More About Richard Kogan

Richard Kogan

Richard Kogan rejoined the Center in May 2011 after having served as a Senior Adviser at the Office of Management and Budget since January 2009. During his second tour at the Center, from 2001 to 2009, he served as a Senior Fellow specializing in federal budget issues, including aggregate spending, revenues, surpluses and deficits, and debt. Kogan is also an expert in the congressional and executive budget processes and budget accounting concepts.

Full bio and recent public appearances | Research archive at CBPP.org


House, Senate Budget Plans Each Get 69 Percent of Cuts From Low-Income Programs

March 23, 2015 at 3:58 pm

The 2016 budget resolutions that the House and Senate will consider this week each cut more than $3 trillion over ten years (2016-2025) from programs that serve people of limited means — representing 69 percent of their cuts to non-defense spending, as we explain in a new analysis (see chart).

The plans are strikingly imbalanced.  While 69 percent of their cuts come from programs for people with low or modest incomes, these programs constitute less than 25 percent of federal program costs.  Moreover, spending on these programs is already scheduled to fall as a share of the economy between now and 2025.

Among the programs that the plans would cut:

  • Health care for low- and moderate-income people. Each plan would repeal health reform, including its subsidies to make coverage affordable for people with low or moderate incomes and its Medicaid expansion, and block-grant much of Medicaid, while also making deep cuts to the program.  These cuts would make tens of millions of people uninsured or underinsured.
  • SNAP (formerly food stamps). The House plan block-grants SNAP starting in 2021 and cuts SNAP funds by $125 billion, or more than a third, over 2021 to 2025.  Cuts of this magnitude would end food assistance for millions of low-income families, cut benefits for millions of such households, or do some combination of the two.
  • Tax credits for low- and modest-income working families. Each plan would let critical provisions of the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) expire at the end of 2017, which would push more than 16 million people, including almost 8 million children, into or deeper into poverty.
  • Other mandatory (i.e. entitlement) programs serving low-income Americans. The House and Senate plans would each cut hundreds of billions of dollars from mandatory programs in the education and income security categories of the budget.  Although each plan lacks specifics, severe cuts would occur to Pell Grants, which help students from families with modest incomes afford college.
  • Low-income non-defense discretionary programs. The House and Senate plans each would make additional cuts on top of the significant reductions required by the Budget Control Act’s discretionary caps and sequestration.  These cuts would shrink the funds available for investments in education, research, and transportation, as well as for low-income programs such as housing assistance, Head Start, and the Low Income Home Energy Assistance Program.

Our assumptions regarding the size of the low-income cuts are conservative.  Where the plan leaves budget cuts unspecified, we assume that all programs in an affected program category would face the same percentage cut, even though some of the programs not targeted only on low- and moderate-income people, such as military retirement programs, would likely be cut significantly less than their equal share, if at all.

Click here to read the full report.

Setting the Record Straight on Student Loan Costs

February 18, 2015 at 11:05 am

President Obama’s 2016 budget estimates that the outstanding portfolio of federal student loans will be $21.8 billion less profitable than previously thought over the loans’ lifetime.  This reestimate doesn’t mean that the program “had a $21.8 billion shortfall last year,” as a Politico story stated.  Nor does it justify adopting an alternative accounting method (so-called “fair-value accounting”) that would artificially inflate the program’s cost.  The reestimate is, indeed, completely unrelated to the accounting method.

Here, briefly, is what the reestimate does and doesn’t mean.

Lending programs appear in the budget with up-front estimates of the net costs or profits to the government over the loans’ lifetime.  In the case of student loans, the government makes a profit, even after accounting for defaults, which is why student loans are a good deal for both students and the government.  If the government later concludes that its earlier estimates of lifetime costs were too high or low, it reestimates all outstanding loans.  The reestimate is recorded in the year it’s made (in this case, 2015), not in the many past years in which the loans were issued.

The recent $22 billion upward reestimate is the net result of three factors:

  • The President’s decision to permit students who borrowed before 2008 to switch to the Pay-As-You-Earn (PAYE) repayment plan will raise future costs by an estimated $9 billion.  PAYE caps monthly loan payments at 10 percent of borrowers’ incomes and forgives the remaining debt after 20 years of payments.
  • More student borrowers than originally expected are switching to other repayment plans that tie payments to borrowers’ incomes, raising future costs by an estimated $15 billion.
  • Expected defaults are down (that is, more borrowers are expected to repay their loans than previously estimated), lowering future costs by an estimated $2 billion.

This isn’t a “shortfall.”  No cash is missing, nor are the 2015 inflows and outflows of student loans $22 billion lower than initially thought.  Rather, the $22 billion reestimate is a new, and slightly less sanguine, view of the net profits that the government will make over the next few decades on the student loans that are now outstanding.

The reestimate isn’t particularly large in percentage terms, either.  It’s about 2.9 percent of the outstanding portfolio of student loans, which is three-quarters of a trillion dollars.

Also, while Senator Deb Fischer (R-NE) cited the reestimate in introducing a bill requiring the use of “fair-value accounting” for student loans and other credit programs, “fair-value accounting” would make student loan accounting less accurate, not more, and it wouldn’t have avoided these reestimates.

Here’s why.  By law, the government estimates the costs or profits of its loans based on the difference between what the government will pay out in loans (including the cost to the Treasury of financing the loans) and the interest, principal, and associated fees that borrowers will repay over time, accounting for expected defaults.  “Fair-value” proponents say that the budget should reflect the higher financing and other costs that a private lender would incur if it, not the federal government, made the loans.  This approach would record loans as less profitable (or more expensive) to the government than they really are by including costs in the budget that the federal government never has to pay.  For these reasons, we strongly oppose “fair-value accounting,” as we’ve explained here, here, and here.

