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Let’s Focus on the Right Debt Measure

In recent congressional testimony on the country’s fiscal state of affairs, former U.S. Comptroller General David Walker rightly noted the long-term budget challenges facing U.S. policymakers.  But he unnecessarily muddied this critical issue with a misguided focus on a seriously flawed measure of the nation’s debt and inappropriately alarmist comparisons between the United States and other countries, including Greece, with economic and budgetary situations quite different from ours.

Walker began by discussing the debt measure that policymakers should be looking at — federal debt held by the public (basically the sum of all past budget deficits minus surpluses), measured as a share of the economy.  But his account started to go off the rails when he said:

Today’s public debt is about 65 percent of GDP and growing rapidly.  In addition, if you add the debt owed to Social Security and Medicare, which I believe you should, federal debt is close to 95 percent of GDP and growing rapidly.

Actually, the growth in the public debt would slow dramatically over the next decade if we let President Bush’s tax cuts expire, though it would accelerate in later decades as more and more baby boomers retire.

More importantly, while using a debt measure that includes money owed to Social Security and Medicare makes debt growth look worse, such a measure is seriously flawed.  Called “gross debt,” it includes money the federal government owes to itself — such as the money the Social Security trust fund has lent to the Treasury in years when Social Security’s earmarked revenues exceeded expenditures.

The Congressional Budget Office said recently that gross debt “is not a good indicator of the government’s future obligations” and the Treasury securities held by trust funds “represent internal transactions of the government and thus have no direct effect on credit markets.”

Consider the following.  Budget analysts agree that reducing scheduled Social Security benefits or increasing Social Security taxes would improve the long-term fiscal outlook.  But these steps — which Walker himself has called for— would not reduce the projected gross debt.  Debt held by the public would decline because total deficits would be lower, but the benefit reductions or tax increases would expand the Social Security trust fund, which in turn would lend that increase in its surplus to the Treasury.  The increase in intragovernmental debt would fully offset the drop in debt held by the public, so gross debt would remain unchanged.

Walker’s claim that the United States looks more like Greece than like most other developed countries is more alarmist than accurate.  As Howard Gleckman has argued, we’re not like Greece:  our economy is much larger, the sources of Greece’s budgetary problems are very different from ours (public employee pay is a large budget item for them but a trivial one for us, for example), and we have the advantages that come from having our own currency so that others are not dictating how we need to address our fiscal challenges.  These differences vastly outweigh any similarities between the two countries’ levels of deficits and debt.

To be sure, the United States faces serious long-term fiscal challenges, and failure to address them would pose real economic risks.  But as we address that challenge, we should focus on the right measure of the debt and not act like the United States is on the verge of being the next Greece.

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Bob Greenstein Discusses the Federal Budget with MSNBC’s Andrea Mitchell

Yesterday, Bob Greenstein discussed President Obama’s deficit reduction plan, the House GOP budget, and the ongoing debt limit debate on MSNBC’s “Andrea Mitchell Reports.”

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The Debt Limit Distraction

Congress will likely waste considerable time posturing over the debt limit before taking the necessary step of raising it.  That’s why EconoSpeak’s Barkley Rosser recommends abolishing the debt limit altogether.  Rosser says he may be the first to publicly call for such action, but anyone reading between the lines would find a longstanding kindred sentiment at the Congressional Budget Office.

My colleague Kathy Ruffing was one of the authors of a 1993 CBO study that said (p. 43):

Voting separately on the debt is ineffective as a means of controlling deficits, because the decisions that necessitate borrowing are made elsewhere.  By the time the debt ceiling comes up for a vote, it is too late to balk at paying the government’s bills without incurring drastic consequences.

CBO said virtually the same thing last year (see p. 23).  Ditto for Glenn Hubbard, dean of the Columbia Business School and former chief economist to President George W. Bush.

Whatever value the debt ceiling may have had in the past in concentrating policymakers’ attention on the need to address unsustainable deficits, the deficit issue is already front and center this time.  Numerous commission proposals, the House-passed budget plan from Budget Committee Chairman Paul Ryan, and the President’s latest proposal have laid out the parameters of the fiscal responsibility debate.  Brinksmanship on the debt limit has potentially serious economic consequences.  It’s time for policymakers to get down to the business of making a deal on long-run deficit reduction — and here are our principles for (and cautions about) how to do that.

