Federal Budget

Health Care Reform In The Next Administration

Francie Grace — Mon, 27 Oct 2008 12:18:14 -0400

No matter who wins on November 4th, one thing we know for sure: neither the health care reform plan advocated by Barack Obama, which builds on employer-provided insurance, nor that favored by John McCain, who argues for a free market system with tax credits to help some on affordability, is going to be enacted as is. So says health care policy expert Drew Altman, speaking at the Maxwell School/Public Agenda Policy Breakfast series. "My view," says Altman, is "it will be a centrist deal, or no deal at all." For more on this and other key issues, see our Voter's Survival Kit.

The Crisis After This One

Scott Bittle — Mon, 20 Oct 2008 13:59:03 -0400

More and more economists are arguing that a global financial crisis isn't the time to worry about the federal deficit. A wide range of budget expert and economists – even the ones who'd normally be considered budget hawks -- say the government has to do whatever it takes to stabilize the financial markets, get credit flowing, and mitigate the recession that's almost certainly upon us. If that means running deficits, they argue, then that's what we'll have to do.

And make no mistake about it: the federal government will run deficits over the next few years. The Congressional Budget Office projected deficits of more than $400 billion for the next two years, even before the global financial crisis hit. Since then, we've added a $700 billion bailout plan, and the next presidential administration will very probably add some sort of additional stimulus package to that. That could add up to an unprecedented $1 trillion deficit next year.

Despite any campaign rhetoric you may have heard, it's going to be almost impossible to balance the budget under those circumstances. You can't possibly cut spending enough or raise taxes enough to bring those figures into line without doing massive damage to vital programs or to the broader economy.

So, fair enough. When you're trying to put out a fire, you don't worry about how much water you're using. No one wants the U.S. economy to wind up like Japan in the 1990s. The real challenge facing us will be making sure the solution to the current crisis doesn't set us up for the next one.

It's absolutely true, there are times when running a deficit makes sense. And if the government only ran in the red during recessions and national emergencies, we'd be laughing. But in this country, we routinely ask more of the government than we're willing to pay for. The U.S. has run a deficit for 31 of the last 35 years, and we weren't in a constant state of crisis for those decades. Deficits are the default setting, and they make it harder to deal with real emergencies when they do crop up.

Secondly, the long-term outlook for the federal budget is very, very ugly. Every expert who looks at the long-term state of the budget uses the same word to describe it: unsustainable. The national debt has reached a staggering $10 trillion, and we've got another $53 trillion in liabilities ahead of us to pay for Medicare and Social Security for the baby boomers.

The national debt and those future liabilities could represent the next crisis, after this one. Unless we get the government's financial house in order, unless we find a way of paying for Medicare and Social Security, we'll be looking at a government debt crisis that could be just as painful – and just as avoidable – as the current financial meltdown.

The good news is that, unlike the global financial meltdown, we still have time to deal with the federal budget. Not much time, perhaps, but some. The key thing now is to cope with the current credit crisis and slumping economy without making our long-term budget problems too much worse. We probably can't avoid adding to the national debt to get through the current emergency. But we can at least make sure the money we're borrowing is used wisely: to stimulate the economy and make decisions that will strengthen us in the long run. And we can – we absolutely must -- start the hard work of fixing Social Security and Medicare before they get out of hand.

Otherwise, we may find a second fire has been smoldering while we're been preoccupied with putting this one out.

The Third Debate: What Would Joe the Plumber Do?

Scott Bittle — Thu, 16 Oct 2008 13:12:13 -0400

This morning most of the pundits are saying the last presidential debate was sharper in tone but just highlighted the well-established differences between Sen. McCain and Sen. Obama in substance. When it comes to the issues, the main innovation was the laser-like focus on an Ohio plumber as the stand-in for the electorate. But this debate did get into important questions that have been underexamined so far, like education and abortion.

So, with full knowledge of the irony involved, I'm going to repeat my defense of repetition: all of the talking points from Sen. McCain and Sen. Obama are old news to those who've been following this long, long campaign. But for the large number of voters who are only paying casual attention, repeating the basic points is important. These fundamental arguments about policy often get buried under a pile of media coverage of tactical decisions. By the time a campaign reaches the final weeks, everyone in the media assumes the public has actually been reading and remembering all the stories they've filed on this stuff over the past year and a half. And that's a bad assumption.

There are some things the candidates didn't say (click here for video of the debate along with our frame-by-frame comments) in their final appearance together and there are some key facts that voters need to know. The election's less than three weeks away, and if you're looking to get up to speed on the problems facing the country, have a look at our Voter's Survival Kit.

Some key points:

On the economy, both candidates continue to do something that is quite frustrating, which is mixing up the short-term problem – how we deal with the current financial crisis and looming recession – with how we deal with creating a sound economy in the long run.

In all three debates, the moderators have done their best to pin the two men down on fiscal responsibility, but none have succeeded. The fact is that the next president will be facing an extremely constrained budget, and will have to govern accordingly. Money’s going to be tight.

