Fiscal Policies Archives - Page 11 of 22 - Progressive Policy Institute

Social Security & Medicare Trustees Reports: A Reality Check for Expansion Advocates & Tax Cutters Alike

Posted on June 5, 2018 by The Progressive Policy Institute

WASHINGTON — Ben Ritz, director of the Center for Funding America’s Future at the Progressive Policy Institute (PPI), today released the following statement after the annual Social Security and Medicare Trustees reports were released:

“The annual reports from the Social Security and Medicare trustees should serve as a reality check for politicians who support costly expansions of these programs. As they have consistently done for several years, the trustees again warn that current program revenues are insufficient to sustainably finance promised benefits – an imbalance that must be addressed by policymakers before considering changes that could make the problem even worse and crowd out resources needed for other important public investments.

“Last year, Social Security spent $41 billion more on benefits than it collected in dedicated revenue. Over the next 25 years, the gap between dedicated revenue and promised benefits will grow to 1.26 percent of gross domestic product as the baby boomers move into retirement and the ratio of workers to retirees continues its decline. If nothing is done to address this growing shortfall, beneficiaries face the prospect of a sudden and permanent 21-percent benefit cut beginning in 2034 (the year in which the combined Social Security trust funds, which are credited with surpluses from previous years in which program revenue exceeded spending, are exhausted).

“The challenges facing Medicare are even more alarming. The gap between spending and dedicated program revenue ($307 billion in 2017) is projected to double as a share of the economy in the next 25 years, from 1.58 percent of GDP in 2017 to 3.16 percent of GDP in 2042. If these gaps are left unaddressed, Medicare and Social Security will consume an ever-greater share of general revenue, leaving less money available to fund critical public investments in our future – including key progressive priorities such as infrastructure, education, and scientific research.

“Policymakers could strengthen Medicare and Social Security while protecting public investments for the foreseeable future by modernizing their benefit structures and adopting modest revenue increases. Unfortunately, President Trump and Congressional Republicans made bipartisan action even less likely than it already was when they passed their egregious $2 trillion tax cut last year. Although the financial challenges facing Social Security and Medicare predate the tax bill and exceed it in size, Republicans cannot expect Democrats to make changes to programs that benefit the middle class just so the GOP can squander the savings on more tax giveaways for the wealthy.

“Nevertheless, Republican recklessness doesn’t give Democrats an excuse to ignore the very real problems facing Social Security and Medicare. Democrats have a moral obligation to not only reverse the Trump tax cuts but also to secure the future of our social insurance programs in a way that is equitable to both current beneficiaries and young workers. Elected officials in both parties should take their lead from the trustees instead of Trump by eschewing expensive tax cuts and broad-based benefit expansions, instead pursuing pragmatic reforms that ensure benefits are adequate and sustainable for all.”

Ben Ritz is available for comment.

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CBO Analysis Exposes Trump’s Faulty Fiscal Policy

Posted on May 30, 2018September 18, 2024 by The Progressive Policy Institute

President Trump’s most recent budget proposal was widely panned when it was released in February for being both fiscally irresponsible and dependent on unrealistic economic assumptions. An analysis published last week by the non-partisan Congressional Budget Office confirms these criticisms were valid and highlights the significant difference between the Trump administration’s approach to fiscal policy and that of Trump’s predecessor, President Barack Obama. Based on CBO’s analysis, anyone who criticized Obama’s fiscal policy for being irresponsible should be outraged about Trump’s.

When the Obama administration released its final budget proposal in 2016, CBO estimated that it would result in the national debt held by the public equaling 77.4 percent of gross domestic product in 2026. According to last week’s CBO report, debt under the most recent Trump administration budget proposal would reach 85.3 percent in the same year. In dollar terms, CBO estimates that the federal government would accumulate over $2 trillion more in debt by 2026 under the most recent Trump budget than it estimated would be accumulated under the final Obama budget two years ago.

Perhaps more interesting is the discrepancy between the projections of CBO and Trump’s Office of Management and Budget: CBO projects debt as a percent of GDP will be almost 9 percentage points higher in 2026 under the Trump budget than OMB projected in February. By comparison, the difference between OMB’s and CBO’s estimates of the final Obama budget was only about 2 percent of GDP.

The Trump administration’s unrealistic budget forecasts continue its pattern of dubious economic claims. Prior to the passage of last year’s tax legislation, for example, the Trump administration claimed it would fully pay for itself or even reduce the national debt. CBO, on the other hand, now projects the legislation to cost roughly $2 trillion over the next decade – an assessment most independent analysts largely agree with.

But even CBO’s forecasts likely understate the debt that would be accumulated under the Trump administration’s fiscal policy. CBO is required to score the president’s budget assuming even its most unrealistic policy proposals could be enacted. These policies include deep cuts to non-defense discretionary spending (the category of federal spending that includes virtually all non-defense, non-entitlement programs), which would reduce such spending below its lowest level as a share of the economy since before World War II.

Just before the Trump budget was published, however, the Republican-controlled Congress passed – and President Trump signed – legislation that significantly increased both defense and non-defense discretionary spending. By the end of the projection period, CBO estimates that non-defense discretionary spending under the Trump budget would be less than half what it would be if the spending policies in February’s budget deal were extended. The idea that Congress would suddenly reverse course and support such deep cuts to this long-starved category of federal spending is outlandish at best.

