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CBO — Report on the Troubled Asset Relief Program—April 2014

April 17, 2014 Comments off

Report on the Troubled Asset Relief Program—April 2014
Source: Congressional Budget Office

In October 2008, the Emergency Economic Stabilization Act of 2008 (Division A of Public Law 110-343) established the Troubled Asset Relief Program (TARP) to enable the Department of the Treasury to promote stability in financial markets through the purchase and guarantee of “troubled assets.” Section 202 of that legislation, as amended, requires the Office of Management and Budget (OMB) to submit annual reports on the costs of the Treasury’s purchases and guarantees of troubled assets. The law also requires CBO to prepare its own assessment of the TARP’s costs within 45 days of OMB’s report. That assessment must discuss three elements:

  • The costs of purchases and guarantees of troubled assets,
  • The information and valuation methods used to calculate those costs, and
  • The impact on the federal budget deficit and debt.

To fulfill its statutory requirement, CBO has prepared this report on the TARP’s transactions that were completed, outstanding, or anticipated as of March 12, 2014. By CBO’s estimate, $438 billion of the initially authorized $700 billion will be disbursed through the TARP, including $423 billion that has already been disbursed and $15 billion in additional projected disbursements. CBO’s current estimate of the cost to the federal government of the TARP’s transactions (also referred to as the subsidy cost), which accounts for the realized costs of completed transactions and the estimated costs of outstanding and anticipated transactions, amounts to $27 billion (see the table below).

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CBO — An Analysis of the President’s 2015 Budget

April 17, 2014 Comments off

An Analysis of the President’s 2015 Budget
Source: Congressional Budget Office

The President’s proposals would, relative to CBO’s current-law baseline, boost deficits from 2014 through 2016 but reduce them from 2017 through 2024, CBO and JCT estimate. Deficits would total $6.6 trillion between 2015 and 2024, $1.0 trillion less than the cumulative deficit in CBO’s baseline.

Federal debt held by the public would equal 74 percent of GDP at the end of 2024, the same as it is expected to be at the end of 2014.

CBO — Updated Budget Projections: 2014 to 2024

April 14, 2014 Comments off

Updated Budget Projections: 2014 to 2024 (PDF)
Source: Congressional Budget Office

As it usually does each spring, CBO has updated the baseline budget projections that it released earlier in the year. CBO now estimates that if the current laws that govern federal taxes and spending do not change, the budget deficit in fiscal year 2014 will be $492 billion. Relative to the size of the economy, that deficit—at 2.8 percent of gross domestic product (GDP)—will be nearly a third less than the $680 billion shortfall in fiscal year 2013, which was equal to 4.1 percent of GDP. This will be the fifth consecutive year in which the deficit has declined as a share of GDP since peaking at 9.8 percent in 2009 (see the figure below).

CBO — Updated Estimates of the Effects of the Insurance Coverage Provisions of the Affordable Care Act, April 2014

April 14, 2014 Comments off

Updated Estimates of the Effects of the Insurance Coverage Provisions of the Affordable Care Act, April 2014
Source: Congressional Budget Office

CBO and the staff of the Joint Committee on Taxation (JCT) have updated their estimates of the budgetary effects of the provisions of the Affordable Care Act (ACA) that relate to health insurance coverage. The new estimates, which are included in CBO’s latest baseline projections, reflect CBO’s most recent economic forecast, account for administrative actions taken and regulations issued through March 2014, and incorporate new data and various modeling updates.

Relative to their previous projections made in February 2014, CBO and JCT now estimate that the ACA’s coverage provisions will result in lower net costs to the federal government: The agencies currently project a net cost of $36 billion for 2014, $5 billion less than the previous projection for the year; and $1,383 billion for the 2015–2024 period, $104 billion less than the previous projections (see the figure below).

