Tag: cbo

The Six Most Important Takeaways from CBO’s New Long-Run Fiscal Forecast

The Congressional Budget Office has just released the 2016 version of its Long-Term Budget Outlook.

It’s filled with all sorts of interesting data if you’re a budget wonk (and a bit of sloppy analysis if you’re an economist).

If you’re a normal person and don’t want to wade through 118 pages, you’ll be happy to know I’ve taken on that task.

And I’ve grabbed the six most important images from the report.

First, and most important, we have a very important admission from CBO that the long-run issue of ever-rising red ink is completely the result of spending growing too fast. I’ve helpfully underlined that portion of Figure 1-2.

And if you want to know the underlying details, here’s Figure 1-4 from the report.

Once again, I’ve highlighted the most important portions. On the left side of Figure 1-4, you’ll see that the health entitlements are the main problem, growing so fast that they outpace even the rapid growth of income taxation. And on the right side, you’ll see confirmation that our fiscal challenge is the growing burden of federal spending, exacerbated by a rising tax burden.

And if you want more detail on health spending, Figure 3-3 confirms what every sensible person suspected, which is that Obamacare did not flatten the cost curve of health spending.

Medicare, Medicaid, Obamacare, and other government health entitlements are projected to consume ever-larger chunks of economic output.

Now let’s turn to the revenue side of the budget.

Figure 5-1 is important because it shows that the tax burden will automatically climb, even without any of the class-warfare tax hikes advocated by Hillary Clinton.

And what this also means is that more than 100 percent of our long-run fiscal challenge is caused by excessive government spending (and the Obama White House also has confessed this is true).

Let’s close with two additional charts.

We’ll start with Figure 8-1, which shows that things are getting worse rather than better. This year’s forecast shows a big jump in long-run red ink.

There are several reasons for this deterioration, including sub-par economic performance, failure to comply with spending caps, and adoption of new fiscal burdens.

The bottom line is that we’re becoming more like Greece at a faster pace.

Last but not least, here’s a chart that underscores why our healthcare system is such a mess.

Figure 3-1 shows that consumers directly finance only 11 percent of their health care, which is rather compelling evidence that we have a massive government-created third-party payer problem in that sector of our economy.

Yes, this is primarily a healthcare issue, especially if you look at the economic consequences, but it’s also a fiscal issue since nearly half of all health spending is by the government.

P.S. If these charts aren’t sufficiently depressing, just imagine what they will look like in four years.

Obamacare’s Low Enrollment Numbers Also Show Why Exchange Coverage Will Get Worse

The Obama administration has released the numbers from the 2016 open enrollment period for Obamacare’s health insurance exchanges. The Congressional Budget Office had already downgraded its enrollment projection for 2016 from 21 million to 13 million. The news is actually just slightly worse: only 12.7 million enrollments, a number that is likely to shrink over the course of the year. Naturally, the administration declared success because enrollments exceeded the 10 million it had predicted back in October (thereby confirming speculation it had deliberately low-balled that prediction so it could later declare victory in spite of what it knew would be terrible enrollment numbers). Yet most observers overlooked what may be the worst news of all: evidence suggesting significant adverse selection in the Exchanges.

The administration reported that 70% of those who re-enrolled for 2016 shopped for a better plan, while 43% switched plans. The administration spun this as a positive, as evidence that Obamacare is expanding choice.

In reality, those numbers mean the vast majority of enrollees were dissatisfied enough with their Obamacare coverage to look for a better option , and a near-majority were so dissatisfied with their premiums or their coverage that they switched to what they hope will be a better plan. Most importantly, such widespread plan-switching is strong evidence of the type of adverse selection that is already eroding Obamacare’s promise to the sick , and could cause the exchanges to collapse.

The Simple Solution to America’s Deteriorating Fiscal Outlook

The Congressional Budget Office has just released its new 10-year fiscal forecast and the numbers are getting worse.

Most people are focusing on the fact that the deficit is rising rather than falling and that annual government borrowing will again climb above $1 trillion by 2022.

