Transcript A Budget for a Declining Nation? Less saving (long-run

Fiscal Days of Reckoning
National Association of Music Merchants
May 11, 2010
Eugene Steuerle
Richard B. Fisher Institute Fellow
The Urban Institute
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Outline
 The current fiscal mess
 Budget for a declining nation (even if deficits=0)
 Removal of all “give” or “slack”
 Some forcing events
 Some possible solutions
 Crisis or opportunity?
The U.S. Federal Debt
(Percentage of GDP)
250
Past
Future
200
World
War II
150
Great
Depression
100
Civil War
50
World
War I
0
1800
1850
1900
SOURCE: PGPF compilation. Projections based upon official government sources.
1950
2000
3
The Current Squeeze
22.0%
21.0%
20.0%
Percentage of GDP
19.0%
Receipts
(if tax cuts made permanent)
Deficits Assuming All
Other Spending = 0
18.0%
17.0%
16.0%
15.0%
Resources
Left for Other
Domestic Outlays
14.0%
13.0%
12.0%
11.0%
Spending on Social Security,
Medicare, Medicaid, Defense,
International, and Interest
10.0%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Source: C. Eugene Steuerle and Stephanie Rennane, The Urban Institute 2010. Based on earlier work with Adam Carasso and
Gillian Reynolds. Authors' calculations based on data from CBO's Budget and Economic Outlook (2010)and OASDI and HI-SMI
Trustees Reports.
Revenues Under President Obama’s Proposals
22
21
20
Revenues:
Current Law
19
18
Revenues: Obama's
proposed tax cuts and
increases
% of GDP
17
16
15
14
13
12
11
10
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: C. Eugene Steuerle and Stephanie Rennane, The Urban Institute 2010. Based on The President’s FY 2011 Budget, OMB.
2019
2020
5
A Budget for a Declining Nation?
Less saving (long-run) & work
 Increased dependence upon foreign lenders
 Reduced investment in our children
6
A Look Forward to 2015
Additional Revenues in President’s FY2011 Proposal ($2009)
Net Interest
$322 billion
Residual = $426 Billion
Health Reform
$64 billion
Medicaid
$49 billion
1,000
Residual
$426 billion
800
600
400
Medicare
$157 billion
Deficit
Reduction, 747
200
Social Security
$119 billion
-
Other Mandatory, (122)
(200)
$1137 billion =
increase in
revenues in 2015
relative to 2009
(400)
Source: C. Eugene Steuerle and Stephanie Rennane, The Urban Institute, 2010. Based on data Budget FY2011.
TARP, (148)
Defense
Discretionary,
(28)
Non-Defense
Discretionary,
(22)
How Additional Revenues will be Spent in 2015
Total = $1.137 Trillion ($2009)
Net Interest
$322 billion
Health Reform
$64 billion
Medicaid
$49 billion
Residual
$426 billion
Medicare
$157 billion
Social Security
$119 billion
Source: C. Eugene Steuerle and Stephanie Rennane, The Urban Institute, 2010. Based on data Budget FY2011.
A Look Forward to 2015
Additional Revenues in President’s FY2011 Proposal ($2009)
Net Interest
$322 billion
Residual = $426 Billion
Health Reform
$64 billion
Medicaid
$49 billion
1,000
Residual
$426 billion
800
600
400
Medicare
$157 billion
Deficit
Reduction, 747
200
Social Security
$119 billion
-
Other Mandatory, (122)
(200)
$1137 billion =
increase in
revenues in 2015
relative to 2009
(400)
Source: C. Eugene Steuerle and Stephanie Rennane, The Urban Institute, 2010. Based on data Budget FY2011.
TARP, (148)
Defense
Discretionary,
(28)
Non-Defense
Discretionary,
(22)
Residual in 2015 = $426 Billion ($2009)
1,000
800
600
400
Deficit
Reduction, 747
200
(200)
(400)
Other Mandatory, (122)
TARP, (148)
Defense
Discretionary,
(28)
Non-Defense
Discretionary,
(22)
Source: C. Eugene Steuerle and Stephanie Rennane, The Urban Institute, 2010. Based on data Budget FY2011.
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Tr
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2008
R
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0.5%
Se
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0.6%
So
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In
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Spending on Children’s Programs Over Time
% of GDP
0.7%
2009
2019
0.4%
0.3%
0.2%
0.1%
0.0%
Index of Fiscal Democracy
Percent of Revenues not already allocated to Mandatory Programs
70%
60%
50%
40%
30%
20%
10%
-10%
Source: Stephanie Rennane, Timothy Roeper and C. Eugene Steuerle, 2010. Based on Historical Data from the Office of Management
and Budget and 2010 Congressional Budget Office projections for alternative baseline and health reform. Excludes TARP spending.
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
0%
Near-Term Forcing Events: Health
 Health reform
 A huge amount left to regulation
 Health costs not really tackled yet

Can we wait for more information?
 Kinks in almost-universal 4 subsidy system:




Medicare
Medicaid
Exchange
Employer subsidies
 Uncertainty how employers will react
Near-Term Forcing Events: Social Security
 Has moved back into visibility
 Administration and Congress may be forced to prove
they are doing something
 Social Security a target if health temporarily off table
 Might be integrated with private pension reform or
“add-on” Social Security accounts
Near-Term Forcing Events: Tax
 Bush tax cuts expire in 2010
 Estate tax
 Child credits
 Lower rates
 Alternative minimum tax (AMT): continuing issues
 Push for lower corporate rates but fewer corporate
incentives
Near-Term Forcing Events: Markets
 Greece, Spain, Ireland: Fear of Contagion
 Any market plunge
Some Long-term Solutions
 Additional work
 less drop in employment
 Bundling and voucher-izing health
 movement away from fee for service
 Placing budgets on each government program
 to provide incentives for improvement
 Reallocating budgets to needs, such as
 greater anti-poverty protection
 removal of Soc. Sec. discrimination against single heads of
household
 relatively more for health prevention and primary care
 Budget process reforms
Crisis or Opportunity?
 The Former Defining Myths
 Democrats: completing New Deal Agenda, mainly healthcare
 Republicans: restraining government encroachment on freedom
 Neither party has a real long-term vision
 The Encroaching Reality
 Two Santa Claus policy—trying to control the future--can’t survive
 Mutual sacrifice required for mutual gain
 Opportunity to redefine fundamental direction for government