Here’s something Obama and McCain agree on: that the United States can eliminate some sources of foreign oil in 10 years. Note that neither one endorses complete energy independence, and most experts would agree that can’t be done, at least not anytime soon. Even eliminating imports from the Middle East and Venezuela, which both candidates endorse, would be a challenge. Those regions supply about one-quarter of U.S. oil imports.

The candidates had quite a lot to say about trade, which is one of the classic cases where leaders have very different views than the public. Most economists say global trade is a good thing, but the American public isn’t so sure. In Public Agenda’s Confidence in U.S. Foreign Policy Index, we found huge numbers of Americans (41 percent) aren’t sure whether the U.S. or foreign countries benefit more from trade. About as many (42 percent) say other countries benefit more, and only 14 percent think the U.S. benefits more.

We heard a little about education in this debate, including math and science education, which hasn't gotten much attention in this campaign. Education and business leaders are deeply worried about math and science education, but our research shows the public hasn’t caught up with them yet. Most parents think the amount of math and science their child gets is about right, which is the last thing most business leaders would say.

UPDATE: Here's our video commentary on the debate:

The Last Debate: What Happens Now and What Happens Next

Scott Bittle — Wed, 15 Oct 2008 10:48:47 -0400

There's a French saying about how "nothing lasts as long as the provisional." That's worth keeping in mind for tonight's final presidential debate between Barack Obama and John McCain. The government's ad hoc response to the global financial crisis has dramatically increased its role in the economy – and one of these two men will inherit that role in a few months. It would be nice to know what they intend to do with it.

Both candidates have put out revised economic plans in the past few days. As you watch the debate, we'd suggest you keep in mind one thing that often gets glossed over: we're facing both short-term and long-term problems with the economy. Politicians often mix these up in their speeches, but you shouldn't, because they're not the same thing.

The short term problem is, of course, how to stem the financial crisis and at least temper the recession that's likely to follow. Everyone agrees that the U.S. government has leaped into the financial markets with both feet to stop the crisis. Everyone also says the latest plan to inject money into major banks, in effect partially nationalizing them, is a short-term response. But nobody knows how long the "short-term" is. That's forgivable to some extent, because Washington is trying everything it can think of to stem a fast-moving crisis. But figuring out how much of this provisional response becomes permanent will fall to the next president, and we deserve to know what these two candidates are thinking.

The long-term problem is how we ensure a good economy, where there are enough jobs to go around, the economy grows, and people have a chance to get ahead. Some of the trends in this area are good – the long-running growth in worker productivity, for example – and some not so good, like the widening gap between rich and poor. We need to get through this crisis, but we also have to work on the fundamentals. It's the difference between what happens now and what happens next.

The government's own financial means are going to be strained. New figures show the deficit has swollen, as anticipated, and the long-term budget picture isn't that great either. So far we've had very little public debate over how we're going to pay for trying to fix the economy. Realistically, that means the government's going to borrow the money, increasing the national debt.

Granted, in the long run the bailouts could actually bring revenue to the government. The mortgage debt and bank assets will be worth something when the government eventually sells them. In the short-term, however, the federal budget will take a financial hit, and the next president will probably want to do more. McCain says he wants to spend another $52.5 billion, mostly for additional tax cuts, while Obama want to spend $60 billion on tax cuts and public works projects to create jobs.

There are clear alternatives here, drastically different visions for the U.S. economy. Are we abandoning the free market? How much government intervention is enough? How much can the government realistically do? This final debate is being portrayed as the last chance to really change the outcome of the race, and the media will also focus on attacks and "gaffes."

But more importantly, it's the last chance voters have to really compare these two candidates on these fundamental economic questions. Our Voter's Survival Kit lays out some of the options available, with the pros and cons of each – including the cons that politicians are generally loathe to admit. We deserve to have answers to these basic questions before voting, because we're going to be living with the answers for years to come.

Here We Go Again

Francie Grace — Wed, 01 Oct 2008 14:18:55 -0400

As Wall Street, President Bush, Congress and the presidential candidates wrangle over how best to calm investors, reassure the credit markets, and stabilize the economy, we can't help noticing a prominent element of the many proposed rescues. Each one, at times in increasing proportion, involves huge hikes in the already staggering federal budget deficit and national debt, which takes its own toll on the economy. While some kind of Wall Street bailout is widely viewed by experts and politicians on both sides of the aisle as a necessary evil to halt a crisis so wide many cities, businesses and individuals are unable to raise needed cash, critics of the bill in its current form have been meeting with William Isaac, an architect of a 1980s savings and loan bailout whose ideas so far haven't involved taxpayer funds.

The ripple effects of the turmoil that began here have governments around the world scrambling to safeguard their most important financial institutions and have led to both calls for an international conference to forge new financial regulations and reform global economic institutions and new questions about U.S. leadership in the financial sector. Even in countries where most citizens are unlikely to follow the stock market or big business news, the echo of recent rocky times in the U.S. is being felt. In Mexico - where money sent home by Mexicans living in the United States is Mexico's second largest source of income, exceeded only by oil revenue – there's been a 19 percent drop in how much cash got sent back to Mexico. No numbers yet on how other Latin American and Caribbean nations are being affected, but according to a Pew Hispanic Center study, the total cash normally received is in the tens of billions, with the impact no longer limited to the countryside or the poor.