Altogether, last week’s CBO report should serve as a damning indictment of the Trump administration’s faulty fiscal policy. It’s remarkable that this administration had to rely upon so many flawed assumptions in crafting this year’s budget proposal, and even then, produced debt projections well above those in President Obama’s final budget. President Trump has certainly earned his self-proclaimed status as “the king of debt” with this year’s budget. On the other hand, perhaps it should be no surprise given the recent track record of Democratic and Republican presidents that one of the former would put forth a more responsible budget proposal than one of the latter.

Are Democrats Really the Party of Fiscal Responsibility? (Part 2)

Posted on April 19, 2018September 18, 2024 by The Progressive Policy Institute

Earlier this week, we published a blog exploring the relationship between budget deficits and unemployment under both Democratic and Republican presidents over the last 40 years. Our analysis found that deficits under Democratic presidents rose and fell with unemployment (which is what should happen when adhering to responsible counter-cyclical fiscal policy), while deficits under Republican presidents did not. Moreover, we found that deficits under Democratic presidents were consistently lower than those under Republican presidents facing comparable economic circumstances. Below is a chart depicting the data upon which our analysis was based:

Following the blog’s publication, a lively discussion ensued on Twitter over how much credit a president deserves for the fiscal situation on their watch. Marc Goldwein of the Committee for a Responsible Federal Budget and Brian Riedl of the Manhattan Institute rightly pointed out that Congress plays a major role in crafting federal fiscal policy and should be taken into consideration when adjudicating fiscal records by party.

As a result, we decided to make a second chart that focused on partisan control of Congress instead of the White House. The underlying data is the same as the chart above, with the exception of projections for 2019 and 2020, which were removed because nobody knows what the composition of Congress will look like after this year’s midterm elections. (We considered doing a third chart that combines the partisan composition of both the presidency and Congress, but there weren’t enough data points for every possible permutation to draw any reasonable conclusions.)

The chart above shows that, under comparable economic circumstances, deficits under divided Congresses have generally been slightly lower than deficits under unified Congresses. The chart also shows that deficits under unified Congresses have been roughly identical in level regardless of which party is in control. But there is one key way in which the partisan control of a unified Congress matters: when at least one chamber of Congress was controlled by Democrats, budget deficits have historically had a modest correlation with unemployment. When Republicans were in full control of Congress, however, deficits have had little to no relationship with the unemployment rate.

This finding appears to reinforce our conclusion from the previous blog: under Democratic governance, budget deficits have been consistent with responsible counter-cyclical fiscal policy. Under Republican governance, they have not.

There are many possible rationales for why Democrats appear to have a better budgetary track record than Republicans. Goldwein hypothesized that “Republican Congresses make Democratic presidents their best (fiscal selves) while they enable Republican presidents to be their worst fiscal selves.” David Leonhardt of the New York Times, whose column last the weekend inspired PPI’s first analysis, suggested that although this phenomenon may have some effect, there have also been instances (specifically in the early years of the Clinton administration) in which Democrats pursued responsible fiscal policy of their own volition that cannot be explained by this “external pressure” theory.

Regardless of the reason, there is relatively strong evidence that the federal budget over the past 40 years has been more responsibly managed under Democrats than Republicans – at least in the short term. Riedl noted that our analysis ignores the impact of policy changes implemented under a president (or Congress) that are inexpensive in the short term while costing more in later years. A cursory review of the record suggests to us that Democrats would likely still come out ahead under this metric over the past 40 years, but for now it remains a very real blind spot we hope to address at some point in the future when we have more time to compile and analyze the data.

Another good point Riedl made is that the biggest contributor to long-term budget deficits is the rising cost of social insurance programs that were created by Democratic administrations more than 40 years ago. These programs, the largest of which are Social Security and Medicare, are growing roughly twice as fast as the economy as more and more baby boomers move into retirement and begin collecting benefits. Other categories of federal spending, meanwhile, are projected to shrink relative to the size of the economy.

Although Democrats have generally been the more fiscally responsible party since the Carter administration, they still need to present voters with a credible plan for making their social insurance legacy from earlier years more fiscally sustainable. Doing so would cement their recent superiority on the issue of responsible fiscal stewardship and save young voters – a key component of the Democratic Party’s base – from being buried under a mountain of debt.

A Tax Day Review of Trump’s Tax Cuts

Posted on April 17, 2018September 18, 2024 by The Progressive Policy Institute

When taxpayers file their tax returns this time next year, four out of five will likely see a smaller tax liability than they do today, due to major tax legislation enacted last year. But these savings to taxpayers will be nothing more than a mirage: after accounting for the true cost of this legislation, what looks like a free tax cut today will turn into a massive tax increase on the middle class tomorrow.

For years, policymakers in both parties have supported reforming the tax code by eliminating so-called “tax expenditures” (provisions in the tax code that reduce a taxpayer’s tax liability if they engage in certain preferred behaviors) and using the savings to reduce tax rates. Donald Trump and Congressional Republicans, however, were unable to tackle tax expenditures to the degree necessary to offset their desired rate cuts. Instead of paring back their ambitions or working with Democrats on a bipartisan tax reform bill, the GOP opted to abandon revenue-neutral tax reform and pursue a package of deficit-financed Trump tax cuts.

Many Republicans argued that their tax bill (formerly known as the Tax Cuts and Jobs Act before it was renamed for procedural reasons) would generate enough economic growth to pay for itself. But according to the non-partisan Congressional Budget Office, this legislation will actually cost nearly $2 trillion over 10 years. Even CBO’s official estimate understates the true cost of the Trump tax system, as Republicans set arbitrary expiration dates for many expensive provisions to minimize the bill’s official cost and subsequently enacted additional tax cuts. If current tax policies are made permanent, as many Republican leaders intend to do, CBO estimates that they will increase deficits by roughly $3 trillion over the 10-year window.

