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CBO — Understanding FEMA’s Rate-Setting Methods for the National Flood Insurance Program (presentation)

October 10, 2014 Comments off

Understanding FEMA’s Rate-Setting Methods for the National Flood Insurance Program
Source: Congressional Budget Office

Program Goals

  • Help property owners recover from floods
  • Limit federal costs
  • Reduce flood losses – Better incentives for property owners – Better floodplain management
  • Allow floodplains to play their natural beneficial roles
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CBO — Characteristics of the Long-Term Unemployed in March 2007 and March 2014

October 8, 2014 Comments off

Characteristics of the Long-Term Unemployed in March 2007 and March 2014
Source: Congressional Budget Office

House Minority Leader Nancy Pelosi has asked the CBO for information about the characteristics of people who have been unemployed for a long time. Specifically, she asked the agency to describe any changes in those characteristics that occurred between March 2007 and March 2014. In answering that question, this document supplements and updates information provided in CBO’s Understanding and Responding to Persistently High Unemployment (February 2012).

The recent recession and slow recovery led to a high rate of long-term unemployment, which is defined as being out of work for more than 26 consecutive weeks. That rate peaked at 4.3 percent in the second quarter of calendar year 2010 and has fallen considerably since then. It was 2.4 percent in March 2014 and has since fallen further to 1.9 percent in the third quarter of 2014, still about a percentage point above its average from 2001 to 2007.

In both of the periods that CBO compared (March 2007 and March 2014), people experiencing long-term unemployment were, relative to the overall labor force, more likely to be male, to be young, to be unmarried, to be African American, and to have no postsecondary education. However, the characteristics of the long-term unemployed changed in some ways between the two periods. For example, among people unemployed for more than half a year, some groups accounted for larger shares in 2014 than in 2007—particularly women, people with a college or graduate degree, and people age 55 or older. Also, as typically happens during and after a recession, people who lost a job involuntarily accounted for a larger fraction of the long-term unemployed in 2014 than they did before the recession.

CBO — Labor Force Participation Elasticities of Women and Secondary Earners within Married Couples

October 2, 2014 Comments off

Labor Force Participation Elasticities of Women and Secondary Earners within Married Couples
Source: Congressional Budget Office

Labor supply elasticities are often used to evaluate the effect of changes in tax rates on the total hours worked in the economy. Historically, married women have tended to have larger labor supply elasticities than their spouses because they were the secondary earners in a couple. However, those elasticities have fallen sharply in recent decades—a decline that has been attributed to greater labor force participation rates and increased career orientation among married women. Indeed, a growing share of wives earn more than their husbands, raising the question whether a person’s sex or relative earnings is the relevant factor affecting the sensitivity of participation to wage and tax rates. In this paper, we use administrative data to examine whether women or lower-earning spouses have larger labor supply elasticities. We present descriptive evidence on the share of women who are the primary earner and the frequency of transitions into and out of employment by sex and relative earnings. We find that lower earning spouses are more likely to start and stop working than women, except when a couple starts a family. We then model an individual’s work decision using a dynamic probit model to isolate the labor supply response to changes in tax rates. We estimate that the participation elasticity with respect to the net-of-tax rate of the secondary earner—the spouse who typically has lower earnings—is about 0.03, slightly higher than that for women, though both of these overall elasticities are small. Participation elasticities with respect to income for both women and secondary earners are effectively zero. Our estimates are robust to several alternative models, including alternative specifications of secondary earner.

CBO — Budgetary Estimates for the Single-Family Mortgage Guarantee Program of the Federal Housing Administration

October 1, 2014 Comments off

Budgetary Estimates for the Single-Family Mortgage Guarantee Program of the Federal Housing Administration
Source: Congressional Budget Office

Loan guarantees made in the Federal Housing Administration’s (FHA’s) guarantee program for single-family mortgages from 1992 to 2013 are now projected to generate small costs over their lifetimes rather than the significant savings that were recorded in the federal budget at the time the guarantees were made—a deterioration that stems largely from the sharp downturn in the housing market in the late 2000s. CBO has estimated the budgetary effect of those guarantees using information through April 2014 (when the agency published the projections it has used as the baseline for analyzing legislative proposals this year).

CBO’s estimate that the guarantees made during the 1992–2013 period will cost $2.2 billion is slightly higher than the estimate of $0.1 billion in costs that can be inferred from the subsidy rates and loan volumes reported by the Office of Management and Budget (OMB), but it is quite different from the $63.0 billion in budgetary savings implied by the original estimates for those guarantees recorded in the federal budget.

Under the accounting approach required by the Federal Credit Reform Act of 1990 (FCRA), new mortgage guarantees made by the FHA in 2014 and 2015 will produce budgetary savings, CBO projects. However, under a more comprehensive fair-value approach to estimating the cost of loan guarantees, FHA’s 2014 and 2015 guarantees are projected to have small costs instead of savings.

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.)

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.

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