April 23, 2014

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Monday, March 28, 2011 - 12:00 AM

Updated April 3, 2012

The Government Accountability Office (GAO) recently updated its report on the federal government’s long-term fiscal outlook. The report underscores the serious problems our country faces if it continues on its current fiscal path.

Here are some of the projected milestones for the years ahead, based on one of the scenarios in the GAO's report (the "alternative simulation"* ):

  • 2023 -- Net interest costs would exceed Medicare
  • 2025 -- Federal debt held by the public would exceed the Gross Domestic Product (GDP)
  • 2025 -- Social Security, Medicare, Medicaid and net interest would consume all government revenues.
  • 2029 -- Net interest costs would exceed Social Security
  • 2037 -- Net interest would exceed both Medicare and Medicaid
  • 2038 -- Debt held by the public would exceed 200 percent of GDP
  • 2039 -- The federal deficit would exceed all government revenues.
  • 2046 -- The deficit would reach 22.6 percent of GDP, more than the entire federal budget in 2008 (22.4 percent of GDP).
  • 2047 -- Federal debt held by the public would equal 300 percent of GDP
  • ...
Thursday, March 24, 2011 - 3:30 PM

Budget-watchers in Washington are quite interested in how Republican Paul Ryan, chairman of the House Budget Committee, will write a budget that will achieve the numerous and sometimes conflicting aims of his conference. The difficulties facing him are the subject of a recent Concord Coalition issue brief, which we just updated to reflect the new numbers from the CBO's Preliminary Analysis of the President's Budget. 

Ryan faces the need to show noticeable progress on deficits (within at least five to 10 years) because the new Republican majority feels one of the main reasons they were elected in November was because voters were angry about large deficits. He also faces a group of freshmen Republicans who were elected on platforms that primarily called for cuts in non-defense, discretionary programs, while promising to protect defense spending, cut taxes, and not talk too much about the long-term spending challenge in popular entitlement programs.

As the issue brief illustrates, through a hypothetical...

Monday, February 28, 2011 - 4:15 PM

Even if the new Economic Report of the President had actually discussed better ways to raise revenue or to make Social Security and Medicare programs more sustainable, it would have judiciously avoided using the controversial words “taxes” or “entitlements.”

But this wasn’t just semantics. The President’s Council of Economic Advisers (CEA) avoided the substance of the “tough choices” on tax and spending policy – you know, all that “fiscal responsibility” and “living within our means” that the President often mentions in the abstract.

And with their main theme for this year’s report being “The Foundations of Growth,” the advisers completely left out an explanation of how large, persistent deficits harm economic growth by reducing national (public plus private) saving.

“At the core of the Nation’s economic growth is our capacity to innovate, educate, and build,” the advisers say early in Chapter 3. The rest of the chapter is devoted to the innovating, educating, and building while just assuming we already...

Thursday, February 17, 2011 - 12:40 PM

I’m thrilled to announce that The Concord Coalition is laying the groundwork for the 2011 session of The Peter G. Peterson Foundation Fiscal Internship Program. Piloted last year, this program awards stipend-supported internships focused on fiscal issues at different public policy institutions around Washington, DC. While each intern works on their own project with a scholar at a hosting institution, all students in the program come together once a week over the 10-week session for a seminar with a participating organization. With the generous support of the Peterson Foundation, this program introduces students from around the country to the political and policy realities of the federal budget, and gives them hands-on experience in defining solutions to our nation’s fiscal challenge.

Last summer’s successful first run of the Fiscal Internship Program placed five students with internships where they worked on projects ranging from tax expenditures and pension programs, to the complex relationships between federal, state, and local budgets. While each internship experience was unique, the chance to come together each week helped the group develop a shared understanding of the federal budget, and the landscape of institutions that study it. 

For the summer of 2011, we have expanded the opportunities of the...

Monday, February 7, 2011 - 10:20 PM

A flurry of commentary greeted the unsurprising news last week that Social Security is paying out more than it is taking in. According to the Congressional Budget Office (CBO), the Social Security cash deficit for 2010 was $37 billion and will rise to $45 billion this year. The one-year payroll tax holiday enacted in December would actually leave the 2011 deficit much larger ($130 billion), but general revenues will be credited to Social Security to make up for the loss of payroll tax income.

Looking ahead, CBO now projects that Social Security will run perpetual cash deficits, amounting to $547 billion through 2021. By that year, CBO projects that Social Security outlays will exceed cash income by $118 billion.

Viewed as a percentage of the gross domestic product (GDP), Social Security’s cost will grow from 4.8 percent this year to 5.3 percent in 2021.