This game is one the GOP played before. In 2001 and 2003, President Bush and Congressional Republicans enacted costly tax cuts that were set to expire after 10 years. But in 2013, over 80 percent of the Bush tax cuts were made permanent, dealing a major blow to federal finances. The Trump tax system is imposed on top of these tax changes, further reducing revenue in 2018 to the point that revenue as a percent of gross domestic product (GDP) will be below where it was at any point in the Reagan administration.

Unlike the Bush tax cuts, which were enacted when the federal budget was in surplus, the Trump tax system takes an existing budget deficit and makes it even worse. Spending is 3 percent of GDP higher today than it was in 2001 thanks to the growth of mandatory spending programs, which are those with funding determined by formula rather than congressional appropriations. The largest of these programs, Social Security and Medicare, are projected to grow twice as fast as the economy over the next decade as more and more baby boomers move out of the workforce and onto the benefit rolls. By 2026, thanks to the combination of tax cuts and rising spending, every dollar of incoming revenue will be spent on mandatory spending programs and interest on the debt.

Every dollar Congress appropriates thereafter for national defense; public investments, such as infrastructure and scientific research; or basic functions of government, such as our courts system and law enforcement, will be borrowed money. At some point, this borrowing will become unsustainable and policymakers will have to reduce deficits with spending cuts, tax increases, or some combination of the two. The American people will be the ones who must foot the bill for these policy changes and those costs will dwarf the benefits of whatever tax cut they see this time next year.

According to the Urban-Brookings Tax Policy Center, the cost per household of the debt incurred to finance the Trump tax system in 2018 alone is $1,610. If the burden of future deficit reduction is spread evenly, every household that receives a tax cut of $1,610 or less in 2018 will effectively be getting a tax increase over the long-term. When accounting for this impact, it becomes clear that the Trump “tax cuts” are essentially a massive tax hike on those who can least afford to bear it.

Of course, the burden of deficit reduction is unlikely to be equally shared. Older Americans, who are likely to exit the workforce or pass away before the debt comes due, will reap all the benefits of tax cuts now and pay little of the cost. Future workers, on the other hand, will bear the brunt of deficit reduction later without receiving any benefit from the tax cut today. Moreover, as Tax Policy Center notes in their analysis, if deficit reduction is predominantly done by cutting welfare spending that benefits low-income beneficiaries, the Trump tax system plus its financing will be even more regressive than it appears in the chart above.

The American people are acutely aware of these trade-offs. Prior to the implementation of the Trump tax system, several polls showed that voters across the political spectrum – including most Republicans – wouldn’t even support cutting their own taxes if it meant increasing federal budget deficits, let alone those of the ultra-rich. Policymakers should immediately replace the irresponsible Trump tax system with real tax reform that puts our money to better use elsewhere.

Are Democrats Really the Party of Fiscal Responsibility? Yes, But…

Posted on April 16, 2018September 18, 2024 by The Progressive Policy Institute

Over the weekend, David Leonhardt published an op-ed in the New York Times entitled “The Democrats Are the Party of Fiscal Responsibility.” Leonhardt argues that Democrats get insufficient credit for the fact that federal budget deficits drop when their party holds the White House while deficits rise when Republicans take control. We believe Leonhardt is correct in his assessment of the partisan fiscal record, and it’s worth exploring why Democrats don’t get more credit for their accomplishments.

The most commonly used metric for evaluating a country’s fiscal situation is the budget deficit as a percent of gross domestic product, because the same budget deficit in dollars is less significant in the context of a larger national economy than it would be in a smaller one. The government is generally considered to be more fiscally responsible when it minimizes the deficit as a percent of GDP.

The exception to this rule is during an economic downturn. When the economy contracts, deficits can rise as a percent of GDP even if they remain at the same level in dollars. Additionally, temporary stimulus (in the form of either tax cuts or spending increases) is an important tool for combatting these economic downturns. Counter-cyclical deficits allow the government to pump money into the economy when it needs it the most, stimulating demand and reducing unemployment. Some programs, such as Unemployment Insurance, act as “automatic stabilizers” because they do this automatically during a recession without additional action by policymakers.

Leonhardt controls for these factors by comparing deficits as a percent of potential GDP (which is largely unaffected by swings in the business cycle) and by subtracting the impact of automatic stabilizers. In his analysis, Leonhardt found that deficits fell under every Democratic president since Jimmy Carter and rose under every elected Republican president since Ronald Reagan.

This measure, however, still penalizes presidents who choose to use additional stimulus beyond automatic stabilizers to bolster a flailing economy under their watch. An alternative way to analyze the data would be to compare deficits relative to unemployment under the presidents of each party. Below is a chart showing the correlation between deficits and unemployment under both Democratic and Republican presidents in every administration since Jimmy Carter:

Under Democratic presidents, the trend is essentially what one would expect to see from good counter-cyclical fiscal policy: When unemployment rises, so too do deficits. When unemployment falls, deficits fall as well (to the point where they actually became surpluses during the prosperous years at the end of the Clinton administration). This trend suggests a responsible stewardship of the federal budget under Democratic presidents.

The picture under Republican presidents, on the other hand, is very different. When a Republican occupies the White House, deficits have historically had little correlation to unemployment. The trend is continued by President Trump, who supported massive deficit-financed policies over the past year despite the fact that unemployment is just over four percent today. As a result, the non-partisan Congressional Budget Office now projects deficits over the remainder of Trump’s term that are significantly higher than those under any Democratic president presiding over an economy with less than seven percent unemployment.

