budget policy – Andrew Samwick

In Praise of Stan Collender

May 6, 2019Andrew SamwickLeave a comment

I learned today that my friend and former co-blogger Stan Collender passed away on Friday. James Hagerty has a thoughtful obituary in The Wall Street Journal today.

It was very early on in my blogging that I discovered Stan's writing on the budget. There are many writers who are deficit hawks at heart and know about the budget in fairly general terms. Some of us can even write coherently for an audience on budget matters. Stan was a fellow traveler, but he brought so much more to the discussion -- an impressive command of the details, a keen sense of the political strategy underlying "Budget Battles," and a wit as sharp and quick as any you will find. He will be missed.

Fiscal Recklessness, 2018 Edition

September 30, 2018Andrew SamwickLeave a comment

I was invited to present a lecture at Middlebury this past week on "Income Tax Policy and Economic Growth." I wanted to present a picture of just how bad the projected federal deficit is for the next decade. The following graph, which shows the last 50 years of data on the unemployment rate and the federal deficit, is what emerged:

Sources: CBO, BLS

The horizontal axis is the unemployment rate, as a percentage of the labor force, and the vertical axis is the federal deficit, as a percentage of GDP. Other things equal, we would expect the line to be downward sloping -- the higher is the unemployment rate, the worse will be the deficit, as both automatic stabilizers and additional stimulus efforts kick in. Each blue dot represents the year indicated over the last 50 years, 1968 - 2018. The best-fit linear relationship indicated by the blue dots is about -1.2: for every additional percentage point of the labor force that is unemployed, the federal deficit widens by about 1.2 percentage points of GDP.

Departures from that general tendency indicate budget policy that was unusually strict (toward the Northeast direction) or unusually loose (toward the Southwest direction). The orange dots are the next 10 years of projections, based on CBO data. Note that there is no recession projected in these data -- the unemployment rate is projected to remain below 5 percent over this decade. Despite this rosy economic projection, the deficit is always about 4 percent of GDP or larger. We will have never had deficits that large as a share of GDP with unemployment that low. Relative to where we were 20 years ago with similar unemployment rates, we are running deficits 5-6 percentage points of GDP larger. That's President Trump's fiscal record.

That is the mess we are in. My main concern is intergenerational equity -- there is no ethical reason to pass along the burden of financing structural deficits to future generations. And then, eventually, there will be further concern if and when the rest of the world decides it is no longer content to allow us to roll over our debt at such favorable interest rates.

Republican Budget Policy, A New Look

January 19, 2017Andrew SamwickLeave a comment

At the Inauguration Panel on Tuesday, I noted that Mick Mulvaney, President-elect Trump's nominee for Director of the Office of Management and Budget, was considerably more of a deficit hawk while a Representative than was the Republican leadership in the House. This AP article from last month describes his time in the House well:

Mulvaney quickly came to oppose Boehner’s leadership before Boehner was pushed out in 2015. In 2013, Mulvaney declined to support Boehner’s re-election to the post. That year, Mulvaney unsuccessfully pushed for amendments to reduce Pentagon funding and proposed broad across-the-board federal cuts, including for the military.

He was an early backer of Trump during the presidential campaign, noting that the Republican billionaire had tapped into a populist sentiment dissatisfied with Washington.

“If you want to know, members of Congress, why you have Donald Trump, go look in the mirror, because we’ve over-promised and under-delivered for so long,” Mulvaney said in February.

The problem with the Republican Party on the budget in recent years is that it likes to portray itself as fiscally responsible, but when it actually comes time to impose budget discipline, its leaders lose their nerve. They either don't vote for grand compromises like Simpson-Bowles that balance expenditure reductions with revenue increases, don't run a budget process that offers a disciplined budget even when they control both houses of Congress, or confuse tax cuts with budget cuts.

In a report today, The Hill describes the budget being contemplated by the incoming administration. It specifies reductions of $10.5 trillion over a decade in federal spending:

The proposed cuts hew closely to a blueprint published last year by the conservative Heritage Foundation, a think tank that has helped staff the Trump transition.

