EconomistMom.com
…because I’m an economist and a mom–that’s why!

EconomistMom.com

The Hypocrisy of the GOP’s New-Found Love for Medicare “As We Know It”

August 31st, 2009 . by economistmom

This post was inspired by an email exchange I had with Bruce Bartlett this morning, which I’ll quote from a little later, but Bruce didn’t use the word “hypocrisy”–that’s my own fairly careful choice of words after giving it some thought and reading this explanation of what “hypocrisy” means, from Wikipedia (my emphasis added):

Hypocrisy is the act of pretending to have beliefs, opinions, virtues, feelings, qualities, or standards that one does not actually have. Hypocrisy is thus a kind of lie. Hypocrisy may come from a desire to hide from others actual motives or feelings.

Hypocrisy is not simply an inconsistency between what is advocated and what is done. Samuel Johnson made this point when he wrote about the misuse of the charge of “hypocrisy” in Rambler No. 14:

“Nothing is more unjust, however common, than to charge with hypocrisy him that expresses zeal for those virtues which he neglects to practice; since he may be sincerely convinced of the advantages of conquering his passions, without having yet obtained the victory, as a man may be confident of the advantages of a voyage, or a journey, without having courage or industry to undertake it, and may honestly recommend to others, those attempts which he neglects himself.”[1]

By the above interpretation, I’d say President Obama is not being a hypocrite, because his Administration has put forth some policy proposals that they truly want to see happen.  They’re sincerely convinced of the need to expand health care coverage.  They’re sincerely convinced of the importance of fiscal responsibility and the need to both “bend the health cost curve” over the longer run and offset the cost of their proposal over the first ten years.  And they’ve offered up a way they think they can honor all those goals.  It’s just not yet clear that President Obama will be able to “follow through” on those strong convinctions–i.e., be “strong and powerful” enough to achieve those goals (claim “victory”) in whatever policies actually, eventually, get enacted.  (It’s like David Wessel said the other day:  President Obama from here forward will be judged on his achievement and not just his effort.)

Why do I accuse the Republicans of being hypocrites on this issue of health care reform?  (And by the way, don’t worry–there are and will be plenty of other things I can accuse Democrats of being hypocrites on.)  Because I don’t think the Republicans really want to “protect” Medicare “as we know it”–the way they’re pretending, claiming, or at least strongly suggesting via the town hall protests against the President’s health reform plan.  As Ronald Brownstein wrote in the National Journal last Friday (my emphasis added):

Republican National Committee Chairman Michael Steele’s pledge this week to “protect Medicare” might have been more convincing had it not come five months after nearly four-fifths of House Republicans voted to literally end the program as we know it for all Americans younger than 55.

They cast that vote on April 2 in support of a GOP alternative budget plan that would have converted Medicare from an open-ended entitlement that guarantees seniors virtually unlimited access to care into a voucher system that provides future retirees only a fixed sum of money to purchase private health insurance. That approach — a variation of legislation Republicans actually passed through the House when they controlled it in 2003 — has some advocates among health policy experts. But this longstanding GOP prescription for Medicare emphatically violates most of the six principles that Steele enshrined this week as the pillars of a Republican “Health Care Bill of Rights” for seniors.

Although Republicans are accusing President Obama of embarking on a “risky experiment” by pursuing Medicare cost savings to help fund universal coverage, by any measure the plan that House Republicans endorsed this spring represents a much more wrenching change in the program

With polls showing seniors uneasy about Obama’s health care plans, Steele this week committed Republicans to six reassuring goals on Medicare. Among them were avoiding cuts in the program and ensuring that seniors can keep their current coverage. But those pledges are flatly incompatible with the Medicare agenda that Republicans have pursued for the past decade — and reaffirmed with their vote this spring…

Rep. Paul Ryan of Wisconsin, a leading GOP fiscal thinker…insert[ed] into the House Republican budget an especially aggressive version of premium support. Ryan proposed to maintain the existing Medicare program, which is open to seniors once they turn 65, for all current recipients and anyone else who is at least 55 today. But the bill mandated that all younger Americans, once they turn 65, would instead receive a voucher to purchase private insurance (with sicker and poorer seniors receiving larger vouchers). In Ryan’s proposal, unlike the 2003 Republican plan, new retirees would not even have the option of buying into traditional fee-for-service Medicare once the voucher system is implemented; Medicare as it now exists would disappear once the last retirees still eligible for it passed away. House Republicans backed the GOP budget including that plan to phase out conventional Medicare this April by a vote of 137-38, but it was rejected amid unanimous Democratic opposition.