If the fiscal record of Democratic presidents is so obviously superior to that of Republican presidents, why do Democrats not get credit for being the “party of fiscal responsibility”?

The first reason is that deficits reached their highest level in the modern era (9.8 percent of GDP) during the first year of the Obama administration. This unusually large deficit was a direct result of the 2008 financial crisis that President Obama inherited, and after excluding years in which average unemployment exceeded 8 percent, it becomes apparent that deficits under Democratic presidents have been consistently lower than deficits under Republicans facing comparable economic circumstances. Nevertheless, many voters still associate Democrats with the record-high deficits of the early Obama era.

Another reason Democrats don’t get more credit for declining deficits under their presidencies is that presidents simply do not deserve all the credit for deficit reduction that occurs on their watch. Both Presidents Clinton and Obama had to contend with at least one chamber of Congress being controlled by Republicans for six of their eight years in office. Congressional Republicans, despite being incredibly profligate under Republican presidents, have regularly demanded deep spending cuts when a Democrat occupies the oval office – spending cuts which contribute to declining deficits.

But the main reason Democrats don’t get credit for being “the party of fiscal responsibility” is that they often approach the subject with ambivalence. Many Democrats have been reluctant to criticize the GOP’s fiscal record either because they believe Republicans have demonstrated that deficits don’t matter politically or because they fear that admitting the importance of fiscal responsibility now will constrain their ability to deficit-finance progressive priorities in the future. Until Democrats resolve this ambivalence, voters won’t give the party credit for its responsible stewardship.

Donald Trump has handed Democrats a unique opportunity to correct course. With unified control of the federal government, Republicans have blown a massive hole in the federal budget. The nation may never again see an annual budget deficit below $1 trillion after 2020 if current policies remain in place. At a time when deficits are high and trust in government is low, Democrats need to demonstrate they have plan to pay for their policies if they expect voters to support further expansions of government. Now is the time to hold Republicans accountable for their reckless fiscal policy and offer the electorate a compelling alternative.

For more on this topic, please see our second blog that focuses on the fiscal record of each party in Congress.

PPI Analysis of CBO’s 2018 Budget and Economic Outlook

Posted on April 10, 2018September 18, 2024 by The Progressive Policy Institute

The latest report published yesterday by the non-partisan Congressional Budget Office shows the United States faces a rapidly deteriorating fiscal situation. Beginning in 2020, the federal government will spend over $1 trillion more than it raises in revenue every single year in perpetuity. The government has to borrow money to finance these soaring deficits and that additional borrowing threatens to take our national debt to unprecedented heights.

Based on CBO’s projections, PPI estimates that by 2029, the national debt relative to the size of the economy (as measured by gross domestic product) will surpass the record-high level reached just after World War II. This estimate would be six years earlier than the one in CBO’s 2016 and 2017 budget projections, where it was estimated that the national debt wouldn’t surpass its previous record until 2035, and 13 years earlier than the estimate from CBO’s 2015 budget projections.

PPI’s analysis assumes recently enacted fiscal policies, including December’s Trump-Republican tax cut and February’s bipartisan budget deal, remain in place even though they are scheduled to expire under the law as currently written. This approach differs from CBO’s baseline estimates, which assume that policies scheduled to expire under current law will do so despite the fact that many lawmakers have made clear they intended for these policies to be made permanent.

According to CBO, the federal government will need to borrow $2.7 trillion more over the next decade just to cover the cost of legislation enacted by Donald Trump and the Republican-controlled Congress since June. But if these policies are extended, as PPI assumes they would be, CBO says it would add another $2.6 trillion to the gap between federal revenue and spending over the next 10 years.

Tax Cuts Are the Primary Cause of New Deficits, But Spending is the Long-Term Challenge

As the chart below illustrates, the vast majority of the difference between CBO’s 2017 baseline and today’s current policy projections is attributable to lower revenue estimates. Thanks to the budget-busting tax cuts passed by Congressional Republicans and signed by Donald Trump last year, federal revenue as a percent of total economic output will be lower over the next five years than it was for almost every year of the Reagan administration. These tax cuts clearly will not pay for themselves despite promises to the contrary by their supporters.

Although Republican tax cuts account for most of the difference in projections, increased spending from the February’s bipartisan budget deal also contributes to the worsening deficit. The impact of this increased spending, however, is somewhat masked in the chart above by other changes in CBO’s estimates not directly related to the effects of legislation. The upshot is that current policy spending projections over the next decade are largely the same as CBO’s baseline estimates from last year.

Current spending levels are relatively reasonable in the short term. Until 2020, projected federal spending as a percentage of GDP will actually be below where it was for most of the Reagan administration. But in the medium- and long-term, out-of-control spending growth will become increasingly problematic. By 2028, spending as a share of GDP is projected to reach the level it was in 2010 at the height of post-financial crisis stimulus.

Unlike in 2010, future deficits will not be a temporary spike in borrowing to stabilize a collapsing economy. Rather, these deficits will be driven by the rapid growth of mandatory spending programs (those which have spending determined by formula, instead of annual appropriations by lawmakers). The largest of these programs, Social Security and Medicare, provide benefits primarily to older Americans and will grow roughly twice as fast as the economy over the next decade as more and more baby boomers retire. Medicaid, a social insurance program which serves many lower- and middle-income Americans of all ages, is also projected to grow over the next decade albeit at a slower rate.

Growing Deficits Threaten to Crowd Out Critical Public Services

The longer policymakers put off the difficult decisions about how to make major social insurance programs financially sustainable, the more debt must be incurred to finance the deficit. That debt comes at an enormous cost: by 2026, all incoming revenue will be consumed by mandatory spending programs and rising interest payments to service our debt burden. This unsustainable trend puts enormous pressure on the discretionary programs that Congress appropriates funding for annually.

