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CBO — Growth in DoD’s Budget From 2000 to 2014

November 21, 2014 Comments off

Growth in DoD’s Budget From 2000 to 2014
Source: Congressional Budget Office

The Department of Defense’s (DoD’s) base budget grew from $384 billion to $502 billion between fiscal years 2000 and 2014 in inflation-adjusted (real) terms—an increase of 31 percent and an annual average growth rate of 1.9 percent (see figure below). Several factors contributed to that growth. The largest rate of growth was in the costs for military personnel, which increased by 46 percent over the period. The costs for operation and maintenance (O&M) increased by 34 percent, and the costs for acquisition increased by 25 percent. About two-thirds of the $117 billion real increase in the budget went for the following activities: procurement; O&M costs for the Defense Health Program; research, development, test, and evaluation; the basic allowance for housing; fuel; and basic pay for active-duty military personnel (see table below).

For this analysis, CBO examined DoD’s base budget, which excludes supplemental and emergency funding for overseas contingency operations (those conducted in Afghanistan and Iraq and other countries). DoD’s base budget includes both discretionary funding (controlled by annual appropriation acts) and mandatory funding (generally determined by eligibility rules, benefit formulas, and other parameters that are set in current law). All costs are expressed in 2014 dollars of budget authority, adjusted for the effects of inflation over the 15-year period using the gross domestic product price index; unless otherwise noted, all growth rates are measured in those real terms. CBO’s analysis is based on data from DoD. In addition, CBO relied on analyses described in several of its publications.

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CBO — Options for Reducing the Deficit: 2015 to 2024

November 21, 2014 Comments off

Options for Reducing the Deficit: 2015 to 2024
Source: Congressional Budget Office

The Congress faces an array of policy choices as it confronts the prospect of large annual budget deficits and further increases in the already-large government debt that are projected to occur in coming decades under current law. To help inform lawmakers about the budgetary implications of changing federal policies, CBO periodically issues volumes of policy options and their effects on the federal budget, of which this is the most recent. The agency also issues separate reports that present policy options in particular areas.

This document provides estimates of the budgetary savings from 79 options that would decrease federal spending or increase federal revenues over the next decade. The estimates are updates of many of those presented in Options for Reducing the Deficit: 2014 to 2023 (November 2013). The options cover a broad range of areas in the federal budget, including defense, energy, Social Security, health care programs, other benefit programs, and provisions of the tax code. The budgetary effects identified for most of the options span the 10 years from 2015 to 2024 (the period covered by CBO’s baseline budget projections in 2014), although many of the options would have longer-term effects as well. This document presents options in the following categories:

  • Mandatory spending other than that for health-related programs,
  • Discretionary spending other than that for health-related programs,
  • Revenues other than those related to health, and
  • Health-related programs and revenue provisions.

For each option, this document includes a brief description of the policy involved.

CBO — Federal Policies and Innovation

November 19, 2014 Comments off

Federal Policies and Innovation
Source: Congressional Budget Office

Innovation is a central driver of economic growth in the United States. Workers become more productive when they can make use of improved equipment and processes, and consumers benefit when new goods and services become available or when existing ones become better or cheaper—although the transition can be disruptive to established firms and workers as new products and processes supersede old ones. Looking ahead, innovation will continue to be important for economic growth, in part because the supply of workers to the economy is expected to increase at a much slower rate in the future.

Innovation produces some benefits for society from which individual innovators are not able to profit, and, as a result, those innovators tend to underinvest in such activity. Policymakers endeavor to promote innovation to compensate for that underinvestment. The federal government influences innovation through two broad channels: spending and tax policies, and the legal and regulatory systems. In this report, the Congressional Budget Office (CBO) examines the effects on innovation of existing policies and systems and the possible effects of a variety of proposals for changing those policies and systems.