Ryan, like other proponents, argues that premium support would provide seniors “more direct control over health care decisions” while saving Washington money. But critics like [AARP's John] Rother say that converting Medicare into a voucher would increase costs for all beneficiaries and over time force less-affluent seniors to accept lower-quality care. “It is a very dangerous idea,” he says.

And why would Paul Ryan propose such a “dangerous idea”?  Because it’s only with severe cuts to Medicare spending that he could keep taxes as a share of GDP at the 40-year historical average (deemed somewhat “magical” by the GOP) of 18 percent.  See for yourself; here’s a chart of the effect of the GOP alternative budget on long-term federal spending provided by Paul Ryan himself, in his op-ed in the Wall Street Journal (published on 4/1/09):

ryan-gop-alternative-from-wsj-article-april09

See where the red line ends, at around 18 percent of GDP?  See how big that gap is between spending under the blue-line Democratic budgets (keeping Medicare at status quo) and spending under the red-line GOP alternative budget?  You see, “keeping taxes low” is a far greater priority for Republicans than is “protecting Medicare”–or certainly Medicare “as we know it.”

And as Bruce Bartlett wrote in an email this morning (quoted with his permission), whatever it is the Republicans really want to do about Medicare, they’re certainly not fessing up to it with the American public.  Either they want to cut Medicare (a lot), or they don’t (and I think they do)–or as Bruce put it (my emphasis added):

We see all these demonstrators protesting Obama’s health care plan and the right wingers are eating it up. But most of these protesters are seniors upset about the extremely modest Medicare cuts that Obama wants to finance universal coverage.  And these cuts are just a drop in the bucket compared to what would be necessary to keep Medicare spending from rising as a share of GDP, which is what would be required to prevent the necessity of raising taxes.  Can you imagine how big the protests would be if Congress really tried to cut Medicare?

And if the Republicans don’t want to cut Medicare by a lot (i.e., if they’re now saying “never mind” on the Ryan alternative budget), then the Republicans (yes, even the Republicans) will  have to acknowledge that taxes will have to come up.  Again from Bruce’s email:

I think it would have been better for Obama to have financed his health plan with some sort of dedicated tax—VAT, payroll tax, whatever.  If people didn’t want health reform enough to pay the tax then maybe it wasn’t something worth doing. Keep in mind that people will pay higher taxes for something they really want. Social Security was enacted in the middle of the Great Depression and included new taxes on a vast number of people who had never paid a penny of income taxes in their lives.  Moreover, benefits weren’t paid out for several years, so in the sort run it was a pure tax increase with no offsetting benefit.  But FDR sold it.

So I guess President Obama will have to “sell” his vision for health care reform with conviction and honest advertising, and Congress and the American people will have to “buy” it–or else the President’s efforts will turn into, not a hypocrisy, but at least somewhat of a failure.

What Is “Plausible” for the Fiscal Outlook?

August 29th, 2009 . by economistmom

washpost-deficits-graphic-082909

The first definition of “plausible” on dictionary.com is:

plausible

[plaw-zuh-buhl]

having an appearance of truth or reason; seemingly worthy of approval or acceptance; credible; believable: a plausible excuse; a plausible plot.

Note that it doesn’t say “likely” or “probable”–it connotes the notion of possibility not probability.  I bring this up because many folks, especially the media, want to interpret the “Concord Coalition Plausible Baseline” as our best forecast of what the fiscal outlook will turn out to be.  No, we’re not saying that’s the most likely outcome; we’re saying that’s a plausible, possible outcome.  And it’s a worst-case scenario, because that’s what we do at Concord: we warn about the possible really bad outcomes if we don’t start making more responsible choices–because we don’t want them to happen.