Discretionary spending consists of two categories: defense and non-defense (domestic) discretionary spending. Both were increased significantly in the February budget deal, but nevertheless would shrink relative to GDP under current policy. The trend is particularly concerning for domestic discretionary spending, as it includes critical public investments such as infrastructure and scientific research that provide long-term economic benefits. Under current policy, this category of spending is soon likely to fall to its lowest level in modern history.

Other mandatory programs outside of Medicare, Medicaid, and Social Security are also feeling the pressure. Many Republicans are now seeking draconian cuts to programs that serve low-income populations, such as the Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Programs (food stamps), even though this category of spending is also projected to grow significantly slower than the economy. It is ill-advised to cut programs that serve our most vulnerable when they contribute little to our country’s long-term fiscal challenges.

By 2026, interest on the debt will be more expensive than these other mandatory programs, defense, or domestic discretionary programs. Moreover, as the above chart shows, the growth in interest costs over the next decade is almost twice as big as the decrease in all these categories of spending combined. Solving our fiscal challenges would thus free up resources for these valuable public services and save future generations from being buried under a mountain of debt.

The takeaway for policymakers is clear: in the short term, they should “repeal and replace” the disastrous tax cut package enacted by Republicans last year. But in the medium-to-long term, leaders in both parties must come together and address the growth of spending on major social insurance programs. Only a combination of the two can provide the United States with a bright and prosperous fiscal future.

House GOP’s Balanced Budget Amendment Proposal is a Sham

Posted on April 10, 2018September 18, 2024 by The Progressive Policy Institute

On Thursday, House Republicans will vote on a constitutional amendment proposed by Rep. Bob Goodlatte (R-VA) that would require the federal government to balance its budget every year. The vote, which is virtually guaranteed to fall short of the two-thirds super majority necessary for passage, is nothing more than a cynical ploy to give the party of debt and deficits a veneer of fiscal responsibility while they make no serious effort to earn it. Anyone who is truly concerned about soaring deficits should ignore this distraction and focus on the real record of the Republican-controlled Congress.

In December, the same House Republicans who now ostensibly want to reduce budget deficits championed a partisan tax cut that instead grew the gap between revenue and spending by $1.9 trillion over 10 years. In February, they voted to increase deficit spending by roughly $400 billion over two years. As if more than $2 trillion of additional deficits over two months wasn’t enough, Republicans are hoping to pile on even more borrowing later this year with yet another round of tax cuts. On our current path, deficits over the next decade could total $15 trillion.

Closing this gap through spending cuts alone, as most Republicans would presumably seek to do, would require lawmakers to immediately and permanently cut more than one-quarter of all non-interest spending. If they sought to exempt defense spending or entitlement programs such as Social Security, the cuts to non-exempt programs would need to be even deeper. Simply mandating the budget be balanced doesn’t liberate policymakers from the painful trade-offs required to make it happen.

Should Congress and the president fail to adopt the policy changes necessary to comply with the balanced budget amendment of their own volition, there is no enforcement mechanism in the Goodlatte proposal to compel them. Ill-equipped courts would inevitably be asked to determine national economic policy that should be crafted by the legislative and executive branches.

The Republican crusade for this poorly crafted amendment is particularly dubious considering that most economic experts, including those who are sincerely and deeply committed to promoting fiscal responsibility, don’t believe in the necessity of a balanced budget. Small deficits can be sustainable as long as the debt burden that finances them is growing slower than the economy. For this reason, most informed deficit hawks believe the goal should be to stabilize and reduce the debt as a percentage of gross domestic product rather than to balance the budget.

In fact, requiring a balanced budget in every year could be quite harmful if it prevents the government from using temporary borrowing to stabilize the economy during a downturn. The Goodlatte proposal would only allow spending to exceed revenue in a given year if supported by a three-fifths super majority in both the House and the Senate. When economic output falls, this onerous requirements would make it incredibly difficult for the federal government to maintain even pre-recession spending levels, let alone provide the kind of economic stimulus necessary to prevent a recession from turning into a deep depression.

The sole reason House Republicans are pushing this half-baked proposal now is to give themselves a fig leaf to cover their shameful legislative record. When Congress returned to Washington yesterday, the Congressional Budget Office greeted them with updated projections showing federal budget deficits that were trillions of dollars higher than those projected last year. Republicans hope their constituents will ignore the real damage they’ve done to our nation’s finances if they merely affirm their support for balancing the budget in principle.

Democrats and deficit hawks shouldn’t let the GOP off the hook so easily. They should repudiate this meaningless show vote and demand Congressional Republicans either put up or shut up. Making our fiscal policy sustainable requires real solutions; the proposed balanced budget amendment is nothing more than a sham to avoid them.

This post has been updated to reflect that the version of the amendment being voted on is different than the version Rep. Goodlatte posted on his website last week. That version, which can still be found here, would have also required a three-fifths super majority in both chambers to raise additional revenue and an even larger two-thirds super majority to authorize spending more than one fifth of economic output.

New CBO Report Highlights the Cost of Trump’s First Year

Posted on April 9, 2018September 18, 2024 by The Progressive Policy Institute

WASHINGTON — Ben Ritz, director of the Center for Funding America’s Future at the Progressive Policy Institute (PPI), today released the following statement after new fiscal projections released by the nonpartisan Congressional Budget Office (CBO) this afternoon demonstrated the enormous cost of policies adopted during the first year of Trump’s presidency:

“The national debt is now on track to reach unprecedented heights over the next decade thanks to the policies adopted by Donald Trump and the Republican-controlled Congress. According to CBO, the federal government will need to borrow $2.7 trillion more over the next decade just to cover the cost of legislation enacted since June – the most expensive of which was last year’s tax cut. The American people cannot afford to foot the bill for this reckless fiscal policy.

