The Center's work on 'Deficits and Projections' Issues


Our Take on Today’s Trustees’ Reports

July 28, 2014 at 4:34 pm

We just issued statements on the trustees’ 2014 reports on Social Security and Medicare.  Here are the openings:

  • CBPP President Robert Greenstein on Social Security:

    “Social Security can pay full benefits for close to two decades, the new trustees’ report shows, but will then face a significant, though manageable, funding shortfall that the President and Congress should address in the near future.

    “Specifically, the trustees estimate that Social Security can pay full benefits until 2033, at which point its combined trust funds will be exhausted.  After 2033, even if policymakers failed to act, Social Security would pay about 75 percent of scheduled benefits, relying on Social Security taxes as they are collected.  The exhaustion date is unchanged from last year’s report and is within the range that the trustees have projected for some time.  In the late 1990s, they projected the exhaustion date as early as 2029; at one point in the last decade, they projected an exhaustion date as late as 2042.

    “The trustees caution that their projections are uncertain.  For example, they estimate an 80 percent probability that trust fund exhaustion would occur between 2029 and 2038 — and a 95 percent chance that it would happen between 2028 and 2041.  The Congressional Budget Office (CBO) recently estimated that exhaustion would occur in 2030, largely because CBO expects somewhat faster improvements in mortality.  Fluctuations of a year or two in either direction are no cause for either alarm or celebration.  The key point is that all reasonable estimates show a manageable long-run challenge that policymakers must address, the sooner the better, but not an immediate crisis. . . .”

  • Senior Fellow Paul Van de Water on Medicare:

    “Medicare has grown somewhat stronger financially in both the short and long term since last year but continues to face long-term financing challenges, today’s report from its trustees shows.  The projected date of insolvency for Medicare’s Hospital Insurance (HI) trust fund is 2030 — four years later than projected last year.

    “Health reform, along with other factors, has significantly improved Medicare’s financial outlook, boosting revenues and making the program more efficient.  The HI trust fund’s projected exhaustion date of 2030 is 13 years later than the trustees projected before the Affordable Care Act.  And the HI program’s projected 75-year shortfall of 0.87 percent of taxable payroll is down from last year’s estimate of 1.11 percent and much less than the 3.88 percent that the trustees estimated before health reform. . . .”

A Constitutional Convention Poses Grave Risks

July 16, 2014 at 4:33 pm

The idea of convening a constitutional convention to propose a balanced budget amendment or similar amendments raises grave problems, as we explain in a new paper.  A number of states have passed resolutions calling for such a convention, and proponents of a constitutional convention are targeting more states in an effort to obtain the 34 states needed to call one (see map).

A balanced budget amendment poses serious risks in and of itself.  But, as a number of legal experts across the political spectrum have warned, a convention could open up the Constitution to broader radical and harmful changes.  Such serious concerns are justified, for several reasons:

  • A convention could write its own rules.  No constitutional convention has been called since the 1787 meeting that wrote the Constitution, and the Constitution provides no guidance whatsoever on what a convention’s ground rules would be.  This leaves wide open to political considerations and pressures such fundamental questions as how delegates would be chosen, how many delegates each state would have, and whether a supermajority vote would be required to approve amendments.  To show the importance of these issues, consider that if every state had one vote in a convention and the convention could approve amendments with a simple majority vote, the 26 least populous states, with less than 18 percent of the nation’s people, could approve constitutional amendments for ratification. 
  • A convention could set its own agenda, possibly influenced by powerful interest groups.  The 1787 meeting went far beyond its mandate.  Charged with amending the Articles of Confederation to promote trade among the states, the convention instead wrote an entirely new governing document.  A convention held today could set its own agenda, too.  There is no guarantee that a convention could be limited to a given set of issues, such as balancing the budget.  
  • A convention could choose a new ratification process.  The 1787 convention ignored the ratification process under which it was established and created a new process, reducing the number of states needed to approve the new Constitution and removing Congress from the approval process.  The country then ignored the pre-existing ratification procedures and adopted the Constitution under the new ratification procedures that the convention proposed.  Given these facts, it would be unwise to assume that ratification of the convention’s proposals would require the subsequent approval of 38 states, as the Constitution specifies.  For example, a convention might remove the states from the approval process and propose a national referendum instead, or approval by a simple majority of states. 
  • No other body, including the courts, has clear authority over a convention.  The Constitution provides for no authority above a constitutional convention, so it isn’t clear that the courts, Congress, state legislatures, or a President could intervene if a convention went beyond the language of the state resolutions calling for a convention or the congressional resolution establishing it.  Likewise, there may be no recourse if the convention altered the process for ratifying its own proposed amendments.  The Constitution has virtually no restrictions on the operations of a constitutional convention or the scope of the amendments that it could produce, and the courts would likely regard legal challenges to a convention as “political questions” that the judiciary does not wade into. 

States should avoid these risks and reject resolutions calling for a constitutional convention, and those that have already approved such resolutions should rescind them.

Click here to read the full paper.

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.

House GOP’s IRS Budget Cuts: A Field Day for Tax Cheats

July 15, 2014 at 4:40 pm

The IRS has absorbed big cuts in recent years that have weakened enforcement and damaged taxpayer service.  The House Appropriations Committee passed a 2015 IRS budget that would cut the IRS even deeper.  But that wasn’t good enough for the full House, based on the cutting frenzy on the House floor over the last day.