[*Note:  the following paragraph was revised late Saturday...]

On today’s front page of the Washington Post, Lori Montgomery does an excellent job of laying out the different projections of budget deficits over the next ten years (see the graphic above)–explaining how the CBO baseline shows deficits of $7.1 trillion, while OMB shows $9.[1] trillion (rounding up $9.051 trillion) based on their own economic forecast, while the cost of Obama Administration budget policy applied to CBO’s baseline suggests the larger figure of $10.3 trillion, while if all the (2001 and 2003) Bush tax cuts were made permanent the deficits would grow to $11.3 trillion.  (The latter two estimates come from Bill Gale of Brookings.)  Then there’s Concord’s “plausible” figure of $14.4 trillion, so one might wonder: what really is “plausible” out of all those estimates?

The answer is that they all are “plausible” estimates of the fiscal outlook going forward over the next ten years–the full $7.3 trillion range of possibilities is indeed all possible and all within the control of policymakers.  We’re not talking about re-writing history or even re-writing (repealing) current tax law.  The main point of Lori’s story was to highlight the thorny issue of what the Obama Administration will do about their campaign promises about tax policy now that the deficit outlook is so much worse and the Bush tax cuts seem even more unaffordable than they used to.  And in showing the different deficit projections and explaining what they have to do with the Bush tax cuts, Lori is pointing out the following facts, which really represent choices or different “plausible outcomes”:

  1. Current law commits to the Bush tax cuts only until the end of 2010 ($7.1 trillion in deficits);
  2. but President Obama has proposed to extend most of the Bush tax cuts in his budget proposal ($9.1 - $10.3 trillion); and
  3. therefore Obama Administration tax policy is not that different from where we’d end up if we extended all of the Bush tax cuts (as Senator McCain had wanted to do had he become president) ($11.3 trillion).

…and throw Concord’s “plausible baseline” into the mix, which relative to Bill Gale’s $11.3 trillion estimate adds in the permanent extension of all the other expiring tax cuts (over $2 trillion with interest costs) as well as a higher estimate for spending which assumes it grows with the economy (boosting spending by about $1 trillion on net after adjusting the baseline defense spending assumption downward), both as estimated by CBO in Table 1-7 of their outlook (pages 24-25), and you get $14.4 trillion in deficits as another possibility (”plausible outcome #4″), too.

So the full ($7.3 trillion) range of estimates–from $7.1 trillion in deficits all the way up to $14.4 trillion in deficits, is all “plausible” in my opinion.  Outcome #1 could happen if Congress and the Administration left town, didn’t enact any new policies, and let the nation continue on autopilot with the laws currently on the books.  OR outcome #1 could happen if any new spending or tax cuts that Congress and the Administration put into law (that’s ANY and ALL new stuff, not just the stuff covered under Congress’ “pay-as-you-go” rules which now exempt the Bush tax cuts and never included “discretionary” spending) were fully paid for/offset instead of being deficit financed.  At the opposite extreme is the Concord Plausible Baseline, which would occur if current policies were all to be permanently extended without paying for any of them–i.e., through continued deficit financing. To be clear and to be fair, this is not Concord’s estimate of deficits under the Obama Administration’s budget, because, as prime example, the Administration proposed: (i) to extend most, but not all, of the Bush tax cuts (still via deficit financing); and (ii) to permanently extend the Making Work Pay tax credit but in a fully offset manner using climate policy revenues.

My point is that these deficit projections are all uncomfortably large, but the Administration certainly has a wide “opportunity set” in front of them.  They could do anything from the one extreme of NOT extending any of the Bush tax cuts (or fully paying for whatever they choose to extend or whatever new tax cuts they’d rather have) all the way to the opposite extreme of making permanent all of the tax cuts currently in place and not paying for any of it.  There are many fiscal paths the Obama Administration can choose among, and choices over tax policy are a huge factor, as emphasized in the Washington Post story by both Bill Gale and Dave Walker (and my emphasis added):

“If you rule out inflating our way out of the problem and defaulting on the debt, there are two ways [to reduce the deficit]: Cut spending or raise taxes,” said William G. Gale, an expert on fiscal policy at the Brookings Institution. With more than 80 percent of federal spending devoted to politically untouchable programs such as Social Security, Medicare and Medicaid, he said, “it’s going to be really hard to make significant headway on the spending side. So that means you’ve got to think about taxes.”