“Importantly, CBO’s estimates assume that many policies expire as they are scheduled to under current law. If current policies were instead made permanent, they would add another $2.6 trillion to the gap between revenue and spending. Under this scenario, CBO warns that the national debt held by the public would equal 105 percent of gross domestic product by 2028. That level would be just one percentage point below the all-time high reached at the end of World War II.

“With unemployment at 4.1 percent and economic growth continuing to be strong, now is the time when America should be reducing its budget deficits, not adding to them. Policymakers shouldn’t wait until the middle of a crisis to address this growing problem. Republicans, who have spent years proselytizing against debt and deficits, now have an obligation to prove that it wasn’t just empty rhetoric.

“But Republicans aren’t the only ones who need to change their budgetary behavior. Although Trump and his administration have significantly worsened our nation’s fiscal challenges, he did not create them. As more and more baby boomers retire, the largest programs in the federal budget – Medicare and Social Security – are projected to grow roughly twice as fast as the U.S. economy. Even before the most recent tax cuts were enacted, CBO consistently warned that projected revenues would be insufficient to cover the soaring costs of these programs.

“Simply reversing the policies enacted by the Trump administration isn’t enough for Democrats. The party that champions spending on public investment and social insurance must present the public with a credible plan to pay for it. Democrats should not allow the young voters who put them in office to be buried under a mountain of debt.”

Ben Ritz is available for comment.

Statement on the Passing of Peter G. Peterson

Posted on March 20, 2018 by The Progressive Policy Institute

The next generation lost a champion today with the passing of Peter G. “Pete” Peterson. While many leaders proselytize against debt and deficits when it’s politically convenient, Pete was one of the few whose concern for our nation’s fiscal future was truly sincere. For decades, he consistently advocated for using a responsible combination of spending cuts and tax increases to minimize the burden being placed on young Americans by a growing national debt. Pete worked respectfully with both Democrats and Republicans in pursuit of these solutions, making him a paragon of civility and bipartisan pragmatism in an era where such traits seem to be in short supply.

In addition to his advocacy, Pete was well-known for his philanthropy. In 2008, Pete donated half of his fortune to start the Peter G. Peterson Foundation. The foundation has contributed to think tanks across the political spectrum and offered educational and professional opportunities to young Americans of all ideological stripes. Many leaders talk of empowering the next generation but Pete actually did so. Our condolences go out to Pete’s family, his staff, and the broader budget community during this difficult time.

Even After Budget Deal, Discretionary Spending Remains Low

Posted on March 14, 2018September 18, 2024 by The Progressive Policy Institute

Although February’s bipartisan budget deal significantly increased discretionary spending, the portion of the federal budget appropriated annually by Congress remains near record-low levels. Both defense and non-defense (domestic) discretionary spending are falling relative to the size of the economy – a trend that has serious long-term implications for our nation’s ability to make critical public investments that strengthen the foundation of our economy.

Domestic discretionary spending is the category of federal spending that encompasses virtually all non-defense, non-entitlement programs. These programs include critical public investments such as infrastructure and scientific research that provide long-term benefits to our society. It is also the part of the budget that Congress has the flexibility to use for addressing unexpected crises such as natural disasters and economic downturns. Reducing the resources available for domestic discretionary spending thus risks jeopardizing many core government functions and the future health of our economy.

Unfortunately, that’s exactly what policymakers have been doing in recent years. The Budget Control Act of 2011 capped both categories of discretionary spending as part of a broader effort to reduce future deficits. When Congress failed to reach a bipartisan agreement on taxes and other categories of federal spending, the BCA automatically triggered an even deeper, across-the-board cut to discretionary spending known as sequestration. While the sequester has been lifted several times since it first took effect, discretionary spending consistently remained far below the original BCA caps.

That trend ended with the Bipartisan Budget Act of 2018. This budget deal not only lifted discretionary spending above sequester levels – it also went above and beyond the original BCA caps for two years. Nevertheless, projected domestic discretionary spending for Fiscal Year 2019 is significantly below the historical average as a percentage of gross domestic product. Moreover, even if policymakers extended these policy changes beyond the two years covered by the BBA, we project that domestic discretionary spending could fall to just 3 percent of GDP within the next decade – the lowest level in modern history.

The story is similar for defense spending. Thanks to the pressure put on by the sequester, defense discretionary spending fell to just under 3.1 percent of GDP in FY2017. Under the BBA, defense spending would increase to 3.4 percent of GDP in FY2019 before falling again. Unlike domestic discretionary spending, however, defense would remain above the all-time low it reached before the 2001 terrorist attacks throughout the next decade.

None of this is to say that policymakers should abandon any semblance of fiscal discipline when it comes to discretionary spending. The budget deal set domestic discretionary spending levels above those requested in President Obama’s final budget while also setting defense spending above the levels requested by President Trump. This fact suggests that the immediate spending increase was more than either party really needed to fund its priorities. Sharp spending increases without a clear purpose are more likely to lead to waste as government officials lose the incentive to make tradeoffs and efficiently target taxpayer resources.

