any scrutiny of the extenders themselves. It’s a missed opportunity to raise needed revenue while simplifying the tax code and broadening the tax base -- goals that economists of all ideological stripes have long advocated. 

Both the House and Senate versions of the extenders bill contain more than 60 narrowly targeted tax breaks that expired last year. Extending them just through this year will cost about $32 billion. The long-term cost runs to over $350 billion. That cost will add to the debt unless it is offset by corresponding tax increases or spending cuts that may prove more harmful to the economy than failing to renew some, or all, of the extenders. 

At a time when the President is commendably urging all federal agencies to identify their lowest priority and least effective items, Congress should devote the same level of scrutiny to the tax code. The extenders would be a good place to...

Monday, June 14, 2010 - 3:05 PM

If the Obama administration follows through on its newly announced effort to identify and weed out unproductive federal programs, it could build public confidence and support for more sweeping fiscal reforms in the future.

The White House has asked federal agencies to submit lists of the programs that are “least critical” to their missions.  These programs should total at least 5 percent of  each agency’s budget, according to a memo issued by Rahm Emanuel, the President’s chief of staff, and Peter Orszag, the White House budget director.

It would be easy to dismiss the administration’s announcement of this effort as simply a public relations exercise.  But two points are worth noting:

  • Administration officials say they are considering not just paring back many programs but eliminating them entirely. This would be consistent with the concerns they have expressed in the past over redundant programs. If one program will do the job, we don’t need two – or two dozen.
  • The President wants Congress to pass legislation that would create a...
Wednesday, June 9, 2010 - 12:04 PM

The Obama administration has announced a very small effort to reduce deficit spending, and yet liberal groups are attacking them for promoting a policy that will kill the economy – or at least prolong the recession. And conservatives continue to argue that any “stimulus” spending is by definition “wasteful” – especially if they don’t get how a less-idle economy might benefit themselves personally.

But “fiscal hawks” can walk and chew gum at the same time. It’s possible to argue for more and better stimulus at the same time that you call for greater fiscal responsibility. Here are two prime examples, starting with Concord's executive director, Bob Bixby. He was quoted in a CQ Weekly story by Clea Benson (subscription required):

Robert Bixby, the executive director of the Concord Coalition, is at the forefront of the effort to publicize the dangers of uncontrolled federal spending. But even he worries that the economy is not yet at a point where it makes sense to forgo extending...

Monday, June 7, 2010 - 3:45 PM

How large is the federal debt? That's something of a trick question in economic circles, and some analysts believe it may have already tripped up the President's fiscal commission.

Some commission members think the panel, charged with recommending solutions to the nation’s fiscal problems, should focus on the total federal debt. That figure, which just hit $13 trillion, is most familiar to the general public because it is widely cited by the news media and politicians.

Many budget experts and economists, however, say the real number to watch is “publicly held debt,” meaning what the government owes to investors. This figure, now approaching $8.6 trillion, does not include money that the government owes to various trust funds, notably for Social Security.

Beyond this issue is the question of how much more debt the government can safely take on. Fiscal commission members tussled over that at their second full meeting late last month on Capitol Hill, with some arguing that the economy was still too weak for the government to start focusing on deficit reduction.

“It’s very important that we don’t in our zeal focus on deficit reduction right now,” said Rep. Jan Schakowsky, an Illinois Democrat.

Regardless of which figure the commission focuses on, federal debt is...

Monday, June 7, 2010 - 3:34 PM

Public concern about the nation’s rising debt burden is beginning to have an impact on the legislative agenda.  

That much was evident as the House passed a scaled back “extenders” bill (H.R. 4213) on May 28 by a slim margin. Originally estimated to have a gross cost of $192 billion and a net deficit increase of $134 billion, the final bill carried a gross cost of $114 billion and a net deficit increase of $54 billion.

While this cost reduction was a victory for House Democrats -- mainly Blue Dogs -- who objected to the deficit impact of the original bill, much of it was accomplished by timing shifts rather than a change in policy. For example, shortening the extension period of certain unemployment benefits “saved” about $8 billion and sunsetting an increase in the Medicare physician reimbursement rate (the “doc fix”) after 19 months “saved” almost $40 billion. 

It remains to be seen whether concerns about the immediate deficit, which is largely driven by economic conditions, will be translated into hard choices on the long-term structural deficit. 

In that regard, it is worth noting that the policies extended in the extenders bill carry large long-term costs whether they become visible now or in the...