Importantly, even if the government had been using phantom “fair-value” costs in its initial estimates of student loans, it still would have needed to make the same upward revision in 2015 due to the three factors described above.  “Fair-value accounting” would not have affected that reality in any way.

History Suggests Ryan Block Grant Would Be Susceptible to Cuts

July 28, 2014 at 2:47 pm

At the heart of House Budget Committee Chairman Paul Ryan’s new poverty plan is a block grant — called the “Opportunity Grant” — that would consolidate 11 disparate low-income programs, the largest being SNAP (formerly food stamps).  Ryan says that the block grant would maintain the same overall funding as the current programs.  But even if one thought that current-law funding levels were adequate, they likely wouldn’t be sustained over time under the Ryan proposal:  history shows that block grants that consolidate a number of programs or may be used for a wide array of purposes typically shrink — often very substantially — over time.

The table below shows 11 major block grant programs created in recent decades.  Eight of them have shrunk since their inception, in some cases sharply.  (Our analysis accounts for the effect of inflation.)

Block grants’ very structure makes them vulnerable to cuts.  Block grants generally give state and local governments more flexibility in how to use funds, leading to varied approaches for achieving program goals.  But this variety makes it hard to see how changes in funding levels affect beneficiaries, or even to be sure how the money is being used.  That, in turn, makes it easier for policymakers looking for savings to target block grants rather than other benefit programs for long-term freezes or cuts.  Block grants in general have fared poorly in the competition for resources.

Balanced Budget Amendment Likely to Harm the Economy

July 16, 2014 at 4:21 pm

A number of states may soon call for a convention to amend the U.S. Constitution to require that the federal budget be balanced every year.  But a convention would pose serious risks, and a balanced budget requirement would be a highly ill-advised way to address the nation’s long-term fiscal problems.  It would threaten significant economic harm while raising a host of problems for the operation of Social Security and other vital federal functions, as we explain in a new paper.

By requiring a balanced budget every year, no matter the state of the economy, such an amendment would risk tipping weak economies into recession and making recessions longer and deeper, causing very large job losses.  Rather than allowing the “automatic stabilizers” of lower tax collections and higher unemployment and other benefits to cushion a weak economy, as they now do automatically, it would force policymakers to cut spending, raise taxes, or both when the economy turns down — the exact opposite of what sound economic policy would advise.  Such actions would launch a vicious spiral:  budget cuts or tax increases in a recession would cause the economy to contract further, triggering still higher deficits and thereby forcing policymakers to institute additional austerity measures, which in turn, would cause still-greater economic contraction.

For example, in 2011 one of the nation’s preeminent private economic forecasting firms concluded that if a constitutional balanced budget amendment had been ratified and were being enforced for fiscal year 2012, “[t]he effect on the economy would be catastrophic.”  If the 2012 budget were balanced through spending cuts, the firm found, those cuts would throw about 15 million more people out of work, double the unemployment rate from 9 percent to about 18 percent, and cause the economy to shrink by about 17 percent instead of growing by an expected 2 percent.

The fact that states must balance their budgets every year — no matter how the economy is performing — makes it even more imperative that the federal government not also face such a requirement and thus further impair a faltering economy.

Such a constitutional requirement — which would be notably more restrictive than the behavior of the most prudent states or families — would also cause a host of other problems.  Requiring that federal spending in any year be offset by revenues collected in that same year would undercut the design of Social Security, deposit insurance, and all other government guarantees.  And it would raise troubling questions about enforcement, including the risk that the courts or the President might be empowered to make major, unilateral budget decisions, undermining the checks and balances that have been a hallmark of our nation since its founding.  It is not a course that the nation should follow.

Click here to read the full paper.

Budget Should Show Federal Loan Programs’ Actual Cost

May 27, 2014 at 2:36 pm

A new Congressional Budget Office (CBO) report compared the cost of three federal loan programs under standard accounting rules and a “fair-value” alternative, which imposes an added cost based on the extra amount that private lenders would charge if they issued the loans or loan guarantees.  We view this report as a useful reminder that by making these programs appear to cost more than the government is expected to actually spend on them, fair-value accounting would distort budgeting, putting loan programs at an unfair disadvantage relative to other programs.  (The key loan programs at risk are listed here.)

Fair-value accounting adds a penalty, on top of the regular cost estimate, based on the fact that private-sector investors are loss-averse:  they dislike losses (in this case, the possibility of higher-than-expected loan defaults) more than they like gains (the possibility of lower-than-expected defaults).  For the three programs it examined, CBO estimated that such a loss-aversion penalty would average $22 billion per year for federal student loans, $9 billion per year for single-family mortgages guaranteed by the Federal Housing Administration (FHA), and less than $2 billion per year for the Export-Import Bank’s loans, guarantees, and insurance.

With these loss-aversion penalties, the three programs would appear to lose rather than make money for the federal government.  (CBO’s new estimates of these loss-aversion penalties is somewhat smaller than its estimates of last year.)

CBO currently thinks that adding loss-aversion penalties is a good idea, but former CBO Director Robert Reischauer shares our strong opposition.  (Our short paper and in-depth analysis provide more details on the problems with fair-value accounting.)  Whether one favors or opposes some or all federal credit programs, it is wrong in principle to add non-existent costs to the budget, which — as my colleague Paul Van de Water recently blogged — “would untether the budget from reality.”