This isn’t good news, of course, but it’s a mistake to focus on the symptom of red ink rather than the underlying disease of excessive spending.

So here’s the really bad news in the report.

  • The burden of government spending has jumped from 20.3 percent of GDP in 2014 to 21.2 percent this year.
  • By the end of the 10-year forecast, the federal government will consume 23.1 percent of the economy’s output.

More Keynesian Primitivism from the Congressional Budget Office

I never watched That ’70s Show, but according to Wikipedia, the comedy program “addressed social issues of the 1970s.”

Assuming that’s true, they need a sequel that addresses economic issues of the 1970s. And the star of the program could be the Congressional Budget Office, a Capitol Hill bureaucracy that apparently still believes - notwithstanding all the evidence of recent decades - in the primitive Keynesian view that a larger burden of government spending is somehow good for economic growth and job creation.

I’ve previously written about CBO’s fairy-tale views on fiscal policy, but wondered whether a new GOP-appointed director would make a difference. And I thought there were signs of progress in CBO’s recent analysis of the economic impact of Obamacare.

But the bureaucracy just released its estimates of what would happen if the spending caps in the Budget Control Act (BCA) were eviscerated to enable more federal spending. And CBO’s analysis was such a throwback to the 1970s that it should have been released by a guy in a leisure suit driving a Ford Pinto blaring disco music.

America’s Greek Fiscal Future

Last September, I wrote about some very disturbing 10-year projections that showed a rising burden of government spending.

Those numbers were rather depressing, but a recently released long-term forecast from the Congressional Budget Office make the 10-year numbers look benign by comparison.

The new report is overly focused on the symptom of deficits and debt rather than the underlying disease of excessive government. But if you dig into the details, you can find the numbers that really matter. Here’s some of what CBO reported about government spending in its forecast.

The long-term outlook for the federal budget has worsened dramatically over the past several years, in the wake of the 2007–2009 recession and slow recovery. …If current law remained generally unchanged…, federal spending rises from 20.5 percent of GDP this year to 25.3 percent of GDP by 2040.

And why is the burden of spending going up?

Chairmen of House and Senate Budget Committees Propose Good Fiscal Frameworks, Particularly Compared to Obama’s Spendthrift Plan

Earlier this year, President Obama proposed a budget that would impose new taxes and add a couple of trillion dollars to the burden of government spending over the next 10 years.

The Republican Chairmen of the House and Senate Budget Committees have now weighed in. You can read the details of the House proposal by clicking here and the Senate proposal by clicking here, but the two plans are broadly similar (though the Senate is a bit vaguer on how to implement spending restraint, as I wrote a couple of days ago).

So are any of these plans good, or at least acceptable? Do any of them satisfy my Golden Rule?

Here’s a chart showing what will happen to spending over the next 10 years, based on the House and Senate GOP plans, as well as the budget proposed by President Obama.

Keep in mind, as you look at these numbers, that economy is projected to expand, in nominal terms, by an average of about 4.3 percent annually.

The most relevant data is that the Republican Chairmen want spending to climb by about $1.4 trillion over the next decade (annual spending increases averaging about 3.3 percent per year), while Obama wants spending to jump by about $2.4 trillion over the same period (with annual spending climbing by an average of almost 5.1 percent per year).

Why Do Some Advocates of Small Government Want to Keep a Democrat Appointee at CBO?

Since I’ve accused the Congressional Budget Office of “witch doctor economics and gypsy forecasting,” it’s obvious I’m not a big fan of the organization’s approach to fiscal analysis.

I’ve even argued that Republicans shouldn’t cite CBO when the bureaucrats reach correct conclusions on policy (at least when such findings are based on bad Keynesian methodology).

So nobody should be surprised that I think the incoming Republican majority should install new leadership at CBO (and the Joint Committee on Taxation as well).

So why, then, are some advocates of smaller government - such as Greg Mankiw, Keith Hennessey, Alan Viard, and Michael Strain - arguing that Republicans should keep the current Director, Doug Elmendorf, who was appointed by the Democrats back in 2009?

Before answering that question, let’s look at some of what was written today for the Washington Post’s Wonkblog.

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