Similar proposals have in the past won support from Republicans in the House and Senate, who believe they have an opportunity to truly tackle spending after years of warnings about the rising debt.

Many of the specific cuts were included in the 2017 budget adopted by the conservative Republican Study Committee (RSC), a caucus that represents a majority of House Republicans. The RSC budget plan would reduce federal spending by $8.6 trillion over the next decade.

[...]

“Mick Mulvaney and his colleagues at the Republican Study Committee when they crafted budgets over the years, they were serious,” said a former congressional aide. “Mulvaney didn’t take this OMB position to just mind the store.”

“He wants to make significant, fundamental changes to the structure of the president’s budget, and I expect him to do that with Vought and Gray putting the meat on the bones,” the source added.

That would be a genuine change in Republican policy, as implemented. It also suggests how the Trump administration would make good on promises to leave entitlement programs largely intact while restoring some balance to the budget without significant tax increases. It remains to be seen whether Congressional Republicans will go along.

Inauguration Week Panels at Dartmouth

January 18, 2017Andrew SamwickLeave a comment

This week, we are hosting four panels on opportunities and risks facing the new Presidential administration. My contribution was to yesterday's panel on domestic issues, focusing on budget policy. Here is how I opened my remarks:

Stated plainly, our federal budget policy has been a mess since our first modern experiments with tax cuts in the 1980s. A favorable combination of factors restored some sanity to it in the late 1990s. Our second modern experiment with tax cuts in the 2000s messed it up again.

All the while, the aging of the Baby Boom generation through its peak earnings years made our old-age entitlement programs temporarily less expensive to fund. Its continued aging into retirement and thus beneficiary years will cause Social Security and Medicare to switch to large and growing annual deficits.

So there is serious work to be done, and we haven’t been close to being up for the challenge in at least 6 years.

The video is available here:

And the other three panels, focusing on global issues, health care, and energy and the environment, can be livestreamed or viewed here.

Enjoy!

Another Look at the ACA and the Federal Budget

April 10, 2012Andrew SamwickLeave a comment

Chuck Blahous is on the case. In one chart:

His main point:

Why are these dire fiscal consequences not more widely understood? A great source of confusion lies in government scorekeeping methods, which compare the effects of legislation to a hypothetical baseline scenario rather than to enacted law. To understand the difference, it is necessarily to go briefly into the weeds of Medicare trust fund accounting.

The ACA contains many provisions designed to slow the growth of Medicare spending. This matters here because the federal Medicare program is financed in a particular way – from special, separate trust funds. The Medicare Hospital Insurance (HI) Trust Fund in particular is governed under law by certain rules. Medicare HI is only permitted to spend money on benefits as long as there is a positive balance in its trust fund. If that trust fund is depleted, then under law benefit payments must automatically be cut to the level that can be financed from incoming tax revenues.

This is relevant to an evaluation of the ACA because the CMS Medicare Actuary has projected that had the ACA not been passed the Medicare HI Trust Fund would have been depleted in 2016. If that were allowed to happen, Medicare HI payments would have been sharply cut in that year.

Due to the ACA’s Medicare cost-savings provisions, however, these automatic spending cuts are no longer projected to begin in 2016. Medicare HI is now projected to remain solvent until 2024, postponing forced outlay reductions until then. In other words, the ACA’s Medicare provisions decrease the level of Medicare HI spending prior to 2016, but then increase it from 2016-2024 relative to previous law. Considered separate and apart that would be a good thing, but it has inescapable fiscal ramifications in the context of the ACA’s other spending expansions.

Here’s a simple way to think of it: under law Medicare is permitted to spend any proceeds of savings in the Medicare HI program. If we cut $1 from Medicare HI spending in the near term, then an additional $1 is credited to the HI Trust Fund as a result. The Trust Fund thus lasts longer and its spending authority is expanded, permitting it to spend another $1 in a later year.

A core fiscal problem with the ACA is that the same $1 in Medicare savings that expands Medicare’s future spending authority by $1 is also assumed to finance the creation of a large new federal health program. Taken together, these two expansions of spending authorities – the new health program and Medicare’s solvency extension – far exceed the cost-savings in the legislation.