CBO — Medicare’s Payment to Physicians

November 17, 2014 Comments off

Medicare’s Payment to Physicians
Source: Congressional Budget Office

On October 31, 2014, the Centers for Medicare and Medicaid Services (CMS) issued a final rule in which CMS announced the update to the conversion factor update for the Physician Fee Schedule (PFS) under Medicare will be a reduction of 21.2 percent for services furnished during calendar year 2015.

Following long-standing practice, CBO will incorporate that information in its next regular baseline update. It will also immediately take that information into account when analyzing legislation being considered by the Congress.

The table, Medicare’s Payment to Physicians: the Budgetary Effects of Alternative Policies, includes estimates for several replacement and short-term alternatives to the current rules for setting Medicare’s payment rates for physicians’ services. The starting date for all of these alternative policies would be April 1, 2015.

CBO — The Distribution of Household Income and Federal Taxes, 2011

November 17, 2014 Comments off

The Distribution of Household Income and Federal Taxes, 2011
Source: Congressional Budget Office

In 2011, according to CBO’s estimates, average household market income—a comprehensive income measure that consists of labor income, business income, capital income (including capital gains), and retirement income—was approximately $81,000. Government transfers, which include benefits from programs such as Social Security, Medicare, and unemployment insurance, averaged approximately $13,000 per household. The sum of those two amounts, which equals before-tax income, was about $94,000, on average. Federal taxes as examined in this report comprise four separate sources: individual income taxes, payroll (or social insurance) taxes, corporate income taxes, and excise taxes. Taken together, those taxes were about $17,000 per household, on average, in 2011. Thus, average household income after taxes was about $77,000, and the average federal tax rate (federal taxes divided by before-tax income) was 17.6 percent.

How CBO Analyzes the Effects of Changes in Federal Fiscal Policies on the Economy

November 13, 2014 Comments off

How CBO Analyzes the Effects of Changes in Federal Fiscal Policies on the Economy
Source: Congressional Budget Office

Analyzing the effects on the overall economy of changes in federal fiscal policies—that is, policies governing taxes and spending—requires complex modeling and a significant amount of time. CBO undertakes such analyses in certain reports and for some major pieces of legislation; some of those analyses include the feedback effects of changes in the economy on the federal budget. CBO estimates the economic effects of changes in fiscal policies in both the short term and the longer term. The agency conducts its analyses using evidence about the effects of similar policies that have been implemented previously and using results from a variety of economic models.

In the short term, changes in fiscal policies affect the overall economy primarily by influencing the demand for goods and services by consumers, businesses, and governments, which leads to changes in output relative to potential (maximum sustainable) output. For example, decreases in taxes and increases in government spending generally boost demand, which encourages businesses to gear up production and hire more workers than they otherwise would; tax increases and spending cuts generally reduce demand, which has the opposite effects. In addition, changes in the supply of labor (the number of hours of labor that workers would like to provide) can affect output in the short term if the labor market is sufficiently tight—that is, if the demand for workers is high relative to the supply.

In the longer term, changes in fiscal policies primarily affect output by altering people’s incentives to work and save as well as businesses’ incentive to invest, thereby changing potential output. For example, policy changes that reduce marginal tax rates—the percentage of an additional dollar of earnings that is unavailable to a taxpayer because it is paid in taxes—generally encourage more work and saving. As another example, policy changes that reduce the federal deficit typically lead to more national saving (the total amount of saving by households, businesses, and governments) and investment, ultimately boosting output and income. Changes to fiscal policies may also affect potential output by altering the amount of government investment (for example, spending or tax subsidies for infrastructure, education and training, or research and development).

CBO — How Initiatives to Reduce Fraud in Federal Health Care Programs Affect the Budget

October 22, 2014 Comments off

How Initiatives to Reduce Fraud in Federal Health Care Programs Affect the Budget
Source: Congressional Budget Office

Observers often cite fraud as an important contributor to high health care spending, particularly in federal programs. This report describes how CBO estimates the budgetary effects of legislative proposals to reduce fraud in Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP), and how those estimates are used in the Congressional budget process.

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