Moreover, the budget challenges that led to the original imposition of the Budget Control Act remain serious. PPI criticized the BBA because we believe that any spending increase above the original BCA caps – which were meant to be a down payment on much-needed fiscal discipline – should be offset so as not to further exacerbate the nation’s already ballooning budget deficit. Thanks to both it and other recently enacted legislation, the federal government is now running an annual budget deficit that may never fall below $1 trillion again.

But when policymakers are ultimately forced to confront the nation’s long-term fiscal challenges, they should focus their efforts on the tax code and non-discretionary programs that are growing on auto-pilot faster than the economy. Discretionary spending isn’t the main driver our budget deficits, and most of the savings achieved by cutting internal waste should be redirected towards more beneficial public investments. A great nation invests in its future and cutting those investments too deeply will only hurt us in the long run.

Gerwin for The Hill, “‘Go-it-alone’ trade strategies are neither wise nor effective”

Posted on March 8, 2018 by The Progressive Policy Institute

On March 1, after weeks of “absolute chaos” within his administration, Trump held a hastily arranged “listening session” with metals executives.

Trump announced — to the surprise of his staff — that he’d be imposing import tariffs of 25 percent on steel and 10 percent on aluminum, and that these tariffs would last “a long period of time.” Trump reportedly chose 25 percent duties because a round number “sounds better.”

Reaction to Trump’s informal announcement was swift, widespread — and harsh. The stock market, which Trump cites as confirmation of his economic genius, plunged 420 points. The Wall Street Journal called the tariffs the “biggest policy blunder” of Trump’s presidency.

Continue reading at The Hill.

Senate Democrats’ Deficit-Neutral Infrastructure Plan Clarifies the Cost of Tax Cuts

Posted on March 8, 2018September 18, 2024 by The Progressive Policy Institute

Senate Democrats yesterday unveiled an ambitious $1 trillion infrastructure proposal that would invest in everything from roads and railways to hospitals and high-speed broadband. And in sharp contrast to recent proposals by the Trump administration, this new Democratic proposal includes a plan to fully pay for itself.

The proposal calls for repealing three elements of the recently-enacted Republican tax bill that almost exclusively benefit the wealthiest taxpayers, as well as closing the “carried interest loophole” that allows certain earnings on Wall Street to be taxed at a lower rate than other compensation. It would also raise the top corporate tax rate from 21 percent to 25 percent – the average rate among OECD countries and the level originally proposed by House Ways and Means Chairman David Camp (R-MI) back in 2014.

Spending in the new proposal is broken down into 19 different categories, each with its own budget and parameters for implementation. The package as a whole includes additional guidelines, such as encouraging the adoption of innovative technologies and long-term financing mechanisms, to accompany proposed spending. If fully implemented, the proposal’s authors believe it would create 15 million good-paying jobs.

Compare that to the proposal offered last month by the Trump administration, which claims to increase infrastructure investment by $1.5 trillion even though the administration’s budget provided no additional funding for it. The Trump proposal would also privatize a wide variety of physical assets, such as waterways and interstate highways, that the Democratic proposal would retain for public use.

Another advantage of the Democratic proposal is that it makes clear to voters the true cost of the Republican tax cut enacted last year – something PPI has been urging Democrats to do since before passage of the bill. For less than half the cost of this terrible tax cut, voters could have gotten a robust 21^st century infrastructure that would benefit our economy for generations to come. That message could be a powerful one heading into the midterm elections, especially if paired with a credible and comprehensive Democratic framework for “repealing and replacing” the GOP tax bill.

Senate Democrats should be commended for including suggested funding mechanisms in their proposal. Whereas Republicans added over $2 trillion of tax cuts to the national debt, the Democrats’ infrastructure proposal would be fully funded and deficit-neutral. If implemented in a timely and cost-effective way, their proposal might even reduce budget deficits because of the high economic returns on well-targeted infrastructure investment. The stark contrast between these two approaches to fiscal policy is just further evidence that only one of the two political parties in Washington is making any attempt to pay for its proposed policies.

But when they find themselves in a position to implement these policies, Democrats should keep in mind that simply paying for their new proposals isn’t sufficient.

The federal government is now spending $1 trillion more than it raises in revenue every year – a gap that is projected to more than double over the next decade. It will be impossible to sustain social programs as they’re currently structured, let alone fund new ones, without major reforms to both existing spending and the tax code. The government cannot afford to commit every dollar of additional revenue to new promises until it finds a way to pay for the ones we’ve already made.

For these reasons, Democrats would be wise to use yesterday’s proposal as merely the starting point for crafting a complete fiscal policy: one that sustainably finances both public investments and a strong social safety net without placing an undue burden on young Americans. A fiscally responsible public agenda along these lines is what the Democratic Party needs, and it’s what our country deserves.

New Analysis Highlights Dire Fiscal Situation

Posted on March 5, 2018September 18, 2024 by The Progressive Policy Institute

New projections from the non-partisan Committee for a Responsible Federal Budget show that Donald Trump and the Republican-controlled Congress have plunged the United States back into trillion-dollar deficits at a time when most economists believe we should be whittling them down.

According to CRFB’s estimates, which are based on a methodology similar to the one used by official scorekeepers at the Congressional Budget Office, the policy changes made since last fall will likely result in $6 trillion being added to the national debt over the next decade if they’re allowed to remain in place. This is in addition to $10 trillion of new debt that was already projected to accumulate under the law as it was previously written.

If the government continues on this trajectory, our national debt will be more than double the level it was when Donald Trump took office by the end of the decade. Annual budget deficits will triple. Annual spending on interest payments will quadruple. And economic growth won’t be able to keep up with any of it.