CBO — Presentation on Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget

April 9, 2014 Comments off

Presentation on Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget
Source: Congressional Budget Office

Presentation by James Baumgardner, CBO’s Deputy Assistant Director for Health, Retirement, and Long-Term Analysis, to the 30th International Congress of Actuaries

A Review of CBO’s Activities in 2013 Under the Unfunded Mandates Reform Act

March 27, 2014 Comments off

A Review of CBO’s Activities in 2013 Under the Unfunded Mandates Reform Act
Source: Congressional Budget Office

The federal government, through laws and regulations, sometimes imposes requirements—known as federal mandates—on state, local, and tribal governments and entities in the private sector to achieve national goals. In 1995, lawmakers enacted the Unfunded Mandates Reform Act (UMRA) in part to ensure that, during the legislative process, the Congress receives information about the potential effects of mandates as it considers proposed legislation. To that end, UMRA requires CBO, at certain stages in the legislative process, to assess the cost of mandates that would apply to state, local, and tribal governments or to the private sector. This report, which is part of an annual series that began in 1997, summarizes CBO’s activities in 2013 under UMRA.

CBO — Letter to the Honorable Paul Ryan Regarding Federal Spending for Major Mandatory Spending Programs and Tax Credits that are Primarily Means-Tested

March 25, 2014 Comments off

Letter to the Honorable Paul Ryan Regarding Federal Spending for Major Mandatory Spending Programs and Tax Credits that are Primarily Means-Tested
Source: Congressional Budget Office

Federal spending for each of the government’s major mandatory spending programs and tax credits that are primarily means-tested (that is, spending programs and tax credits that provide cash payments or assistance in obtaining health care, food, or education to people with relatively low income or few assets). Table 1 shows CBO’s baseline projections for the 2014–2024 period; Table 2 shows historical spending data from 2004 through 2013, along with CBO’s estimates for 2014.

The tables include total spending for mandatory programs that are primarily not means-tested, but they do not include separate entries for individual programs in that group that have means-tested components (for example, student loans and some portions of Medicare, other than low-income subsidies for Part D). They also do not include means-tested programs that are discretionary (for example, the Section 8 housing assistance programs and the Low Income Home Energy Assistance Program). However, the tables show discretionary spending for the Pell Grant program as a memorandum item because that program has both discretionary and mandatory spending components and the amount of the mandatory Pell grant component is partially dependent on the annual amount of discretionary funding.

In CBO’s latest baseline projections, published in The Budget and Economic Outlook: 2014 to 2024 (February 2014), mandatory outlays for both means-tested and non-means-tested programs are projected to grow over the next decade at an average annual rate of 5.4 percent (see Table 1).

Overall, the growth rates projected for total mandatory spending over the coming decade are slower than those experienced in the past 10 years—by about one-half percentage point per year, on average. Over the 2005–2014 period, CBO estimates that total mandatory outlays will have increased at an average annual rate of 6.0 percent—means-tested programs by an average of 6.8 percent per year and non-means-tested programs by 5.7 percent per year (see Table 2).

CBO — Emergency Unemployment Compensation Extension Act of 2014 (cost estimate)

March 14, 2014 Comments off

CBO — H.R. 3676, Prohibiting In-Flight Voice Communications on Mobile Wireless Devices Act of 2013

March 11, 2014 Comments off

H.R. 3676, Prohibiting In-Flight Voice Communications on Mobile Wireless Devices Act of 2013
Source: Congressional Budget Office

H.R. 3676 would direct the Secretary of Transportation to issue regulations that prohibit air passengers from talking on cellular phones during domestic flights. The prohibition would not apply to members of the flight crew, flight attendants, or federal law enforcement agents who are on duty.

CBO estimates that enacting H.R. 3676 would have no significant impact on the federal budget. Based on information from the Department of Transportation, we expect that promulgating the proposed regulations would cost less than $500,000, assuming the availability of appropriated funds. H.R. 3676 would not affect direct spending or revenues; pay-as-you-go procedures do not apply.

H.R. 3676 would impose a private-sector mandate, as defined in the Unfunded Mandates Reform Act (UMRA), by prohibiting airline passengers from talking on cellular phones during a domestic flight. Under current law, airlines may choose to allow passengers to make voice calls over an in-flight Internet service (for example Skype), but in-flight voice calls on cellular phones are prohibited by the Federal Communications Commission (FCC). The FCC recently issued a proposed rule that would allow airlines to permit passengers to use cellular phones during a flight. If the FCC adopts the rule, the bill would impose a mandate by prohibiting passengers from engaging in all voice calls during a flight; if the FCC does not adopt the rule, only the prohibition on voice calls over an in-flight Internet service would constitute a mandate. In either case, CBO expects that the cost of the mandate would be small and fall below the annual threshold established in UMRA for private-sector mandates ($152 million in 2014, adjusted annually for inflation).