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Bob Greenstein Discusses the President’s Deficit Reduction Plan with MSNBC’s Lawrence O’Donnell

Last night, Bob Greenstein discussed the details of President Obama’s deficit reduction plan on MSNBC’s “The Last Word with Lawrence O’Donnell”

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Bob Greenstein Discusses the Federal Debt Limit Debate with MSNBC’s Lawrence O’Donnell

Bob Greenstein discusses the ongoing federal debt limit debate with Lawrence O’Donnell last night on MSNBC’s “The Last Word.”

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Bob Greenstein Discusses the Federal Budget with MSNBC’s Lawrence O’Donnell

Bob Greenstein discusses the ongoing federal budget debate with Lawrence O’Donnell last night on MSNBC’s “The Last Word.”

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Robert Greenstein Discusses Ryan Budget on MSNBC’s “The Last Word”

Yesterday, Robert Greenstein appeared on MSNBC’s “ “The Last Word with Lawrence O’Donnell” to discuss House Budget Committee Chairman Paul Ryan’s budget.

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Tax-Flight Arguments (Still) Don’t Add Up

Two governors are proposing this week to raise taxes on their state’s wealthiest residents.   Today, Minnesota’s Mark Dayton proposed higher income tax rates on taxable incomes above $150,000 and a surtax on incomes over $500,000; tomorrow, Connecticut’s Daniel P.  Malloy is expected to propose a higher rate on incomes over $1 million.

Some critics will surely claim, as they have in other states, that higher-income people will flee from the state.  No such flight has occurred in other states that raised top rates, but that won’t stop these attacks, as some recent examples show:

  • A Bloomberg News story headlined “New Jersey Population Growth Slows as Taxes Push Some to Flee” noted that the Garden State’s population grew much more slowly between 2000 and 2010 than most other states.  It suggested that New Jersey’s top income tax rate — now 8.97 percent — was to blame.But the 8.97 percent rate affects only a tiny share of New Jersey filers — the 1.2 percent with taxable incomes over $500,000 — and those folks aren’t leaving.  Quite the contrary,  there’s strong population growth within that bracket:  during roughly the same time period (1999-2008), the number of New Jersey filers with incomes over $500,000 grew by more than two-thirds.

    As two Princeton University researchers, Cristobal Young and Charles Varner, conclude in a new report on a 2004 measure that set the 8.97 percent rate:  “While in principle it is easier for tax avoiders to migrate out of state than out of country, the reluctance of people to do so gives states significant room to tax top incomes.  Indeed, we estimate that New Jersey’s new tax raises nearly $1 billion per year, and tangibly reduces income inequality, with little cost in terms of tax flight.”

  • A Connecticut Policy Institute report contends the state’s top income tax rate of 6.5 percent is causing residents to flee.  But as Robert Frank pointed out in the Wall Street Journal, the state’s population of top-income households is growing, not shrinking (as in New Jersey).  And many of those who leave go to New York, where tax rates are higher.
  • An Ocean State Policy Research Institute report claims that Rhode Island’s estate tax (which applies to estates worth more than about $850,000) is the main driver of out-migration from the state.  But the report’s spurious reasoning earned it a “false” rating from PolitiFact Rhode Island and a stinging rebuttal from The Poverty Institute of Rhode Island.  Among other problems, the study argues that many residents are fleeing Rhode Island for Florida because the latter lacks an estate tax, even though the number of migrating residents actually fell in the years after Florida eliminated its estate tax.

States are addressing huge, recession-induced revenue shortfalls by cutting everything from kindergarten funding to services for Alzheimer’s patients — and more deep cuts are on the way.  Policymakers should ask those who can best afford it to pay somewhat more, solid in the knowledge — and despite assertions to the contrary — that they won’t flee from higher income taxes.  In short, policymakers should base taxes on the cost of meeting real needs, not on unfounded fears.

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Something to Celebrate – Health Insurance For Children

Here’s some good news. In 2009, in the depths of the Great Recession, the number and percentage of children who lacked health insurance did not rise – even as the total number of Americans without insurance rose by 4 million, to 51 million.  Why?  Because even as many kids lost the coverage they had through their parents’ employers, they had an alternative: public programs like the Children’s Health Insurance Program (CHIP) and Medicaid.

Medicaid and CHIP’s role in stabilizing children’s insurance coverage is even more apparent over time. Despite an eroding private health insurance market, the share of children without health coverage fell from 12.5 percent in 1999 to 10 percent in 2009. That’s entirely because coverage rates for children under Medicaid or CHIP rose from 20.3 percent of all children to 33.8 percent over this period, an increase of 10.6 million children.

