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CBO — The Budget and Economic Outlook: 2015 to 2025

January 27, 2015 Comments off

The Budget and Economic Outlook: 2015 to 2025
Source: Congressional Budget Office

The federal budget deficit, which has fallen sharply during the past few years, is projected to hold steady relative to the size of the economy through 2018. Beyond that point, however, the gap between spending and revenues is projected to grow, further increasing federal debt relative to the size of the economy—which is already historically high.

Those projections by CBO, based on the assumption that current laws governing taxes and spending will generally remain unchanged, are built upon the agency’s economic forecast. According to that forecast, the economy will expand at a solid pace in 2015 and for the next few years—to the point that the gap between the nation’s output and its potential (that is, maximum sustainable) output will be essentially eliminated by the end of 2017. As a result, the unemployment rate will fall a little further, and more people will be encouraged to enter or stay in the labor force. Beyond 2017, CBO projects, real (inflation-adjusted) gross domestic product (GDP) will grow at a rate that is notably less than the average growth during the 1980s and 1990s.

CBO — Temporary Assistance for Needy Families: Spending and Policy Options

January 22, 2015 Comments off

Temporary Assistance for Needy Families: Spending and Policy Options
Source: Congressional Budget Office

Temporary Assistance for Needy Families (TANF) is a federal program that provides cash assistance, work support, and other services to some low-income families. The cash assistance is generally limited to families with income well below the poverty threshold and few assets; it goes to roughly 2 million families per month, most of them headed by single mothers. The work support (such as subsidized child care) and the other services (such as initiatives to reduce out-of-wedlock pregnancies and promote marriage) are usually available to families with income up to twice the poverty threshold.

The states administer TANF and have considerable latitude in determining the mix of cash assistance, work support, and other services that it provides. However, if too few families receiving cash assistance are participating in work-related activities, a state can lose some federal funding. States therefore impose work requirements on recipients of cash assistance. Also, those recipients face federal limits on how long they are eligible for cash assistance. The work requirements and the time limits are intended to achieve one of TANF’s goals: ending recipients’ dependence on government benefits.

CBO — How Changes in Immigration Policy Would Affect the Federal Budget

January 16, 2015 Comments off

How Changes in Immigration Policy Would Affect the Federal Budget
Source: Congressional Budget Office

During the past two years, the Congress has considered proposals to modify the nation’s immigration system. The Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744), passed by the Senate in June 2013, addresses multiple facets of immigration policy, including changes to the existing visa system, improvements in border security and law enforcement, and changes to the status of people who currently live in the country without legal authorization. Other proposals have focused on one component of immigration policy—for example, improving border security or changing certain aspects of the visa system. Whether the proposals involve broad or narrow changes to immigration policy, they could have a variety of consequences for both citizens and noncitizens, for the federal government, and for state and local governments. This CBO report examines some of those proposals and how such changes would affect the federal budget.

CBO — Final Sequestration Report for Fiscal Year 2015

January 14, 2015 Comments off

Final Sequestration Report for Fiscal Year 2015
Source: Congressional Budget Office

CBO is required by law to issue a report within 10 days of the end of a session of Congress that provides estimates of the limits (often called “caps”) on discretionary budget authority in effect for each fiscal year through 2021. CBO is also required to report whether, according to its estimates, enacted leg-islation for the current fiscal year has exceeded those caps; if the caps were exceeded, a sequestration (that is, a cellation of budgetary resources) would be required.

In CBO’s estimation, such a sequestration will not be required for 2015. However, the authority to determine whether a sequestration is required and, if so, exactly how to make the necessary cuts in budget authority rests with the Administration’s Office of Management and Budget (OMB). Those determinations are based on OMB’s own estimates of federal spending.

CBO — Federal Reinsurance for Terrorism Risk: An Update

January 8, 2015 Comments off

Federal Reinsurance for Terrorism Risk: An Update
Source: Congressional Budget Office

The federal program that provides insurance against the risk of terrorism expired at the end of 2014. Without such a program, taxpayers will face less financial risk, but some businesses will lose or drop their terrorism coverage and economic activity might slow if a large terrorist attack occurs. Last year, the Congress considered legislation to reauthorize the program but shift more risk to the private sector. Other options include limiting federal coverage to attacks using nonconventional weapons, and charging risk-based prices for federal coverage. CBO has examined the likely effects of different approaches on the private sector and on the federal government.

CBO — Long-Term Implications of the 2015 Future Years Defense Program

December 29, 2014 Comments off

Long-Term Implications of the 2015 Future Years Defense Program
Source: Congressional Budget Office

To provide information about its plans beyond the coming year, the Department of Defense (DoD) generally provides a five-year plan, called the Future Years Defense Program (FYDP), that is associated with the budget it submits to the Congress. Because decisions made in the near term can have consequences for the defense budget in the longer term, CBO regularly examines DoD’s FYDP and projects its budgetary impact for roughly a decade beyond the period covered by the FYDP. For this analysis, CBO used the FYDP that was provided to the Congress in April 2014; it spans fiscal years 2015 to 2019, and CBO’s projections span the years 2015 to 2030.

For fiscal year 2015, DoD requested appropriations totaling $555 billion. Of that amount, $496 billion was for the base budget and $59 billion was for what are termed overseas contingency operations (OCO). The base budget covers programs that constitute the department’s normal activities, such as the development and procurement of weapon systems and the day-to-day operations of the military and civilian workforce. Funding for OCO pays for U.S. involvement in the war in Afghanistan and other nonroutine military activities elsewhere. The FYDP describes DoD’s plans for its normal activities and therefore generally corresponds to the base budget.

DoD’s 2015 plans differ from its 2014 plans in important ways. For example, in an effort to reduce costs, the current FYDP includes sizeable cuts in the number of military personnel, particularly in the Army.

CBO — Taxing Capital Income: Effective Marginal Tax Rates Under 2014 Law and Selected Policy Options

December 29, 2014 Comments off

Taxing Capital Income: Effective Marginal Tax Rates Under 2014 Law and Selected Policy Options
Source: Congressional Budget Office

The federal tax treatment of capital income affects investment incentives, both for the amounts invested and for allocations among assets. When tax rates are high, investors require higher before-tax rates of return and thus forgo investments with lower returns that they otherwise would have made. Current law produces significant variations in the taxation of capital income from different investments, thus leading investors to require higher before-tax rates of return on some investments than on others. Those differences reduce economic efficiency—the extent to which resources are allocated to maximize before-tax value.

An effective marginal tax rate (hereafter referred to as an effective tax rate or ETR) measures an investor’s tax burden on returns from an investment. An ETR combines a statutory tax rate with other features of the tax code (various deductions and credits, for example) into a single percentage that applies to before-tax capital income realized over an investment’s lifetime. (In this report, capital income consists of receipts minus the cost of goods sold, operating expenses, interest paid, and an allowance equal to the decline in value of capital assets because of economic depreciation—that is, wear and tear or obsolescence.) The higher the ETR, the greater the distortion in investments, holding all else equal; thus, the greater the variation (or nonuniformity) of ETRs among different investments, the less likely it is that resources will be used efficiently.

For this report, CBO estimated ETRs on income from marginal investments (those expected to earn just enough, after taxes, to attract investors) in such tangible capital assets as equipment, structures, land, and inventories (assets held for resale). In considering both corporate and individual taxation—but only with respect to the permanent features of federal income tax law in 2014—CBO arrived at the following conclusions:

  • The ETR on capital income is, on average, 18 percent;
  • The ETR on income from owner-occupied housing is close to zero; and
  • The ETR on capital income generated by businesses is, on average, 29 percent.
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