The House approved a series of Republican amendments that, taken together with the cuts in the underlying bill, would shrink the IRS’s enforcement budget in 2015 by more than $1.2 billion relative to 2014 funding.  Under the House bill as it now stands, one-quarter of the IRS’s enforcement budget from this year would be gone.

The IRS’ core function is to collect revenue.  But these amendments would further stifle its ability to do that.  In its current form, the theme of the IRS funding bill seems to be:  If you’re an honest taxpayer, don’t call us because we won’t have the resources to answer the phone.  And if you’re a tax cheat, don’t worry because we won’t have the resources to call you.  As Rep. Jose Serrano (D-NY), the ranking member of the House Appropriations subcommittee that oversees the IRS, put it, “this will prevent the IRS from going after tax cheats… and from helping those who are attempting to obey the law.”

Rep. Paul Gosar (R-AZ), who advanced a House-passed amendment to cut $353 million from IRS enforcement, said, “I am ecstatic that the House of Representatives supported my efforts today to pass a vitally important amendment which will save hundreds of millions of taxpayer dollars…”

Actually, his amendment will do exactly the opposite.  When tax cheats get a pass, the deficit rises.  When, instead, Congress provides more money for enforcement, revenues rise and the deficit falls.

The House also approved an amendment by Rep. Bill Huizenga (R-MI) to cut enforcement another $788 million.

In total, the House Appropriations bill when combined with the Gosar, Huizenga, and other amendments cuts IRS enforcement more than $1.2 billion below this year’s $5 billion level — and cuts the total IRS budget by $1.5 billion, on top of deep cuts that Congress has enacted to the IRS budget since 2010.  Under the House bill as amended, total IRS funding in 2015 would be $9.8 billion, which is 19 percent below the 2010 level or 27 percent lower when adjusted for inflation (see chart below).

The cuts of earlier years have already wreaked serious damage on the IRS, as we recently explained:

  • ​The IRS has about 10,400 (11 percent) fewer employees than in 2010, even as its workload has grown.  For instance, the number of individual income tax returns has grown by an average of 1.5 million each year over the past decade.
  • ​The number of IRS staff devoted to enforcing tax laws has dropped by 15 percent since 2010.  As a result, the IRS is conducting fewer audits.  The annual audit rate for individual taxpayers is now below 1 percent, the lowest since 2006, and revenue collected through IRS enforcement actions has fallen by more than $4 billion over the past four years.  Weakening IRS enforcement ultimately hurts the entire budget:  every additional dollar invested in IRS tax enforcement activities from current levels yields $6 in increased revenue, the Treasury Department reports.
  • Taxpayer services have worsened.  For example, in 2013, a typical caller to the IRS waited about 18 minutes for an IRS representative to get on the line, and about 40 percent of calls were never answered.

The Administration was right to threaten to veto the House bill even before these irresponsible amendments.  When it considers IRS funding, the Senate should take a stronger stand for honest taxpayers by rejecting all cuts and giving the IRS the resources it needs to do its job.  The President should accept no less.

Bernstein on Five Years of Economic Recovery

July 15, 2014 at 3:22 pm

CBPP Senior Fellow Jared Bernstein testified today before the Joint Economic Committee on the progress that has been made in repairing the U.S. economy over the first five years of the recovery from the Great Recession.

Bernstein explained:

When markets fail as massively as they did in the late 2000s, quick and forceful action clearly helps offset the damage.  But to stop at stabilization, instead of rebuilding jobs and incomes that were lost over the downturn is a serious policy mistake, one that has proven to be extremely costly to working families. . . . [T]here is time to build on the recent momentum we’ve seen, particularly in the job market.

Bernstein pointed out that while there are many positive attributes to the current recovery, especially in relation to the depth of the previous recession, it is clearly not yet reaching everyone:

  • Thanks in part to countercyclical policies legislated by Congress in 2009, along with aggressive monetary policy by the Federal Reserve, significant progress has been made in repairing the damage done by the uniquely deep recession that began in late 2007.
  • These gains, while incomplete, are evident in the job market, particularly in the recent acceleration in job growth and decline in unemployment.  After 52 consecutive months of net private sector job growth, non-government employment is up 9.7 million jobs since early 2010.
  • Moreover, employment growth has accelerated in recent months.  Payrolls added 1.4 million jobs in the first half of this year, their strongest six-month growth period since late 1999.

  • Un- and underemployment are both down significantly over the recovery, as are other slack metrics that rose sharply in the downturn, including long-term unemployment and involuntary part-time work.  While part of the decline in unemployment was due to labor force exits, this negative trend has also stabilized in recent months.
  • Private payrolls grew about 3 percent faster over the first five years of this recovery compared to the prior recovery, despite the fact that the recession that preceded this expansion was much deeper in terms of lost output and much longer lasting than the downturn that preceded the 2000s expansion.  The private sector added 3.4 million more jobs in the first five years of this recovery than were added in the last one.
  • Yet, slack remains in the job market and wage growth has generally not yet accelerated; real median household income, after falling sharply by around 10 percent in the downturn, is up about 3 percent over the past few years, largely due to more work at flat real earnings.  Corporate profitability and financial market returns, on the other hand, have more than recovered their losses.

Bernstein warned that policymakers cannot stop at stabilization. To prolong and strengthen the recovery, he recommended investing in infrastructure and increasing the federal minimum wage.

Click here for Bernstein’s full testimony.