In Congress and on Main Street USA, which the candidates have been repeatedly referencing as the battle rages over what to do about the economy, there are important decisions to be made and we strongly recommend that voters consult our nonpartisan Voter's Survival Kit now and before Election Day, to learn more about different approaches to economic health and the escalating federal budget crisis.

Blogging the Debates: What the Candidates Won't Tell You about the Budget

Scott Bittle — Mon, 29 Sep 2008 14:35:41 -0400

The Wall Street bailout is giving a lot of people a dose of cold fiscal reality – but you wouldn't know it to listen to Barack Obama and John McCain. And a great way to see this refusal to face fiscal facts in action is to watch Public Agenda's comments on the Blogging the Debates project.

Blogging the Debates is a kind of "Politics meets Mystery Science Theater" application, in which participating organizations can use VoterWatch's video player to make comments as the candidates debate. Organizations as varied as the Heritage Foundation and the Nader for President campaign are using it to analyze the presidential debates, and we're jumping in, too. You can see our video commentary below. We'll be doing similar commentaries on the remaining two presidential debates, as well as the vice presidential debate later this week.

If you've already seen the debate, you know moderator Jim Lehrer tried to get the candidates describe how they would deal with the bailout's enormous impact on the federal budget. The budget was running a $400 billion deficit even before the bailout, and the cost of the bailout plan ensures the next president won't have a lot of extra money to spend. Have a look at our video commentary – it's what we would have told you if we'd been sitting in your living room Thursday night. (That, and "Please pass the pretzels.")

Citizens Ready to Face Nation's Fiscal Challenges

Scott Bittle — Mon, 22 Sep 2008 09:14:55 -0400

A new study from the Facing Up to the Nation's Finances initiative finds the American people are willing to consider sacrifices to address the federal budget. The real barrier, according to the Viewpoint Learning report, isn't resistance to tax increases or spending cuts; it's the public's skepticism that the government will use their money wisely. You can download a free copy, or read about the implications in our blog. Facing Up is a partnership between the Brookings Institution, the Concord Coalition, the Heritage Foundation, Public Agenda and Viewpoint Learning.

The Time for Fiscal Truth is Now, Like it Or Not

Scott Bittle — Sun, 21 Sep 2008 14:49:16 -0400

A new study shows that the public is capable of facing facts about the nation's fiscal problems – which is a good thing, because they're probably going to have to take a big bite of a reality sandwich in the coming week.

The Changing Expectations study, conducted by Viewpoint Learning as part of the Facing Up to the Nation's Finances initiative (which includes Public Agenda) covers a lot of territory, but this is probably the key paragraph:

"What we found, in dialogue after dialogue across the country, is that the main obstacle to building public support for the difficult choices we face is not public opposition to tax increases or program cuts, nor is it public lack of interest. The main obstacle is a deeply felt and pervasive mistrust of government."

The unique Facing Up partnership is focused on the long-term problems facing federal finances: the combination of an enormous national debt, changing demographics and out-of-control health care costs that will eventually eat up the federal budget unless something is done. But I don't know that anyone thought the short-term situation would deteriorate as badly as it has over the last couple of weeks. Consider these facts:

Because of the troubled economy, the Congressional Budget Office now projects
a $400 billion deficit next year, and continued deficits for the next 10 years. And for the first time, the CBO projects deficits even if President Bush's tax cuts are allowed to expire in 2010.
This weekend the Bush administration asked Congress to authorize $700 billion over two years to bail out Wall Street by buying up bad mortgage debt. Those mortgage assets are worth something when the government resells them, so if we're lucky the total price tag will be less than that – but some experts warn it could be more. Congress may well add more money to help homeowners, as well as banks.
This is on top of the earlier government bailouts of mortgage giants Fannie Mae and Freddie Mac and insurance company AIG. The mortgage bailout is at least another $25 billion, and maybe a lot more, while AIG will be $85 billion. And if these bailouts go worse than expected, they could push the total bailout bill to $1 trillion.
As part of the bailout, the Bush administration is asking that the national debt limit, the total amount the government is allowed to borrow, be raised to a staggering $11.3 trillion. Our national debt is already past $9.6 trillion, and the government will be borrowing to cover these bailouts.

Just to put some of these numbers in perspective, $700 billion is roughly what the government spent on national defense and Medicaid combined in 2006, and more than double what we spent on Medicare.

Congress will want to act on the plan before it goes on recess this Friday. At this point it looks like there's bipartisan support for action but there's also going to be ferocious debate over the details of a bailout plan, as there should be. And where this much money is at stake, our leaders have to be candid with the public. This is not merely going to shape what happens in the financial markets over the next few months. This is going to shape the course of the next presidential administration and the country for years to come. Whoever the next president is, he's going to find his ability to get things done is limited by our financial problems.

What better moment for candor, both from our current leaders and our presidential candidates? The fact that the public is capable of coping with harsh financial facts should be comforting to our leaders. And the fact that the public considers trust to be a prerequisite for action means that honesty isn't just the best policy, it's the only policy that can work.