Many of the fiscal challenges facing the United States predate the current administration. But whereas CBO previously projected annual budget deficits to exceed $1 trillion beginning in 2022, CRFB’s analysis warns that we now face trillion-dollar deficits this year. By 2028, the budget deficit will swell to 2.4 trillion, which would be over 8 percent of gross domestic product – a level not seen outside of the Great Recession since World War II.

The primary contributors to this deteriorating fiscal situation are the Republican tax bill (formerly known as the Tax Cuts and Jobs Act) and the February budget deal (the Bipartisan Budget Act of 2018), which together account for over half of the additional borrowing expected over the coming decade. Funding for disaster relief, overseas military engagements, and other “emergencies,” as well as policies that were supposed to expire last year but were nonetheless extended without being offset, were expected to add another trillion dollars to the debt. Finally, Republican efforts to undermine the Affordable Care Act by defunding cost-sharing reductions would further grow government debt by increasing the cost of health care.

The CRFB report notes that when President Obama left office, “paying for new legislation and securing the solvency of various trust funds would have been sufficient to prevent debt from rising rapidly as a share of GDP.” Since then, legislation spearheaded by Republicans has “turned a dismal fiscal situation into a dire one.”

Most of the blame belongs to the GOP, but Democrats are not completely innocent either. Many supported the February budget deal that not only reversed harmful sequestration but also busted through less restrictive spending caps originally intended to be a down payment on fiscal discipline, as well as some of the other policy changes mentioned above that were adopted without offsets. Both parties now have their hands on the shovel being used to dig our fiscal hole deeper and, as this new analysis makes clear, they need to put it down.

PPI Launches Center for Funding America’s Future

Posted on February 12, 2018 by The Progressive Policy Institute

WASHINGTON – The Progressive Policy Institute today announced the launch of a new Center for Funding America’s Future that will promote a fiscally responsible public investment agenda.

This launch comes at a pivotal moment in the federal budget debate. In under two months, Donald Trump and the Republican-controlled Congress have enacted policies that grow federal budget deficits by several trillion dollars throughout the next decade. The administration’s latest budget proposal, meanwhile, offers few ideas to tackle the soaring deficit aside from gutting critical investments in our nation’s intellectual, human, and physical capital.

The PPI Center for Funding America’s Future will offer sensible center-left alternatives to this reckless agenda that foster robust and inclusive economic growth. The Center’s work will include publishing research reports, providing timely commentary on policy debates, and organizing a series of public engagement events around the country.

“The United States now faces trillion-dollar deficits every year as far as the eye can see, which threaten to undermine public support and funding for important investments in the long-term health of our economy,” said Will Marshall, President of the Progressive Policy Institute. “The events of the past week make clear that the work of PPI’s new Center on Funding America’s Future is needed now more than ever.”

The Center will be led by Ben Ritz, who will provide PPI with expert analysis of government spending and tax policies. Ritz previously staffed the Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings, where he helped develop the commission’s comprehensive proposals to reform Social Security and retirement-related tax expenditures, and served as Legislative Outreach Director for the budget-focused Concord Coalition. Ritz has also provided communications and research assistance to several victorious Democratic political campaigns in the Trump era.

“Democrats have a unique opportunity to present themselves as the responsible stewards of government,” said Ritz. “But in order to do so, they need to stand firm against Republican profligacy and offer a credible alternative. I am excited to help PPI’s Center on Funding America’s Future make the case for a fiscally responsible public investment agenda to policymakers and their constituents alike.”

Don’t Help GOP Budget Busters

Posted on February 8, 2018September 18, 2024 by The Progressive Policy Institute

The Republican Party, led by self-proclaimed “King of Debt” Donald Trump, is embracing fiscal profligacy on an epic scale. First, the Trump Republicans broke their promise of “revenue-neutral tax reform” and instead rammed through a bill that will grow deficits by at least $1.5 trillion last December. Now they’ve struck a deal with Senate Democrats that, combined with the tax bill, would add more than $3 trillion to the deficit over the next decade. It’s a one-two gut punch to fiscal responsibility.

It’s regrettable that Senate Democrats have made themselves complicit in the Republican raid on the U.S. Treasury. Yes, this deal would avoid a federal shutdown, which is a good thing. But the pricetag is simply too steep. We support funding disaster relief, health care programs and other critical public investments, and we support adequate defense spending as well. But we’re against unnecessary borrowing to pay for it, which represents an abdication of Congress’s core Constitutional responsibility: paying for government without passing the bill to the next generation.

From the Brownback debacle in Kansas to the tax bill and this latest budget deal, Republicans are proving to be the most reckless and incompetent managers of public finances. All their fiscal posturing and brinksmanship during the Obama years stands exposed as rank hypocrisy. But Democrats can’t effectively make that case to voters if they join in a bipartisan conspiracy against fiscal discipline in Washington.

It would be one thing if this budget deal merely repealed the sequester, which was never meant to take effect and has hamstrung important investments in both defense and domestic initiatives. The Senate budget deal, however, would raise spending above the original levels agreed to by both parties in the Budget Control Act of 2011. It would also cut taxes for corporations by an additional $17 billion and repeal important cost-control measures imposed by the Affordable Care Act – all without paying for them.

If policymakers are going to abandon the BCA, they need to replace it with another plan for controlling America’s massive public debt. The Senate deal places America on the fast track to trillion-dollar deficits as far as the eye can see. That’s the opposite of the fiscal policy our country needs today. When the economy is expanding, we should be unwinding the debt, not using the threat of a government shutdown to make it worse. Otherwise, young Americans will face higher tax and debt payment burdens, and the federal government will have little “fiscal reserve” to tap the next time the economy goes into recession.