“There’s no question in my view that Bush was the most fiscally irresponsible president in the history of the republic,” said David M. Walker, the comptroller general under Bush who now advocates for deficit reduction. Obama “was handed a bad deck,” he said. “But the question is, are you making it better or not? And so far the answer is no.”

Obama could raise taxes without taking any legislative action. If he let all the Bush tax cuts expire next year and refused to enact legislation to restrain the alternative minimum tax, deficits would be about $200 billion a year lower and the debt would stop growing as a percentage of the economy, according to Gale’s analysis of new data from the nonpartisan Congressional Budget Office. But that would mean big tax increases for most American families, violating Obama’s pledge

Although the deteriorating economy has certainly been a huge challenge to the fiscal outlook over the past year, what constrains which of these “plausible outcomes” can come true is not the economics as much as the politics–how much political courage the Administration and Congress can muster, hopefully bolstered by Americans who recognize it’s time to face up to tough choices.

The Republicans and Medicare: Do They Believe What They’re Saying?

August 28th, 2009 . by economistmom

rnc-question-on-health-care

(Republican National Committee survey question–reproduced from Brad DeLong’s website.)

Bruce Bartlett puzzles over what he sees as the bizarre behavior of the Republican Party regarding health care reform:

Once upon a time, the Republican Party opposed open-ended entitlement programs like Medicare as a matter of principle, often paying a heavy political price for doing so. But those days are gone. Today, the GOP not only doesn’t oppose entitlements, it has become their defender. This is perhaps the biggest reversal in American politics since the Democrats went from being the party of Southern racists for 150 years to being the party of civil rights in the 1960s…

Said Reagan, “Behind it [Medicare] will come other federal programs that will invade every area of freedom as we have known it in this country until one day, as [Socialist Party leader] Norman Thomas said, we will awake to find that we have socialism.”

The “slippery slope” argument has been a staple of conservatives’ thinking for decades–they claim that every government program is the first step on the road to socialism. And, as economist F.A. Hayek argued in his 1944 book, The Road to Serfdom, that inevitably leads to totalitarianism.

This argument continues to be made today in the health care debate, even though it is transparently false. The nations of Europe have governments much larger than ours and long had national health insurance without suffering the sort of tyranny that was certain to have come about by now if Hayek was even remotely correct…

After taking control of Congress in 1995, Republicans made a serious effort to cut Medicare, which went nowhere when Bill Clinton rejected the effort. To their credit, however, they persisted in their efforts to control entitlements and were able to actually abolish a federal entitlement program, welfare, the following year.

But in 2003, George W. Bush reversed the longstanding Republican opposition to Medicare–most Republicans in Congress voted against it in 1965–and supported a vast expansion of the program even though its trustees were forecasting an imminent and rapid deterioration of its finances.

Bush desperately wanted to get reelected in 2004 and was willing to throw every Republican principle under the bus to achieve it…

The final step in the Republicans’ transformation into the party of Medicare came this year. In their desperation to defeat Obama’s health reform, they shamelessly frightened the elderly with false claims that the legislation would have them all euthanized. Republicans also repeatedly emphasize the fact that much of the financing for Obama’s plan would come from cuts in Medicare–payback for the Democrats’ attacks on them back in 1995.

Turnabout is fair play, but Republicans are digging themselves into a hole by portraying themselves as Medicare’s eternal defenders. In an article in the Washington Post on Aug. 24, Republican National Committee Chairman Michael Steele said that Medicare must be protected at all cost. If health reform is to be done, he said, it will have to be done without reducing Medicare by even a single penny…

In my opinion, Republicans would have been better off holding Obama’s feet to the fire on his promise to reduce long-term health spending–bend the curve, as he puts it–and make Democrats do the heavy lifting on getting Medicare under control. It could have been a win-win for both parties.

