Surprise! The Rotten Budget Outlook Has Gotten Brighter: Report

Surprise! The Rotten Budget Outlook Has Gotten Brighter: Report

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Plus, Social Security’s 2020 benefit hike
Thursday, October 10, 2019

The Budget Outlook Isn’t Good — but It Has ‘Improved Substantially Since 2010’: Report

The national debt is now approaching $23 trillion, up nearly $9 trillion from the end of 2010, and the debt held by the public now stands at nearly $17 trillion, up about $7.5 trillion from since the end of 2010. But in a new report, the left-leaning Center on Budget and Policy Priorities says that, while the debt is expected to continue rising as a share of the economy, the nation’s long-term finances “have notably improved” compared with the outlook in 2010.

“In January 2010 we projected that debt would reach 251 percent of GDP by 2044; we now project 111 percent,” the CBPP authors Richard Kogan, Paul Van de Water and Kathleen Bryant write.

The report finds that the annual “fiscal gap” through 2044 — the average amount of deficit reduction needed to stabilize the debt as a share of the economy at its current level of 78% — is 1.5% of GDP, up from 1.4% a year ago, but just a third of the 4.5% projected in early 2010.

The difference is largely the result of lower projected health-care and interest costs. The projected costs of Medicare and Medicaid, for example, were estimated in the 2010 analysis to reach 11.8% of GDP in 2044. Now, CBPP projects that in 2044, Medicare, Medicaid (including the expansion under the Affordable Care Act), CHIP and the federal health insurance marketplace subsidies will together cost 7.9% of GDP.

“Indeed, the fact that health care costs remain the largest driver of future spending increases should not obscure how much their projected costs have fallen over the last decade,” the authors write. They attribute the slower growth in health-care costs to lower Medicare payment rates and other changes introduced by the Affordable Care Act and the 2015 Medicare Access and CHIP Reauthorization Act as well as to a broader slowdown that was underway before the Obama health law took effect.

Closing the fiscal gap: A 25-year fiscal gap of 1.5% of GDP annually might not sound like all that much, but the report highlights just how challenging it would be to close:

“It is equivalent to 8.1 percent of revenues over the period; to eliminate the gap through revenue increases alone, projected revenues — including income taxes, payroll taxes, gasoline and other excise taxes, the estate tax, and tariffs — would need to rise by an average of 8.1 percent. Alternatively, eliminating the gap through program cuts alone would entail cutting all programs — Social Security, health care, defense, education, veterans’ benefits, law enforcement, transportation, and so on — by an average of 7.2 percent. Of course, if any tax provisions or spending programs were protected, the rest would have to be hit correspondingly harder.”

And it could well be even more challenging than that: At the same time, the report warns that the fiscal outlook would be considerably worse if Congress decides to extend some temporary tax laws, including the 2017 tax cuts now set to expire after 2025. “If policymakers made current tax policies permanent without offsetting the cost, our projected debt ratio in 2044 would rise from 111 to 139 percent and our 25-year fiscal gap would rise from 1.5 to 2.8 percent of GDP,” the report says.

Even without extending those tax cuts, the debt is still projected to rise as a share of the economy. “An aging population and rising health care costs will necessarily drive up spending for Social Security, Medicare, and Medicaid,” the report warns, adding that costs for Social Security and major health programs is expected to rise from 53% of primary (non-interest) spending this year to 67% by 2044. Net interest costs are also projected to climb from 1.8% of GDP today to 2.5% by 2029 and 3% by 2044.

The bottom line: CBPP’s report recommends raising revenue and looking for spending reforms that wouldn’t increase poverty, racial inequity or inequality. “While acting to limit the growth of projected debt-to-GDP ratios is appropriate, policymakers should accomplish this through carefully designed policies that include significant additional revenues and impose costs on those best able to bear them.”

Read the full report, including a breakdown of changes in projections since 2010, here.

House Appropriations Chair Nita Lowey Won’t Seek Reelection in 2020

Rep. Nita Lowey, the New York Democrat who chairs the influential House Appropriations Committee, announced Thursday that she will not seek reelection next year. The 82-year-old Lowey has served in Congress for 31 years. She is the first woman to chair the House Appropriations Committee.

“The retirement of Nita Lowey is a huge loss for our country, the Congress, our committee, and me personally,” Rep. Kay Granger (R-TX), the top Republican on the Appropriations Committee said in a statement. “It has been an honor to serve with Nita over the years, reaching heights previously off limits to women in Congress.”

Lowey’s seat is considered a safe one for Democrats, with Hillary Clinton having carried the district by 20 points in the 2016 election. But her decision to retire “will lead to a long and likely contentious race to find the next Appropriations chairman — or ranking member, in the event Democrats don’t hold the House after the 2020 elections,” Roll Call’s Bridget Bowman and Jennifer Shutt report. “The list of likely contenders is long and includes several of the subcommittee chairs. Unlike in the Senate, where the positions of chairman and ranking member are predominantly determined by seniority, House Democrats consider several factors when electing chairs.”

Number of the Day: $23 a Month

The Social Security Administration on Thursday said the cost-of-living adjustment for 2020 would be 1.6%. That translates to a bump of about $23 on the average monthly benefit of $1,460.

The 2020 COLA for the nation’s nearly 69 million Social Security recipients is a bit higher than the 10-year average of 1.4%, but it’s lower than the increase in the last two years, 2.8% in 2019 and 2.0% in 2018.

The annual adjustments were higher from 2000 to 2010 due to higher inflation, averaging 3%, according to The Senior Citizens League, a non-partisan advocacy group that supports a COLA of at least 3% each year. The group is calling on the Social Security Administration to switch to a different measure of inflation that they say will result in more accurate measurement of cost increases affecting the elderly. A League spokeswoman said that according to their analysis, Social Security benefits have lost about a third of their purchasing power since 2000.

States Spending Millions to Administer Medicaid Work Requirements

States deploying work requirements in their Medicaid programs are spending millions of dollars on administrative costs to implement the new rules, according to a new study by the Government Accountability Office.

Examining the first five of the nine states that have received waivers from the Trump administration to put work requirements into place, GAO found they are spending anywhere from $6 million to more than $270 million to implement their programs. The ultimate price tags may be higher, since not all administrative costs were available.

Much of the cost is related to information technology, the majority of which is paid for by the federal government. For example, Kentucky expects to spend roughly $220 million on IT in 2019 and 2020 as part of its $271 million outlay.

GAO criticized the Centers for Medicare & Medicaid Services for failing to consider the costs of implementation when evaluating state requests for waivers. “[T]he cost of administering demonstrations, including those with work requirements, is not transparent to the public or included in CMS's assessments of whether a demonstration is budget neutral—that is, that federal spending will be no higher under the demonstration than it would have been without it,” GAO said.

The study was requested by Senate Finance Committee Ranking Member Ron Wyden (D-OR) and House Energy and Commerce Committee Chairman Frank Pallone, Jr. (D-NJ), critics of the Trump administration’s approval of state-level work requirements for Medicaid recipients.

"This study confirms that the Trump administration is allowing states to waste taxpayer dollars in the pursuit of ideological changes to Medicaid that hurt vulnerable Americans," Wyden and Pallone said in a statement.

Clayton Kershaw is still the best pitcher of his generation. Just sayin'. But congrats to the Nats! Send your tips and feedback to yrosenberg@thefiscaltimes.com. Or connect with us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes. And if you like this newsletter, please encourage your friends to sign up here for their own copy.

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