Two years ago today, President Obama signed legislation to renew CHIP so that it, along with Medicaid, could continue providing critical health insurance coverage to children who need it.  As a result, the program has served as a lifeline for millions of children and their families throughout these tough economic times.

More good news is on the way, thanks to health reform (the Affordable Care Act).  The law will strengthen the employer-based insurance market by providing tax credits to help small businesses purchase coverage for employees and providing small employers with more affordable options in state-based health insurance exchanges.  It will also create more alternatives for people who don’t get insurance through their jobs.  Individuals, including those now shut out of the current system because they are suffering from serious health conditions, will be able to purchase high-quality, affordable private coverage.  Many of these individuals will qualify for premium credits to help them afford coverage.  And, the law’s expansion of Medicaid will provide a coverage option to poor adults, an alarmingly high share of whom are uninsured.

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On Disability, Just the Facts

Demographic and economic factors explain much of the increase in the number of people receiving Social Security disability benefits in recent decades.  But that’s not the impression you’d get from some alarmist recent reports.  Senator Tom Coburn (R-OK), a member of the President’s fiscal commission, told the commission that disability payments were “out of control,” and authors of a new Brookings Institution report described the program as a “rapidly growing expense” that has “largely escaped the scrutiny of policymakers.”

Here are the facts.  This month, 8.2 million people will receive disabled-worker benefits from Social Security.  (Payments will also go to some of their family members:  160,000 spouses and 1.8 million children.)  The number of disabled workers has doubled since 1995, while the working-age population — conventionally described as people age 20 through 64 — has increased by only about one-fifth.  But that comparison is deceptive.  Over that period:

  • Baby boomers aged into their high-disability years. People are roughly twice as likely to be disabled at age 50 as at age 40, and twice as likely to be disabled at age 60 as at age 50.  As the baby boomers (people born in 1946 through 1964) have grown inexorably older, disability cases have risen.
  • More women qualified for disability benefits. In general, workers with severe impairments can get disability benefits only if they’ve worked for at least one-fourth of their adult life and for five of the last ten years.  Until the great influx of women into the workforce that occurred in the 1970s and 1980s, relatively few women met those tests; as recently as 1990, male disabled workers outnumbered women by nearly a 2 to 1 ratio.  Now that more women have worked long enough to qualify for disability benefits, the ratio has fallen to just 1.1 to 1.
  • Social Security’s full retirement age rose from 65 to 66. When disabled workers reach the full retirement age, they begin receiving Social Security retirement benefits rather than disability benefits.  The increase in the retirement age from 65 to 66 has delayed that conversion for many workers.  This month, over 300,000 people between 65 and 66 are collecting disability benefits; under the rules in place a decade ago, they would be receiving retirement benefits instead.

The Social Security actuaries  express the number of people receiving disability benefits using an “age- and sex-adjusted disability prevalence rate” that controls for these factors.  Over the 1995-2010 period, that rate rose from 3.5 percent of the working-age population to 4.4 percent.  That’s certainly an increase, but not nearly as dramatic as the alarmists paint (see graph).

Not surprisingly, the rate crept upward during periods of economic distress.  Anecdotally and statistically, we know that many workers who can’t find jobs and who exhaust their unemployment benefits turn to disability insurance.

Disability is a personal tragedy and economic hardship for workers and their families.  We should strive to aid these workers through job accommodations (such as special equipment to help them perform their job), universal health insurance, and rehabilitation opportunities — while also recognizing that Social Security disability insurance is a crucial part of our nation’s safety net.

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Robert Greenstein Discusses Tax Deal on MSNBC’s “Hardball” and “The Last Word”

Yesterday, Robert Greenstein appeared on MSNBC’sHardball with Chris Matthews” and “The Last Word with Lawrence O’Donnell” to discuss the deal on taxes and unemployment insurance making its way through Congress.

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On “The Last Word,” Greenstein talked about the future of the tax cuts, and which parts of the compromise are most likely to support the economic recovery:

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Greenstein Debates Tax Cut-Unemployment Deal on MSNBC’s “The Last Word”

Robert Greenstein analyzed the deal between President Obama and Republican leaders on tax cuts and unemployment insurance last night on MSNBC’s “The Last Word with Lawrence O’Donnell.” Other guests included The Washington Post’s Ezra Klein, The Huffington Post’s Arianna Huffington, and Representative Alan Grayson.

Watch below:

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