Running a cash deficit does not mean that full benefits cannot be paid. When there is a shortfall in cash income, Social Security can draw on its trust fund balance to continue issuing checks. Currently, the trust fund has a balance of $2.7 trillion and is projected to remain “solvent” until 2037. But this method of “financing” only serves to demonstrate why the government’s largest program will become a growing budgetary challenge.

The trust funds...

Monday, January 10, 2011 - 12:16 PM

Urban Institute scholar Gene Steuerle has run the numbers and found that for Medicare, retirees are getting a really good deal.

In a fascinating set of calculations, Steuerle and colleague Stephanie Rennane, looked at both Social Security and Medicare and estimated the levels of benefits relative to taxes (and premiums for Medicare) paid for many different levels of income and years of retirement.

For Social Security, prior generations received substantially more benefits than taxes paid, while current retirees and those in the future who earn average and above-average wages are scheduled to receive slightly less cash benefits than taxes paid. The lowest income workers are scheduled to still get more in benefits than taxes paid. 

For Medicare, however, their conclusion is that, "Past and current retirees, and most working age adults, will never pay for all of their benefits."

The basic reason is that Medicare payroll taxes, which only go towards Medicare Part A (hospital insurance), combined with premiums (which are set at levels to pay for about 25 percent of Medicare Part B costs), only cover 51 to 58 percent of total Medicare ...

Tuesday, December 28, 2010 - 2:49 PM
With the ink barely dry on a $858 billion tax cut and emergency spending bill, lawmakers were hit with an official reminder last week that steps to rein in the nation’s growing debt cannot be postponed much longer.

According to the 2010 Financial Report of the U.S. Government, released on December 21 by the Treasury Department, “under current policies and the assumptions used in this report the debt-to-GDP ratio will continually increase over the next 75 years and beyond, which means current policies are not sustainable.”

The report further warns, “the longer policy action to avert these trends is delayed, the larger the projected revenue increases and/or spending decreases necessary to reach a target debt-to-GDP ratio.”

These conclusions were contained in a new section of the annual Financial Report titled ”Statement of Long Term Fiscal Projections.” In assessing the present value of projected non-interest spending and revenues over the next 75 years, the report estimates an average gap of 1.9 percent of GDP. Persistent deficits of this magnitude would cause the debt-to-GDP ratio to steadily rise from 62 percent...

Thursday, December 16, 2010 - 4:55 PM

The legal term severable normally gets little notice outside the world of constitutional law -- yet now it has become a big buzzword amongst health care analysts and federal budget wonks. The reason has to do with the numerous legal challenges to the Accountable Care Act's individual mandate to purchase health insurance. 

A U.S. District Court Judge in the Eastern District of Virginia recently declared the mandate unconstitutional. He also declared it severable from the rest of the health care reform legislation. This means that even though he found that one provision is unconstitutional, he held that the rest of the legislative package is constitutional and can continue on its path to full implementation. If the courts ultimately agree with this judge's interpretation, the budgetary results could become disastrous without congressional action.

While we have discussed the primacy of the individual mandate in making health care reform work (here and here,) it makes sense to revisit the issue of...

Monday, December 6, 2010 - 11:54 AM

By now we've seen a number of proposals for fiscal sustainability from groups with very different perspectives. Some of the harshest critics of the bipartisan deficit-reduction panels are liberal-leaning groups that argue that the recommendations of the President's commission, as well as those of the Bipartisan Policy Center and the MacGuineas-Galston plan, leaned too heavily toward the conservative side and proposed packages that were too heavy on spending cuts and too insistent on keeping taxes (too) low. (I may agree that I would have preferred more revenue increases in the overall mix than the President's commission proposed, but I don't think that should lead me to declare the overall proposal "dead on arrival" or to reject the the individual policies contained within it.)

I've looked at two...

Monday, November 22, 2010 - 5:52 PM

My least favorite argument in deficit reduction debates is that a particular option can’t be chosen because it is too unpopular. If that criterion is strictly applied, we might as well fold our tents and wait for the inevitable fiscal crisis because we’ll never eliminate trillion-dollar deficits with “popular” options.

That message was clearly conveyed last week by the Bipartisan Policy Center’s Debt Reduction Task Force, led by two veterans of past deficit-reduction efforts, Pete Domenici and Alice Rivlin. Their report followed a similarly tough message from Erskine Bowles and Alan Simpson, co-chairs of the President’s bipartisan fiscal commission.

Elected officials have not flocked to embrace these reports and it is easy to see why. They propose spending cuts in popular programs. They challenge cherished tax breaks and raise revenues in the process. They produce howls of protest from powerful interest groups on the political left and right.

But they each do one more thing: They outline plausible paths to a sustainable fiscal policy.

As a member of the Bipartisan Policy Center’s task force, I’m very proud of the resulting report. We worked together in a spirit of cooperation and compromise....