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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.  ;)

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

  1. comment number 1 by: Marty Sullivan

    Diane –

    Factors, things, and other stuff. I love it when you get technical.

    My guess–given that I now count at least three on-the-record references to “social security reform” for FY2011 budget–and that Obama proposed social security tax on +250K during campaign–that the budget early next year will include a social security tax on wages in excess of $250K. This achieves all the desired objectives: (1) a move toward fiscal sustainability; (2) a repair of SS finances; and (3) no violation of Obama’s “no-new-tax [on <$250K]” pledge.

    Regards, ms.

  2. comment number 2 by: GBWhite

    Could the Concord Coalition have mislabeled the chart? It looks like the 2019 plausible baseline deficit is $19.4 not $14.4. And on another note, not to pick on obvious errors but the year 20010 seems like an awful long way off. This chart leaves me wondering if any errors were made in the analysis or just the presentation.

  3. comment number 3 by: GBWhite

    After 6 minutes of refelction and reviewing the data from the CC, I assume that the $14.4 is a cumulative total and the chart outlines annual deficits? If that is tha case, the cumulative shoudl be $16.03T. Where is the $14.4T coming from? There is something amiss with the total on-budget and off-budget figures from the CBO baseline. Either the $14.4 is correct and there is a surplus of $945B in 2019 or the actual “plausible baseline” is $16.03 based on a $722B CBO on and off budget baseline deficit in 2019.

  4. comment number 4 by: Brooks

    Diane,

    Re: you know, show me how strong and powerful they can be. ;)

    I like that “challenge the manliness” approach ;) May not work with Romer, but with the rest of the bunch, probably will. We guys are pretty jack*ssy that way.

  5. comment number 5 by: murf

    Fact: Every time the government estimates the price of a program, it turns out to be exponentially more expensive than they predicted. Fact: The “savings” in Obamacare are not specified. Fact: Taxes act as a drag on economic growth. Conclusion: Enacting yet another government program (one might call this “the mother of all programs,” in the midst of an economic crisis in which the Fed must play a shell game in which they buy their own debt )http://www.chrismartenson.com/blog/shell-game-how-federal-reserve-monetizing-debt/25806), is a prescription for disaster.

  6. comment number 6 by: SteveinCH

    I’m still new to reading this blog but I’m not sure I buy the underlying premise. It’s not surprising to me that there is a big number under the “tax cuts” part of this since the Obama budget as I understand it, proposed increasing the Federal government share of GDP through taxes to nearly 21% from the long term average of 17.4 (postwar). If one assumes it will stay close to 17.4 for whatever reason, that would produce quite a large gap.

    Comparing the tax gap and spending gap is apples and pears (not a big fan of oranges). Since both are simply measures of assumptions. What is means de facto is that Concord is more comfotable with Congress spending what is says it’s going to spend than taxing as it says it is going to. That’s not particularly surprising given the nature of Congress and doesn’t say much to me about the nature of tax policy or spending policy.

    A better way to look at it would be to say that the Obama budget proposes expanding the spending side of the ledger by about 500 bps versus baseline and the tax side by 200 or 250. Concord disbelieves that the tax side will increase by that much (and I agree) and believes the spending side will go up a bit more (I also agree subject to financing constraints). The bigger issue is spending at 25% of GDP. I cannot imagine that being sustainable under any circumstance unless it was going to be matched by corresponding reductions on the state and local side which I view as exceedingly unlikely