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CBO’s Projection of Federal Interest Payments

September 4, 2014 Comments off

CBO’s Projection of Federal Interest Payments
Source: Congressional Budget Office

Federal debt held by the public will reach about $12.8 trillion by the end of this fiscal year, an amount that equals 74 percent of the nation’s total output (gross domestic product, or GDP) this year. If current laws generally remained unchanged—the assumption that underlies CBO’s baseline projections—CBO projects that such debt would climb to $20.6 trillion, or 77 percent of GDP, in 2024.

Interest payments on that debt represent a large and rapidly growing expense of the federal government. CBO’s baseline shows net interest payments more than tripling under current law, climbing from $231 billion in 2014, or 1.3 percent of GDP, to $799 billion in 2014, or 3.0 percent of GDP—the highest ratio since 1996. The rising debt accounts for some of that increase, but much of it stems from CBO’s expectation that—largely owing to the improving economy—the average interest rate paid on that debt will more than double over the next 10 years, from 1.8 percent in 2014 to 3.9 percent in 2024. (Although interest rates are projected to rise sharply, CBO’s current projections of those rates are lower than its projections earlier in the year, reflecting the agency’s reassessment of the factors influencing real interest rates.)

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CBO Expects Economic Growth to Pick Up in the Next Few Years

August 28, 2014 Comments off

CBO Expects Economic Growth to Pick Up in the Next Few Years
Source: Congressional Budget Office

Yesterday CBO released its updated budget and economic outlook. To get a quick overview of our new economic forecast, view The Economic Outlook for 2014 to 2024 in 15 Slides.

As described in both the report and slides, CBO anticipates that, under the assumption that current laws governing federal taxes and spending generally remain in place, the economy will grow slowly this year, on balance, and then at a faster but still moderate pace over the next few years. In the first half of this year, real (inflation-adjusted) gross domestic product (GDP) rose at an average annual rate of just 0.9 percent; but CBO expects a stronger second half, so for the year as a whole, the agency projects the rate of growth to be 1.5 percent, as measured by the change from the fourth quarter of 2013 (see the figure below).

CBO — Examining the Number of Competitors and the Cost of Medicare Part D: Working Paper 2014-04

August 18, 2014 Comments off

Examining the Number of Competitors and the Cost of Medicare Part D: Working Paper 2014-04
Source: Congressional Budget Office

Most beneficiaries of Medicare’s Part D prescription drug insurance choose among private drug plans to receive their coverage. This paper is the first to examine the relationship between the number of competing plan sponsors and the cost of Part D during the program’s first five years. Over the period from 2006 to 2010, regional Part D markets contained between 16 and 22 plan sponsors offering stand-alone plans. Consistent with economic theory, we find that increases in the number of plan sponsors within a market were associated with lower bids and lower overhead and profits of plans in that market. For example, among stand-alone plans that were not eligible to be assigned low-income beneficiaries, we find that each additional plan sponsor entering an 18-firm market was associated with a reduction in bids for a month of basic coverage to a beneficiary of average health of 0.4 percent—or $0.33 for a plan that bid $85—which corresponds to an elasticity of -0.071. (That result is an arithmetic average across six specifications in which estimates range from $0.20 to $0.50.) Because bids are used to directly determine government spending, we estimate that an additional plan sponsor nationwide was associated with a reduction in government spending of $7 million to $17 million each year.

CBO — Veterans’ Disability Compensation: Trends and Policy Options

August 11, 2014 Comments off

Veterans’ Disability Compensation: Trends and Policy Options
Source: Congressional Budget Office

The Department of Veterans Affairs (VA) oversees a disability program that makes payments through the Veterans Benefits Administration (VBA) to compensate U.S. veterans for medical conditions or injuries that are incurred or aggravated during active duty in the military, although not necessarily during the performance of military duties. Compensable service-connected disabilities range widely in severity and type, including the loss of one or more limbs, migraines, scars, and hypertension. Payments are meant to offset the average earnings lost as a result of those conditions, whether or not a particular veteran’s condition has reduced his or her earnings or interfered with his or her daily functioning. Disability compensation is not means-tested; veterans who work are eligible for benefits, and, in fact, most working-age veterans who receive disability benefits are employed. Payments are in the form of monthly annuities and typically continue until death.

Adjusted for inflation to 2014 dollars, VA disability compensation to veterans amounted to $54 billion in 2013, or about 70 percent of VBA’s total mandatory spending, according to analysis by the Congressional Budget Office (CBO). The remainder of the department’s mandatory spending that year was for programs that provide veterans with housing assistance, education, vocational training, and other assistance. In 2013, about 3.5 million of the nation’s 22 million veterans received disability compensation benefits. (Those benefits are distinct from the health benefits provided through the Veterans Health Administration [VHA].)

