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Thursday, January 27, 2011

The bad budget news just keeps rolling in

With perfect timing to wait until after the President's happy-talk State of the Union, there was a flood of bad news yesterday about the reality the country is facing.

Social Security is already in deficit instead of the projections that we had until 2016 until it was in the red.
This year alone, Social Security will pay out $45 billion more in retirement, disability and survivors' benefits than it collects in payroll taxes, the nonpartisan Congressional Budget Office said. That figure nearly triples — to $130 billion — when the new one-year cut in payroll taxes is included.
If Congress fulfills its pledge to make up the lost revenue from the compromise passed in December to have a one-year cut in payroll taxes, that will add to the federal budget deficit. And that will just add to the bad news from the CBO's report yesterday about the deficit. So we're already over $400 billion more in deficit than we were last August. Peter Grier explains that these depressing figures are actually optimistic because of the rules that force the CBO to pretend to believe the assumptions given it by lawmakers. And it is truly doubtful that the lawmakers will have the stones to pass the unattractive changes that they have promised to make, but actually done nothing to accomplish.
For instance, sharp reductions in Medicare payment rates for physician services are scheduled to kick in at the end of this year. Will they? It’s unlikely – Congress has been postponing these cuts via last-minute so-called “doc fix” bills for years.

Similarly, provisions that limit the reach of the Alternative Minimum Tax are scheduled to expire at the end of 2011. Congress has always shielded middle-class taxpayers from the AMT’s bite in the past.

Then there are the Bush tax cuts, which were extended in last year’s lame duck congressional session per bipartisan agreement. That extension expires in 2013, and the CBO has to do its math on the assumption that the expiration goes through.
And what happens if those tough votes don't happen?
If Congress goes ahead and permanently heads off all these project changes “deficits from 2012 through 2021 would average about six percent of GDP, rather than 3.6 percent,” writes Elmendorf.

And what of the deficit beyond this 10-year projection period? There lie monsters, according to the CBO’s outlook. Spending on the government’s major mandatory health programs, such as Medicare and Medicaid, will help drive deficits to peaks beyond our current experience, says the new report.
Oh, and add in the bad news from Medicare that the Chief Actuary told the House Budget Committee yesterday.
Two of the central promises of President Barack Obama's health care overhaul law are unlikely to be fulfilled, Medicare's independent economic expert told Congress on Wednesday.

The landmark legislation probably won't hold costs down, and it won't let everybody keep their current health insurance if they like it, Chief Actuary Richard Foster told the House Budget Committee. His office is responsible for independent long-range cost estimates.

Foster's assessment came a day after Obama in his State of the Union message told lawmakers that he's open to improvements in the law, but unwilling to rehash the health care debate of the past two years. Republicans want to repeal the landmark legislation that provides coverage to more than 30 million people now uninsured, but lack the votes.

Foster was asked by Rep. Tom McClintock, R-Calif., for a simple true or false response on two of the main assertions made by supporters of the law: that it will bring down unsustainable medical costs and will let people keep their current health insurance if they like it.

On the costs issue, "I would say false, more so than true," Foster responded.

As for people getting to keep their coverage, "not true in all cases."

Meanwhile, the President is talking about spending more money on such pipe dreams as high-speed rail. He signaled that he isn't going to get serious about these looming budgetary disasters any time before the 2012 elections. He's hoping that the Republicans will be the ones to try to make the American people take their castor oil and the Democrats can just blithely demagogue such choices without doing anything on their own to pay the piper.


Pat Patterson said...

And a litte of this hesitation to do the hard work could be alleviated not with the bills themselves but the president speaking on national tv and laying out exactly what needs to be done and then pledging a certain time frame. The problem is that the president doesn't appear to know what should be done except what has been done before or at least the CW holds as been done before.

Less " the future" and more "...the only fear we have is fear itself."

Stan said...


Somewhat OT, but your husband might have an opinion about this. Periodically, the govt brags about how it has recently made a profit on some of the warrants/stock/toxic assets/whatever that it took in back when it was in the process of exacerbating moral hazard (oops, I mean saving some too-big-to-fail company).

Now, I'm all for the govt getting back some of its money. But it occurs to me that earning a small return on some of this stuff is not much different from the return AIG and others earned when they sold default insurance (AKA credit default swaps, etc) way too cheap before the crisis. Govt may be earning a small return now. But in doing these deals, it has greatly increased moral hazard and the threat of more and bigger crises in the future. These deals are creating the real perception that the govt is providing default insurance for the future.

So these returns can be seen as small premiums earned on the default insurance that these deals represent.