Pell Grants in Trouble, While Panel Proposes Possible Remedies

Jenny Choi — Fri, 19 Sep 2008 12:06:45 -0400

As if the continuous news coverage of our very troubled economy weren't enough, now it appears our federal financial aid system is seeing some of the action, too. A panel of education professionals and policy experts called Rethinking Student Aid recently released a report offering several remedies to the red tape-laden financial aid system and application process. Among their proposals is linking Pell Grant caps to the Consumer Price Index, a common measure of inflation; an article today in the New York Times points out that college tuition these days is indeed rising faster than inflation. Another recommendation is the implementation of savings accounts for low-income children at the age of 12, well before they are college-bound. The federally financed program would accumulate interest each year and could only be drawn for college-related expenses.

But, to put it bluntly, a new Congress and president aren't likely to adopt any proposal that would up the cost of student financing, even if only slightly. Recently reported estimates from the Department of Education indicate Pell Grants are facing a $6 billion shortfall next year, mostly as a result of a weakened economy and an increase in "nontraditional" students returning to school. In fact, government officials said they saw one of the largest ever jumps in student grant applications last year. And unfortunately, for lawmakers, this will mean appropriating the $6 billion to fill the existing gaps, or cutting back on the amount in grants given. But how viable could the former option possibly be, considering the recent projections of our ballooning deficit?

When the public is faced with such tradeoffs between paying down the deficit and paying more in taxes to fund certain programs, education is the area where Americans seem most willing to pay. Our own study on the problems of soaring costs in higher education, Squeeze Play, found that three-quarters of Americans think that making more grants and tax breaks available to students should be a "very high" priority. While more people than ever have come to value the importance of higher education, fears about affordability and access leave many parents and students deeply troubled. More than half say college prices are rising faster than other expenses, and 62 percent say many qualified students do not have the opportunity for a college education.

Health Care Reform and the Federal Budget Deficit

Francie Grace — Tue, 16 Sep 2008 16:26:24 -0400

Health care reform was the topic as Public Agenda's Scott Bittle – author, with Jean Johnson, of "Where Does the Money Go? Your Guided Tour to the Federal Budget Crisis" – dropped by Health Care Week in Review, at the Corporate Research Group, for a discussion of some of the challenges ahead if a serious attempt is to be made to tackle this national problem.

Both presidential candidates have very different ideas about health care reform, but according to the Tax Policy Center, there's one similarity: the cost of the proposals each man has made each exceed a trillion dollars.

How can the federal government take on that added load, with the federal budget already surging to a deficit that's expected to top $400 billion this year?

Click here to see the video of the Sept. 12, 2008 interview with Bittle's observations on that subject, including the potential for solutions and public opinion research on the options for health care reform.

To learn more about these issues, check out our Voter's Survival Kit guides to Health Care and Taxes, Spending & Debt. And for further resources on the federal budget crisis, why it matters, and what can be done about it, go to FacingUp.org.

Voter's Survival Kit: Taxes, Spending and Debt, So What's the Plan

David White — Tue, 09 Sep 2008 13:42:27 -0400

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There are many ideas about how to fix the federal budget – and frankly it’s going to take a while to really make sense of the situation and fix all the problems Americans complain about. Here are three different directions a lot of politicians talk about - directions in which the country might move.

CHOICES IN BRIEF

Balance the budget as quickly as possible and make sure it’s balanced from here on out, including raising taxes to cover what we spend.

Immediately focus on Social Security and Medicare, including raising taxes and fees to recipients and trimming benefits for recipients down the road.

Keep taxes as low as possible, but reduce the size of government by making major cuts in popular areas such as defense, health care, education and higher education.

The first order of business has to be getting the nation's checkbook in order. We live in a consumption-oriented culture, and the government is leading the spending parade. All our borrowing and spending has gotten out of hand, and we simply cannot continue to run deficits. Every time we run a deficit, the government has to borrow money to make up the difference, and our national debt has reached enormous levels. We should not burden our children and grandchildren with the huge debts we were unwilling to pay.

Unless we act now, Social Security and especially Medicare will end up both breaking the budget and failing to serve the elderly when the baby boomers retire en masse. As Federal Reserve Chairman Ben Bernanke recently told Congress, the best time to get started addressing this problem was "10 years ago." This simply cannot wait any longer. We shouldn’t change the rules for people who are already retired (or about to be), but we really have to make some changes or the programs will become unaffordable.

Federal spending has mushroomed since the 1970s, and government programs are rife with waste and mismanagement. Raising taxes to cover federal spending will just give government more of our hard-earned dollars to spend wastefully. Plus, keeping taxes low helps spur economic growth and allows Americans to keep more of their own money.

CLICK HERE TO SEE THE CHOICES IN DETAIL

Balance the budget as quickly as possible and make sure it’s balanced from here on out, including raising taxes to cover what we spend.

Immediately focus on Social Security and Medicare, including raising taxes and fees to recipients and trimming benefits for recipients down the road.

Keep taxes as low as possible, but reduce the size of government by making major cuts in popular areas such as defense, health care, education and higher education.

What should be done?