CBO — The Renewable Fuel Standard: Issues for 2014 and Beyond

July 30, 2014 Comments off

The Renewable Fuel Standard: Issues for 2014 and Beyond
Source: Congressional Budget Office

The Renewable Fuel Standard (RFS) establishes minimum volumes of various types of renewable fuels that must be included in the United States’ supply of fuel for transportation. Those volumes—as defined by the Energy Independence and Security Act of 2007 (EISA)—are intended to grow each year through 2022 (see the figure below). In recent years, the requirements of the RFS have been met largely by blending gasoline with ethanol made from cornstarch. In the future, EISA requires the use of increasingly large amounts of “advanced biofuels,” which include diesel made from biomass (such as soybean oil or animal fat), ethanol made from sugarcane, and cellulosic biofuels (made from converting the cellulose in plant materials into fuel).

One of the main goals of the Renewable Fuel Standard is to reduce U.S. emissions of greenhouse gases, which contribute to climate change. EISA requires that the emissions associated with a gallon of renewable fuel be at least a certain percentage lower than the emissions associated with the gasoline or diesel that the renewable fuel replaces. Advanced biofuels and the subcategory of cellulosic biofuels are required to meet more stringent emission standards than those that apply to corn ethanol.

Policymakers and analysts have raised concerns about the RFS, particularly about the feasibility of complying with the standard, whether it will increase prices for food and transportation fuels, and whether it will lead to the intended reductions in greenhouse gas emissions. Because of those concerns, some policymakers have proposed repealing or revising the Renewable Fuel Standard.

In this analysis, CBO evaluates how much the supply of various types of renewable fuels would have to increase over the next several years to comply with the RFS. CBO also examines how food prices, fuel prices, and emissions would vary in an illustrative year, 2017, under three scenarios for the Renewable Fuel Standard…

CBO Releases Updated and Complete Cost Estimate for H.R. 3230, the Veterans Access to Care Act of 2014, as Passed by the House

July 29, 2014 Comments off

CBO Releases Updated and Complete Cost Estimate for H.R. 3230, the Veterans Access to Care Act of 2014, as Passed by the House
Source: Congressional Budget Office

Today, as part of its ongoing work to assist the conference committee that is working on H.R. 3230, the Veterans Access to Care Act of 2014, CBO issued an updated and complete estimate of the version of the bill that was passed by the House of Representatives on June 18, 2014. That version of H.R. 3230 would authorize the appropriation of whatever sums are necessary for the Department of Veterans Affairs (VA) to expand, for two years, its use of non-VA health care providers to provide medical services to veterans.

Initially, CBO had issued preliminary estimates for the major provisions of the House-passed and Senate-passed bills. Since then, it has obtained additional information, refined its analysis, and completed estimates of other provisions of those bills. An updated and complete estimate of the Senate version of the bill was issued on July 10. Today, CBO issued an updated and complete estimate of the House version of the bill. Those updated estimates provide a basis for CBO’s analysis of proposals that would modify the earlier versions of the legislation.

Assuming appropriation of the necessary amounts, CBO estimates that implementing the House-passed bill would lead to a net increase of $41 billion in VA’s discretionary spending over the 2014-2017 period, reflecting the expectation that veterans’ utilization of contracted care under this act would ramp up over time. We also estimate that enacting the House version of the bill would reduce direct spending by $80 million during that period. Finally, if the amounts estimated were appropriated, CBO estimates that implementing the bill would lead to savings totaling $7 billion in the Medicare and Medicaid programs and to additional revenues of $2.5 billion over the 2015-2017 period.

The Senate-passed version of H.R. 3230 would authorize and appropriate such sums as may be necessary to carry out a similar expansion of health care services. CBO estimates that enacting the Senate version of H.R. 3230 would increase direct spending by $35 billion and increase revenues by $2.5 billion over the 2014-2024 period, and lead to additional appropriations totaling about $2 billion over the 2014-2019 period.

CBO — H.R. 4194, Government Reports Elimination Act of 2014

July 18, 2014 Comments off

H.R. 4194, Government Reports Elimination Act of 2014
Source: Congressional Budget Office

H.R. 4194 would eliminate the requirement for 17 federal entities to prepare certain reports for the Congress. Based on information from the Office of Management and Budget and some affected agencies, CBO estimates that implementing this legislation would reduce costs that are subject to appropriation by less than $1 million over the next five years. Enacting H.R. 4194 would not affect direct spending or revenues; therefore, pay-as-you-go procedures do not apply.

H.R. 4194 would eliminate the requirement to prepare 66 reports that are produced by numerous federal agencies, including: the Departments of Agriculture, Commerce, Defense, Education, Energy, Homeland Security, Interior, Labor, State, Transportation, Treasury, and Veterans Affairs, and the Corporation for National and Community Service, the Environmental Protection Agency, the Executive Office of the President, the Government Accountability Office, and the Office of the Director of National Intelligence. By reducing the number of reports that must be prepared and printed, implementing H.R. 4194 would reduce the administrative costs of those agencies. However, about 50 of the reports are either duplicative, obsolete, or would remain available online. CBO estimates that eliminating the requirement to produce them would yield a small reduction in administrative costs.

H.R. 4194 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would impose no costs on state, local or tribal governments.

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