I think Democrats want universal coverage badly and are willing to pay a lot to get it. Republicans could have used this desire to get Democratic cover for fundamental Medicare reform. But that would have required Republicans to think strategically and negotiate with Democrats in good faith…

Bruce attributes this odd attitude of the GOP toward Medicare to political cleverness–what Republicans see as a politically savvy way to turn seniors against (Obama’s) health reform–not that Bruce thinks it’s clever.  Brad DeLong explains it a little more plainly as he points out Andrew Samwick’s puzzling over this same (odd) GOP behavior: Brad’s simple explanation is that “the Republican Party’s leading politicians are all now bats— insane.”

I just question whether the Republicans feel good about what they’re saying and how they’re contributing to the health reform debate, given what they think their party stands for.  I don’t know the answer; I’m not a Republican.  I’m just a fiscally-conservative Democrat, and I’m just asking.

David Wessel: It’s Barack Obama’s Economy Now

August 27th, 2009 . by economistmom

The Wall Street Journal’s David Wessel is right. President Obama’s been blaming the “failed policies” and “irresponsible choices” of the Bush Administration for the weak economy and record deficits. But just because they were President Bush’s mistakes doesn’t mean President Obama can’t learn from them. And he can start by not repeating them, by being “strong and powerful”–not just eloquent and inspiring.  It’s Barack Obama’s economy now.

And Where Could We Find These “Factors” and “Things”?

August 26th, 2009 . by economistmom

august_cbo_plaus_baseline

A section in the summary of the Administration’s Mid-Session Review discusses the “long-term fiscal challenge”–using it to motivate health care care reform, while acknowledging that the policy work shouldn’t fall solely on health care reform or we’ll surely fall short (my emphasis added):

This [long-term fiscal challenge] is why the President is committed to reforming the health insurance system this year. The Mid-Session Review identifies a total of $954 billion over 10 years to pay for health reform, about two-thirds from savings in Medicare and Medicaid and one-third from revenue measures. The Administration is committed to passing health insurance reform that is deficit neutral over the next 10 years and that is on a stable trajectory as the decade ends…

Although health care is at the core of the country’s long-term fiscal problem, the fiscal situation will demand more action once the economic recovery is fully underway. That is why the President is committed to addressing the shortfall in the Social Security system and the other important factors affecting the long-term fiscal situation.

It reminds me a lot of Secretary Geithner’s “other things from a few weeks ago.  Why does the Administration have such a hard time saying “taxes”?

The fact is that those taxes are the most tangible policy the Administration can grab onto now.  The “Concord Plausible Baseline” we released yesterday is intended to bridge the gap between the policies baked into current law and those that could (quite) “plausibly” be put in place in the future.  But that’s key:  they could be put in place, but they don’t have to be….because they’re not law yet.  CBO’s current-law baseline shows a 10-year deficit of $7.137 trillion.  Concord’s plausible baseline shows a 10-year deficit of $14.447 trillion–more than double.  But if you decompose the bridge to the plausible baseline between adjustments for possible future tax cuts and those for possible future spending , assigning the debt service (interest cost) burden of the tax cuts to the revenue side of the policy ledger, here’s how it divides up:

  • Of the $7.310 trillion added to the CBO baseline to get to the Concord Plausible Baseline, $6.160 trillion (84 percent) is attributable to “plausible” future tax cuts (beyond current-law tax cuts).
  • Only $1.150 trillion (16 percent) is attributable to “plausible” future spending (beyond current-law (CBO-baseline-projected) spending).

So those “factors” and “things” are pretty big factors and things, and I hope the Administration will start getting more assertive about them–you know, show me how strong and powerful they can be.  ;)

You Think $9 Trillion Sounds Bad?