Passing "pay-as-you-go" legislation, meaning that if a spending bill is passed, it must be offset by either a spending cut someplace else in the budget or a raise in taxes to cover the new expenses.

Letting all or at least some of the Bush tax cuts expire to help reduce the deficit.

Setting long-term financial goals to pay down the debt.

If we manage to run a surplus, using any extra funds to pay off the debt or bail out entitlement programs.

Passing a balanced budget amendment to the Constitution. Most states have this and it simply makes it illegal to run a deficit and run up debt.

Reducing Social Security benefits for wealthy retirees and set higher fees and co-payments for higher income retirees on Medicare. These programs should provide security for middle-income and lower-income people – not extra spending money for affluent seniors.

Raising the cap on Social Security taxes. Right now, payroll taxes are only collected on incomes up to $102,000 per year. That means that workers who make $200,000 and $300,000 a year are paying the same taxes as people who earn much less.

Gradually pushing back the retirement age and phasing out the policy that lets people start collecting benefits at a lower rate at age 62. When Social Security began in 1935, life expectancy was about 61. Now, a child born in 2005 can expect to live to nearly 78.

Allow Medicare to purchase drugs in bulk (and thus get cheaper rates). This is what the VA does and what other countries do to keep drug prices down.

Extending the Bush tax cuts and reducing taxes on business – they are the engine of our economy.

Cutting growth in government programs and carving out the waste and extra costs, such as outside contractors who charge the government billions of dollars each year.

Eliminating earmarks and other "pork-barrel" add-ons to legislation that allow members of Congress to slip in funding for their pet projects without a vote.

Shifting more domestic policy responsibilities – areas like Medicaid and education -- to states.

Having the private sector take on tasks like air traffic control and safety inspections.. It can handle them more efficiently and at a lower cost.

Arguments For This Approach

If government won't take responsibility for its spending habits, then we need to remove the option of borrowing and creating more debt. Running deficits is irresponsible and dangerous.

Why should the government run its financial house any differently from the way families and businesses run theirs? Your spending has to be in line with your income.

Income taxes are at historically low levels. It’s time to raise taxes to stop the flow of red ink. That’s what we did in 1990, and combined with spending cuts,that's what led to the budget surpluses of the late 1990s.

Social Security can wait. Even after 2040, it will have enough incoming revenues to pay more than 70 percent of promised benefits. But continuing to run deficits is a problem that simply cannot be deferred to another day. The time to act is now.

Now is the best time to reform senior entitlement programs, while many of the baby boomers are still working and the number of seniors covered is relatively small.

It's more fiscally responsible to reduce benefits than to allow the programs to collapse entirely and leave nothing for our children.

Social Security was conceived as a safety net. Reforms will keep the program financially sound so it can be there for future generations. Social Security should not provide extra income to affluent seniors who are fortunate enough to have very comfortable retirements.

Baby boomers are living and working longer, and are in better health than when the entitlement programs began. Social Security is based on outmoded assumptions about who's old. Why should people be encouraged to retire in their early and mid-60s?

By focusing on cutting waste, we'll have a leaner budget to work with that will save money in the long run.

Tax cuts spur the economy and help create jobs. If the economy is struggling, having a balanced budget won’t be all that comforting.

The government should focus on truly national concerns, such as foreign relations and defense. The federal government doesn’t need to be in the health care or education business.

Arguments Against This Approach

Forcing the government to maintain a balanced budget is like a financial straightjacket. There's no wiggle room for wars, national emergencies or recessions, when we would really need extra funds.

Deficits aren't necessarily bad. The U.S. has run on deficits for several generations, and the economy has grown. Plenty of economists say deficits actually help spur economic growth.

Raising taxes just gives government more money to waste. Why should taxpayers dig into their pockets while the budget is still fat with earmarks and unexamined billions in the defense budget?

Balancing the budget is only part of the challenge. Unless we get a grip on the entitlements, particularly Medicare, we'll never have our finances under control.

We promised income and health security to the elderly, and we shouldn't balance the budget on their backs – especially since elected officials borrowed from the Social Security Trust Fund.

If we make wealthier Americans pay higher taxes for Social Security and we reduce the benefits they receive from the program, they may stop supporting it. Social Security needs broad political support.

Focusing on cutting health care costs would be a much more effective strategy. Medicare is in much deeper trouble than Social Security, and that’s because health care costs are soaring.

Ending earmarks and pork-barrel spending is important, but it doesn’t help that much when it comes to balancing the budget. Earmarks cost about $17 billion dollars in 2008. Meanwhile, the 2008 deficit is well over $400 billion.

Over two-thirds of the budget goes to just five areas: defense, Social Security, Medicare, Medicaid and interest on the debt. The first four are broadly supported, and making cuts there will be extremely difficult politically. We have no choice in paying interest on the debt.

Taxes are at historically low levels, and the benefits of the last round of tax cuts have gone disproportionately to very wealthy Americans. This plan means cutting government spending on health care and education to benefit the country’s more affluent taxpayers.