Read the whole thing.

Update: Jonathan Chait has done so and concludes the study is bogus, since the more reasonable assumption is that Medicare Part A spending would have been authorized at projected levels even after the Trust Fund is exhausted. The claims in Chait's post that "If Blahous’s assumptions are right, then we don’t really have an entitlement problem at all. Medicare can’t exceed its trust fund, so problem solved!" technically only apply to Part A. Parts B and D are funded primarily out of general revenues and secondarily out of premiums, and their costs will continue to grow.

An Unhappy Anniversary

January 29, 2012Andrew SamwickLeave a comment

Friday marked the four-year anniversary of my op-ed in The Washington Post, "A Better Way to Deal With Downturns." Written in protest of the tentative deal for the first $150 billion stimulus of the last recession, I offered the following two changes to budget policy to have a better menu of fiscal options available:

First, we should rule out deficit spending to finance a consumption binge. As the economy slows, the deficit will widen even without changes in fiscal policy. But an honest budget policy would be calibrated to balance the budget over a complete business cycle. Years of cyclical deficits will be offset by years of cyclical surpluses. As a corollary, we must not waive pay-as-you-go rules that require spending that increases the current deficit to be offset later, when the economy is stronger.

Second, we can plan well in advance. The federal government has a critical role in maintaining and developing public infrastructure, whether in transportation, telecommunications or energy transmission projects. A sensible capital budget would include a prioritized list of projects that need attention. Some would be slated for this year, some for 2009 and so on, over the useful lives of the projects. When economic growth falters, the government would be in a position to move some of the projects from later years into the present year.

This approach to counter-cyclical fiscal policy has several advantages. Perhaps most obvious is that it forces the government to establish priorities for capital projects. It reduces overall expenditures by doing more of the work in times of economic slack, when costs are lower. It also abides by pay-go rules, since projects moved up to 2008 need not be done in 2009. With a little forethought, short-term economic concerns and long-term budget goals need not be in conflict.

In fact, we have gotten the opposite in both cases, with inadequate short-term boosts to economic activity and a worsening long-term budget picture. As Paul Krugman noted today, in the context of continued declines in investment by state and local governments:

It’s hard to overstate just how wrong all this is. We have a situation in which resources are sitting idle looking for uses — massive unemployment of workers, especially construction workers, capital so bereft of good investment opportunities that it’s available to the federal government at negative real interest rates. Never mind multipliers and all that (although they exist too); this is a time when government investment should be pushed very hard. Instead, it’s being slashed.

If only someone had mentioned this years ago ...

On My Mind Today — Paul Tsongas

January 9, 2012Andrew SamwickLeave a comment

On the eve of the New Hampshire primary, and in preparing my introduction of David Walker today, I was thinking back to 1992 when Paul Tsongas won the Democratic contest while campaigning on fiscal issues. Here's a particularly relevant passage from his Call to Economic Arms:

This is where democracies rely upon the courage of their elected leaders. The normal political instinct is to always engage in happy talk. It is courage which allows a politician to take a people beyond that. It takes toughness to lead a people toward their preservation no matter how disquieting the journey may be. For avoidance of unpleasant reality is simply a part of human nature.

I do not think we have an economic problem here. We have a leadership problem here. Sadly, I do not see tomorrow's primary as a meaningful step toward resolving that leadership problem. In his talk, Walker mentioned two interesting organizations that might offer some hope: www.nolabels.org and www.americanselect.org.

UPDATE: Here's an article on Walker's lecture in The Dartmouth.

I Have Been Outflanked

February 18, 2008Andrew SamwickLeave a comment

By A Red Mind in a Blue State:

As I posted before, if we are going to insist on burdening our children and grandchildren with more debt, the least we could do is build or repair some roads, or bridges, or help end our dependency on foreign oil by building more refineries or by slapping solar panels on every flat roof in America-- something that will help the next generation.

Anyone receiving this check should know what it is-- a welfare check drawn on our children's checking account.

Read the whole thing.

Admissions

Academics

Campus Life

More

Category: budget policy