August 25th, 2009 . by economistmom

How about $14 trillion?  $9 trillion ($9.051 trillion) is the Obama Administration’s 10-year deficit projection based on their own economic forecast and their own estimate of the costs of their policy proposals (as proposed in their FY2010 budget).  $7 trillion ($7.137 trillion) is the Congressional Budget Office’s 10-year deficit projection based on their economic forecast and policies already in place in current law.  If you start with CBO’s more pessimistic baseline budget outlook of $7 trillion in deficits (by the way, the equivalent pre-policy baseline estimated by the Administration is $6.259 trillion), then add in the CBO-estimated cost of policies that have a good chance of coming true in the future (but aren’t yet written into law), you can come up with a projection that is perhaps more “plausible” than both the Administration’s (optimistic) $9 trillion and CBO’s (naive baseline-constrained) $7 trillion.  That’s what we at Concord try to do when we come up with our “Concord Plausible Baseline,” which based on today’s CBO report shows that current policy would lead to $14.4 trillion in deficits over the next 10 years.

Here’s a link to our press release, where of course, my big soap box is the need for tax reform, or at least a rethinking of whether extending most of the Bush tax cuts (especially via deficit financing) makes any good economic sense:

“Today’s numbers illustrate that we have a revenue crisis in the federal budget as much as a health care crisis. The federal revenue system is clearly failing to keep up with our nation’s spending needs. Since last September, the 10-year revenue forecast has shrunk by over $3 trillion solely due to deteriorating economic conditions. What’s troubling is that even without any more tax cuts and even after the economy is expected to recover, today’s reports show revenues will continue to fall short. It is time to rethink tax policy, from the deficit-financed extensions of the 2001 and 2003 tax cuts proposed by the administration, to an even broader look at how to increase the revenue base,” said Concord Coalition Chief Economist Diane Lim Rogers.

And the bottom line from Concord’s perspective?  My boss, Bob Bixby, says it best:

“The routine budget process has produced an unsustainable outlook. It is unrealistic to think that this will change without some mechanism to compel consideration of the hard choices that have been ducked in the past. Regardless of the outcome of this year’s health care reform debate, there will be a need to address other contributors to the structural deficit such as Social Security growth and inadequate revenues,” Bixby said.

Already I’m Hearing Confusion About the Two Budget Reports

August 25th, 2009 . by economistmom

The headlines are that CBO’s budget outlook says that deficits will total $7.1 trillion over the next ten years, which is “almost $2 trillion less” than what the Administration says they’ll be ($9.051 trillion).  But the CBO outlook is based on current law, before accounting for any of the policies President Obama has proposed in his budget.  If you compare “apples to apples” CBO shows in this table that OMB’s outlook is actually more optimistic than CBO’s:  $6.259 trillion for OMB (based on current law) versus $7.137 trillion for CBO.

Is it coincidence that the difference between the CBO baseline and the Administration’s budget forecast (with their policy proposals) is just about $2 trillion?  No.  That’s just about the cost of extending the Bush tax cuts that President Obama has proposed to extend, which CBO previously scored at $1.9 trillion (in their June report), not including debt service.  (Now CBO (and the Joint Committee on Taxation) might score it as slightly less, because their estimate of the cost of extending all of the tax cuts has come down slightly (from $2.4 trillion to $2.3 trillion), now that the revenue forecast has come down yet again.  More on that later.)

UPDATE 12:30 pm:  here are some facts from the CBO report:

  • CBO baseline (2010-19), August:  $7.137 trillion deficit — up from $4.441 trillion in March, a $2.7 trillion deterioration.
  • Biggest reasons for deterioration of CBO outlook since March (in order of magnitude):  higher net interest (+$943 billion), higher assumed defense spending (+$802 billion), lower revenues (-$372 billion), and higher non-defense discretionary spending (+$272 billion).  (Those four categories account for nearly $2.4 trillion of the $2.7 trillion deterioration.)
  • The change in the net interest estimate is due to both a higher forecasted ten-year Treasury rate for the next two years, plus the CBO’s anticipation that “the Treasury will conduct future borrowing using longer-term securities”–so a composition effect as well.  This seems a plausible adjustment to the CBO forecast.
  • The higher defense spending is due to CBO’s practice of extrapolating new supplemental funding, so is probably an overestimate.  (Note that Concord will remove this assumption of permanently higher defense spending in our “plausible baseline”–forthcoming later today.)
  • The lower revenues are just a continuation of the deterioration in the federal revenue base that CBO has well documented.  Since last September (less than a year ago), CBO’s ten-year revenue outlook has declined by more than $3 trillion due just to deterioration in the economic outlook. (Legislative changes since September have contributed only about $250 billion toward the ten-year revenue decline.)  Remember that these adjustments to the revenue outlook are based solely on current law, without any of the expiring tax cuts (including the Bush tax cuts) extended.
  • In the CBO’s adjustments for policy alternatives not included in their baseline, the temporary tax cuts included in the recovery package are a big new factor.  Back in January, the extension of temporary tax cuts added $588 billiion to the ten-year deficit (without debt service); now they add $1.794 trillion to the deficit (without debt service), largely because of the new temporary tax cuts included in ARRA, most of which are supposed to be “stimulus tax cuts” and so perhaps can be more realistically expected to expire and not be permanently extended.  But one of those temporary tax cuts in ARRA was the temporary extension of the Making Work Pay credit which the Obama Administration proposes to extend permanently in their budget.  (The Administration proposed to pay for that extension–and not deficit finance it–with climate policy revenues.)
  • Compared with the Obama Administration’s “BEA” (pre-policy) baseline (”apples to apples”), CBO is more pessimistic about ten-year revenues (projects $2.190 trillion less in revenues than OMB), but CBO is more optimistic than OMB about spending (projects $1.313 trillion less in spending than OMB).  On net, CBO’s baseline forecast shows $878 billion more in deficits than OMB’s pre-policy baseline, although they show lower deficits in the earlier part of the budget window (2010-2013) and higher deficits in the latter part (2014-2019).  In 2019, CBO forecasts a deficit that is $269 billion worse than what OMB forecasts (pre-policy):  CBO’s 2019 deficit is $722 billion (3.4 percent of GDP) versus OMB’s pre-policy deficit of $453 billion (which would be just under 2 percent of GDP using Administration’s more optimistic forecast for 2019 GDP).  (Under Obama budget proposals, OMB says the 2019 deficit would be $917 billion, or 4.0 percent of GDP.)

First Glimmer of the OMB Budget Report

August 25th, 2009 . by economistmom

From the Washington Post’s Lori Montgomery, filed at 9:30 am:

The $787 billion economic stimulus package President Obama signed earlier this year is likely to cost “tens of billions of dollars” more than expected, helping to drive projections for next year’s budget deficit to $1.5 trillion, White House budget director Peter Orszag told reporters.

With unemployment climbing, costs for a variety of stimulus programs are running higher than anticipated, Orszag said, including expanded unemployment benefits, food stamps and energy grants. In an interview embargoed for release Tuesday morning, Orszag said he could not estimate the overall cost of the package, but he called Republican estimates of $900 billion “slightly high.”

Orszag’s comments came as the White House officially released new projections for the nation’s budget deficit, forecasting some good news for the current year but bad news for the future…

[G]overnment spending on social programs will continue to soar while tax collections will lag behind expectations. Instead of $1.3 trillion, the deficit in the fiscal year that starts Oct. 1 is likely to exceed $1.5 trillion, the White House said. And deficits are likely to remain elevated even after the economy recovers, averaging more than $800 billion a year through 2019, when the White House forecasts the annual gap between spending and revenue will be $917 billion.

All told, the White House predicts that the nation will have to borrow an additional $9 trillion over the next decade to finance the annual deficits, driving the accumulated national debt to nearly $23 trillion in 2019 — or 76.5 percent of gross domestic product, the highest since 1950…

That news was expected, as was this “spin” (emphasis added):

Despite the grim outlook, Orszag and Romer insisted that the stimulus package is working and said the nation’s economy would be in far worse shape without it, an opinion shared by many outside analysts. Orszag also defended the president’s call for a sweeping expansion of the nation’s health system, saying reform is essential to reining in the skyrocketing costs of Medicare and Medicaid, the health programs that are expected to drive deficits even higher in coming decades.

“I know some will say this report proves we can’t afford health reform. I think that analysis has it backwards,” Orszag said. “Given the long-term nature of that problem, we simply can’t afford to wait.”