Voter's Survival Kit: Taxes, Spending and Debt, Quotes to Consider

Peiting Chen — Tue, 09 Sep 2008 13:32:19 -0400

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Think everyone agrees on the problem and what to do about it? Here’s a sampling of what some influential people have to say about the issue:

“The longer we wait, the more severe, the more draconian, the more difficult the adjustment is going to be. I think the right time to start is about ten years ago.” — Federal Reserve Chairman Ben S. Bernanke January 2007		"The Social Security trust fund is what I call a fiscal oxymoron. It shouldn't be trusted, and it's not funded." — Former Commerce Secretary Pete Peterson, 2005

“The hypocrisy of giving the very richest Americans a huge new tax break at the same time they say we can’t afford Medicare and Social Security speaks volumes about Republican priorities. If we have a hundred billion dollars to spend each year, it would certainly be better to protect Social Security and Medicare for future generations.” — Sen. Edward M. Kennedy (D-MA) June 2006		‘"Raising taxes . . . won't help balance the budget -- it will slow the economic growth that is creating the new jobs of tomorrow and increasing revenue to the federal government . . Keeping our economy strong and promoting fiscal responsibility will get the job done. Raising taxes won't." — House Minority Leader John Boehner (R-OH) February 2007

“Nations purchase prosperity by saving and investing and being prudent, not by running big deficits. So we cut the deficit, balanced the budget, sent interest rates down, helping people to buy new homes, helping more entrepreneurs to start new businesses.” — President Bill Clinton January 1999		“By the time the financial markets tell us we've gone too far, it will be too late to fix this in any rational way. We are the toad in boiling water, where it's getting hotter and hotter and nobody's really noticing." — Maya MacGuineas, Committee for a Responsible Federal Budget “Blessed are the young, for they shall inherit the national debt.” — President Herbert Hoover (1874–1964)

“When the economy faced some rough waters, and we could have put tax cuts into the pockets of families most likely to need the money and spend it, George Bush chose massive tax giveaways for the wealthiest individuals that blew the surplus and did next to nothing to get our economy moving." — Sen. John Kerry (D-MA) September 2004		“No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth!” — President Ronald Reagan October 1964

The Deficit Train Picks Up Steam

Scott Bittle — Tue, 09 Sep 2008 13:14:37 -0400

The latest projections show the federal government will have a more than $400 billion deficit this year. And next year. And the year after that.

In fact, the new Congressional Budget Office projections show the federal government running a deficit for the next ten years. This year they're projecting the deficit will be $407 billion, with further deficits of $438 billion in 2009 and $431 billion in 2010.

After that, the deficits are supposed to get smaller, but only because the CBO is required by law to assume that the Bush tax cuts expire on schedule in 2010. They may be required to assume that, but you shouldn't. Both presidential candidates have already pledged to extend the tax cuts in some form – John McCain wants to extend them entirely, and Barack Obama says he'll extend at least the cuts for middle-class taxpayers.

That's not the only assumption you shouldn't take at face value here. The CBO acknowledges that it didn't have time to consider the impact of the huge mortgage bailout of Fannie Mae and Freddie Mac, which could cost anywhere from $25 billion to $200 billion, depending on how it plays out. And there are some other fires that may need to be put out with bales of federal money, such as bailouts of strained state unemployment funds or the troubled auto industry.

The short-term situation is mostly about the economy. The CBO is estimating measly economic growth over the next two years and unemployment at six percent, which means tax revenues are going to drop. These government bailouts are driven by the need to keep things from getting worse. If the short-term problem was the only problem, then this wouldn’t be all that bad – eventually the economy will turn around.

But the long-term outlook remains, to use the CBO's favorite word, "unsustainable." The combination of rising health care costs and aging baby boomers are going to drive up the cost of Medicare and Social Security until they bust the budget. Plus, every time the government runs a deficit, coming up short in a given year, it has to borrow the money to cover its bills. That adds to the national debt, which is already past a staggering $9.5 trillion – and these projected deficits will add another $1.4 trillion to that over the next five years.

All this means that the next president is going to be working with some serious fiscal constraints which in fact may turn out to be one of the defining factors for the new administration. That's going to be true no matter who wins – and whether or not they're ready to acknowledge it.

Voter's Survival Kit: Taxes, Spending and Debt, The Fix We're in Now

Peiting Chen — Tue, 09 Sep 2008 12:32:29 -0400

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Right now, the U.S. economy seems to be in shambles, and most Americans want the government to play some role in helping us get through this. But government's ability to help out -- whether by cutting taxes or stabilizing the financial system or helping Americans who are down on their luck -- is severely hampered by its own dire economic condition.

For 31 out of the last 38 years, the U.S. government has spent more on programs than it has collected in taxes. This year, the red ink (that’s the deficit) could be close to half a trillion dollars. And the government projects further deficits for the next several years.

When the government spends more money than it collects, it borrows to cover the cost. Over time, the U.S. government has accumulated a staggering $9.5 trillion federal debt. Right now, we spend more money each year on interest on the debt than we spend on the war in Iraq.

There’s simply no way the government can cut taxes, or even keep them at current levels, and still afford all the programs people say they want. Something’s got to give.

Budget experts across the political spectrum – liberals, conservatives and the government’s own auditors – say the country is facing huge additional expenses in Medicare and Social Security as health costs rise and retiring baby boomers begin to leave the work force.

Medicare is the biggest problem. Not only does Medicare have to cover the needs of 78 million baby boomers, it also has to deal with health care costs that are rising much faster than the rate of inflation.

If we do nothing, the country’s debt will be growing faster than our economy in about 15 years, which means we won’t be able to keep up. By 2040, the country would need nearly every dollar it collects in taxes just to cover the costs of Medicare, Medicaid, Social Security and interest on the debt.

To protect Americans who rely on Social Security and Medicare and reduce the unsustainable costs of these programs, we need to start reforming them right away. Relatively small changes now will make a big difference later, but the longer we wait, the harder this will be for everyone.

Key sources for this data: Budget of the United States Government; Congressional Budget Office, The Long-Term Fiscal Outlook, December 2007; U.S. Government Accountability Office, The Nation's Long-Term Fiscal Outlook April 2008; Facing Up to the Nation's Finances; "Where Does the Money Go?", by Scott Bittle and Jean Johnson

Voter's Survival Kit: Taxes, Spending and Debt, How We Got Here

Peiting Chen — Tue, 09 Sep 2008 11:59:39 -0400

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Health care expenses continue to skyrocket, meaning that it's increasingly expensive to give seniors the care we've promised. These facts have led experts inside and outside of government -- both conservatives and liberals -- to warn of an approaching "fiscal train wreck" unless we take measures to address the problem.

It’s not some hazy, far-off, inside-the-beltway problem. If the red ink keeps flowing and we don’t face up to some realistic choices on the budget and Social Security and Medicare, we could jeopardize the health of our economy and our standard of living.

The choices we make now will affect the amount of your paycheck, whether you can get a college loan or home mortgage, whether interest rates are high or low and whether older Americans (maybe that’s you, or your parents or grandparents) can make ends meet and get the medical care they need.

To put the federal budget into perspective, consider your personal finances. When you make a household budget, you start with certain fixed expenses: rent or mortgage, utility bills, insurance, etc. What's left over can be spent at your discretion. The same principle applies to the $3.1 trillion national budget.

Where The Money Goes

Here's a breakdown of how the government spends that $3.1 trillion:

More than 40 percent of the federal budget goes to fixed expenses like Social Security, Medicare and Medicaid. The government is obligated by law to pay these “mandatory” programs. They’re also known as entitlements, because when you reach a certain age or drop below a certain income level, you’re entitled to them. The benefits are set by specific formulas, so they’re essentially on autopilot.
About 20 percent of the budget goes to defense. It’s a huge amount of money, but the defense budget took up an even larger share of the budget (over 25 percent) in the late 1980s.
Interest on the federal debt accounts for 8.7 percent of the budget. No way around that. The country has to pay it. Think of it as the equivalent to the minimum balance payment on your credit card.
What's left over is called "non-defense discretionary" spending, which is essentially everything else, from parks to foreign aid. It's this part of the budget that attracts the most debate, with politicians annually haggling over how much to spend and on what.

Social Security and Medicare: Why the Experts Worry

One very big problem in the budget is federal spending on Social Security and Medicare, which is on the rise and is going to keep on rising for quite a while. Here’s what you need to keep in mind:

Social Security is a pay-as-you-go system. People working now pay taxes that are mostly used to pay benefits for people who are retired now. Now that the huge baby boom generation is getting older, the number of retired people is about to rise dramatically.
The first baby boomers have just started applying for Social Security. An estimated 10,000 people a day will become eligible for Social Security benefits over the next two decades.
In 2017, Social Security will start paying out more in benefits than it collects each year in payroll taxes.
There is a Social Security trust fund, which will run out in 2041, but since politicians have already borrowed money from it to cover other government expenses, that’s not as comforting as it sounds. Meeting Social Security’s expenses will put pressure on the government long before 2041.
Sometimes people say Social Security will go bankrupt in 2041, but that’s not exactly true. Workers will still be paying into the system, so it will still function, but it would only be able to pay three-quarters of the promised benefits.
Medicare, the giant health care program that covers the elderly and disabled, is facing a double whammy. Not only does Medicare face a rising tide of boomers, but it also gets hit by the rapidly rising cost of health care.
Projections say the Medicare trust fund will be exhausted in 2019, a mere 11 years away. At that point, the federal government would either have to cut benefits, raise premiums or shift money from other programs to cover the costs.

The worst-case scenario would be that the country keeps procrastinating. The entitlement programs, flying along on autopilot, could become just plain unaffordable or the government has no money left to do anything else. That would leave us in a horrendous position. Either we would have to start putting crushing taxes on working people to cover the cost or we would have to cut back on benefits for people who are frail and elderly. This is choice we can avoid if we start making reforms to Social Security and Medicare right away.

Where The Money Comes From

So we know where the money goes once it comes in, but where does it come from? To pay the bills, the government relies on tax revenue from you, your neighbors and your employers.