Orszag also blamed the administration of Obama’s predecessor, George W. Bush, for the gloomy budget picture, arguing that more than half of the borrowing that will be needed over the next decade stems from Bush’s refusal to pay for expensive new policies, such as sweeping tax cuts, the war in Iraq and a new prescription drug benefit for Medicare recipients.

But what’s a nice little surprise for me is this from Peter:

As president, Obama has called for maintaining some of those policies – he would extend some of the Bush tax cuts beyond their 2010 expiration date, for example. But in light of the new deficit figures, Orszag hinted that Obama may revisit some of those decisions when he submits his next budget in February.

“Whatever their cause, the administration is very concerned about those outyear deficit figures,” Orszag said, “and getting those deficits under control is a top priority of this administration.”

:)

More soon…

10 am:  Midsession report is posted here now.  CBO’s report is now here.  Startling news is that CBO’s baseline (current law) forecast shows 10-year deficits of $7.1 trillion now; prior estimate was $4.4 trillion.  More than $2 trillion more in spending explains it…  Summary Figure on page xi of the CBO report says it all (and remember, that’s withOUT the Bush tax cuts extended)…

The Fiscal Wake Up Tour Goes On…Watch It LIVE on Budget-Day Tuesday!

August 25th, 2009 . by economistmom

GO HERE

We at the Concord Coalition are venturing into new territory today; the Fiscal Wake-Up Tour will be webcasted live on our site (we hope!)… (As if today were not exciting enough with both the Administration and CBO updated budget outlooks coming out!)

Here’s our announcement:

WATCH ONLINE AS U.S. SENATOR SUSAN COLLINS JOINS THE FISCAL WAKE-UP TOUR TO DISCUSS NATION’S FISCAL CRISIS

On Tuesday, August 25th, from 12:30 pm – 2pm, United States Senator Susan Collins will join The Concord Coalition’s Bob Bixby, the Honorable David M. Walker of The Peter G. Peterson Foundation, William Marshall of The Progressive Policy Institute and Stuart Butler of The Heritage Foundation for a presentation of The Concord Coalition’s Fiscal Wake-Up Tour in Kennebunkport, Maine.

We invite you this watch this event live at:

www.concordcoalition.org

The Fiscal Wake-Up Tour aims to explain in plain terms why budget analysts of diverse perspectives are increasingly alarmed by the nation’s fiscal outlook. The Fiscal Wake-Up Tour has been profiled in “60 Minutes” and a recent documentary entitled I.O.U.S.A.

Please join us online!

The Clunker Contest Is Over

August 24th, 2009 . by economistmom

hengewidesnd

Well, the “Cash for Clunkers” program ended earlier this evening (Monday).  It started as a $1 billion program that was expected to go on for four months (the original rule was from July 1st through Nov. 1st, or when the money ran out).  It ended up a program triple the size (after $2 billion in additional funds were added) that managed to run out of funds in less than half the time.

Whether the program was that wise for the environment and resource “conservation” could certainly be questioned (I worried here about the wasteful death of still-useful vehicles turned in as “clunkers”), but the program has been an obvious success as a pure fiscal stimulus program:  it brought customers to the dealerships, and they indeed bought the new cars without the usual (especially recessionary) hemming and hawing and mulling the purchases over.  Potential buyers knew it was “now or never” to get the $4500 federal rebate before the money ran out, and the contest-like feel to the program really kicked those competing American consumers into action.

Now we’ll watch to see what happens in the aftermath of the program.  Will it have served as an effective and sustainable “jump start” to the U.S. auto industry?  Or will it have merely concentrated the timing of car purchases into these past few weeks without having boosted demand over the longer run?  Will the autoworkers called back to the assembly lines still have their jobs a few months to a year from now?

I never went to the dealer with my minivan, deciding I wanted to try to “recycle” my van at the “proper” time, rather than rush to kill it.  (My van would have ended up like part of “Carhenge” pictured above.)  As soon as I decided to opt myself out of the Cash for Clunkers pool, I realized I had no incentive to rush out to the dealerships, and that, in fact, I’d better wait until the clunker dust settled before shopping for my new car.  Now everyone is out of the Clunkers pool, and instead of it feeling like a contest, it may start to look like a dance where everyone’s back to being wallflowers.

« Previous Entries