Here’s the big picture:

45.3 percent comes from income taxes. Although income taxes are always controversial, it’s worth noting that the top tax rates today are substantially lower than they were after World War II, really up through the mid-1980s. President Bush and Congress passed significant cuts in 2001 and 2003, but these are set to expire in 2010.
33.9 percent are payroll taxes for Social Security and Medicare. These are taxes paid by workers and matched by their employer.
14.4 percent comes from corporate taxes. Although the first images that come to mind may be big corporations like Exxon Mobil and Microsoft, it’s worth remembering that this category also includes small businesses and even “mom-and-pop” stores.
The remainder comes mainly from taxes on alcohol, tobacco and gas. These excise taxes make up about 2.5 percent of the government’s revenues. States also collect taxes in these areas, so if you’re really steamed about taxes on gas or cigarettes, you probably need to blame both the feds and elected officials closer to home.

What usually happens, however, is that the revenue isn't enough to cover all the expenses – that’s considered a deficit.

Both revenues and spending climbed to record levels in 2008. But we are still spending more than we take in -- hence, the deficit. The White House projects the federal deficit will hit a record $480 billion in 2008 – and that projection may well be low, since it doesn't take into account the full cost of the wars in Iraq and Afghanistan.

The nonpartisan Congressional Budget Office projects that deficits will remain above $400 billion a year through 2010. The CBO projects the deficit will go down after that, but they estimate the government will be running deficits through 2018, even if we let the Bush tax cuts expire as planned in 2010.

Every year that there’s a deficit, the government borrows money to cover its bills, often from banks and foreign countries such as China. The total tally of all the past deficits, plus interest, is called the national debt. We've added more than $3.5 trillion to the debt since 2001.

Another Day Older and Deeper in Debt

The national debt is remarkably similar to your personal credit card. Think of the debt as the total amount you owe. You have to make regular minimum payments, which is the interest. Every time you ring up a new charge (the deficit), you add to the total debt. So even if you stop making any new charges (eliminate the deficit), you still have this outstanding debt that requires interest payments. Interest payments on the national debt are the fifth-largest spending category in the federal budget, just behind the defense and the three major entitlement programs.

One other development that worries many people is that about a quarter of the national debt is now held abroad. Our top lender is Japan, but China is right behind. The top ten list also includes “oil exporting” nations and Caribbean banking nations. In some ways this is a compliment because it means that other countries consider U.S. Treasury bonds a good place to put their money. The risk is that, at some point, some of them may decide that they would rather put their money elsewhere, which could leave the U.S. government in a credit crunch. Some foreign policy experts also worry that this reduces our influence worldwide – we are less likely to really press the Chinese, for example, on intellectual property rights or global warming because we need them to keep lending us money.

The Time Has Come

The nation’s finances are actually a bunch of interconnected problems. The national debt has grown because of the government’s inability to balance its year-to-year budget. Social Security needs help because of the demographic pressure from the baby boomers, while Medicaid expenses are rising because of skyrocketing health care costs. And Medicare is in trouble because of demographics and health care costs together.

But while the solutions to each of these may be unique, each also has to be tackled as part of the larger problem. The next president and Congress won’t be able to avoid some choices here. President Bush’s tax cuts are set to expire in 2010; whether some or all of them are extended will have a significant impact on the year-to-year budget. Republicans have argued that the tax cuts helped jump-start economic growth and contributed to an increase in revenues. Democrats say most of the tax breaks were skewed to the wealthy and instead spurred the record deficits.

Most experts also say that the sooner we start on reforming entitlement programs, the less painful the adjustments will be. Waiting until the crisis is upon us would require really drastic measures, either in terms of raising taxes or cutting benefits.

What happens in Iraq and Afghanistan will have an impact on the budget, too. Some people blame the wars for the skyrocketing national debt, but that’s only partly true, at best. The Congressional Budget Office estimates the government spent $651 billion on the “war on terror” between September 2001 and February 2008. During that same period the national debt swelled by about $3.2 trillion. The CBO estimates that, presuming we maintain a presence in both countries the war on terror could be as high as $1.7 trillion by 2017.

All this means that the future of our economy and way of life may be dramatically affected by the choices we make today for managing the nation’s finances. The debate over the budget is certain to play out in the 2008 election. The numbers are large and the problems daunting. Where do we begin?

For more on these issues, visit PublicAgenda.org guides on Social Security and Medicare.

Voter's Survival Kit: Taxes, Spending and Debt

Peiting Chen — Tue, 09 Sep 2008 11:22:19 -0400

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Right now, the U.S. economy seems to be in shambles, and most Americans want the government to play some role in helping us get through this. But government's ability to help out is severely hampered by its own dire economic condition.
For 31 out of the last 38 years, the U.S. government has spent more on programs than it has collected in taxes. This year, the red ink (that’s the deficit) could be close to half a trillion dollars. And the government projects further deficits for the next several years.

When the government spends more money than it collects, it borrows to cover the cost. Over time, the U.S. government has accumulated a staggering $9.5 trillion federal debt. Right now, we spend more money each year on interest on that debt than we spend on the war in Iraq.

There’s simply no way the government can cut taxes, or even keep them at current levels, and still afford all the programs people say they want. Something’s got to give.