The Department of Transportation (DOT) has issued a notice that it is also considering a ban on all in-flight voice calls by passengers as an unfair practice to consumers. If DOT, in the absence of the bill, determines to ban such calls, the bill would impose no private-sector mandates.

H.R. 3676 contains no intergovernmental mandates as defined in UMRA and would impose no cost on state, local, or tribal governments.

CBO — Updated Estimates of the Insurance Coverage Provisions of the Affordable Care Act

March 6, 2014 Comments off

Updated Estimates of the Insurance Coverage Provisions of the Affordable Care Act
Source: Congressional Budget Office

CBO’s The Budget and Economic Outlook: 2014 to 2024 released a few weeks ago contained the agency’s updated estimates of the effects of the insurance coverage provisions of the Affordable Care Act (ACA). This blog post describes those revised projections of the sources of people’s insurance coverage and the net budgetary impact of those provisions, as detailed in Appendix B of the report.

The key elements of the insurance coverage provisions of the ACA that are encompassed by the estimates discussed here include the following:

  • Many individuals and families will be able to purchase subsidized insurance through exchanges operated either by the federal government or by a state government,
  • States are permitted to significantly expand eligibility for Medicaid but may decline to do so,
  • Most legal residents of the United States must either obtain health insurance or pay a penalty tax for not doing so,
  • Certain employers that decline to offer minimum health insurance coverage to their employees will be assessed penalties,
  • A federal excise tax will be imposed on some health insurance plans with high premiums, and
  • Insurers may not deny coverage to people on the basis of their health status or charge enrollees in poor health higher insurance premiums.

The ACA also made other changes to rules governing health insurance coverage that are not listed here.

CBO — The Long-Run Effects of Federal Budget Deficits on National Saving and Private Domestic Investment: Working Paper 2014-02

March 4, 2014 Comments off

The Long-Run Effects of Federal Budget Deficits on National Saving and Private Domestic Investment: Working Paper 2014-02
Source: Congressional Budget Office

The Congressional Budget Office’s analyses of the long-term effects of changes in federal fiscal policy include the effects of changes in federal budget deficits on aggregate output and income. Those effects depend on the responses of private saving and net inflows of foreign capital to changes in deficits. This paper reviews empirical estimates of those two effects and explains how changes in private saving and net inflows of foreign capital can offset some of the effects of changes in deficits on national saving and private domestic investment. In its analyses, CBO uses a range of estimates to reflect the high degree of uncertainty surrounding the magnitude of those offsets. On the basis of results published in the empirical literature, CBO concludes that for each dollar’s increase in the federal deficit, the effect on investment ranges from a decrease of 15 cents to a decrease of 50 cents, with a central estimate of a decrease of 33 cents.

Revisions to CBO’s Projection of Potential Output Since 2007

February 28, 2014 Comments off

Revisions to CBO’s Projection of Potential Output Since 2007
Source: Congressional Budget Office

As part of its economic and budgetary projections, CBO estimates past and future potential output—also called potential gross domestic product (GDP), and defined as the maximum sustainable amount of real (inflation-adjusted) output that the economy can produce. For various reasons, CBO’s projections for potential GDP in a specific year can change over time. This report examines a change in CBO’s projections of potential output for the year 2017, comparing the projection it published in January 2007 with the one it released in February 2014. From the earlier projection to the more recent, CBO’s projection for potential output in 2017 declined by 7.3 percent (see the figure below).

CBO — Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output in 2013

February 26, 2014 Comments off

Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output in 2013
Source: Congressional Budget Office

In February 2009, in response to significant weakness in the economy, lawmakers enacted the American Recovery and Reinvestment Act (ARRA). The legislation’s numerous spending and revenue provisions can be grouped into several categories according to their focus:

  • Providing funds to states and localities—for example, by raising federal matching rates under Medicaid, providing aid for education, and increasing financial support for some transportation projects;
  • Supporting people in need—such as by extending and expanding unemployment benefits and increasing benefits under the Supplemental Nutrition Assistance Program (formerly the Food Stamp program);
  • Purchasing goods and services—for instance, by funding construction and other investment activities that could take several years to complete; and
  • Providing temporary tax relief for individuals and businesses—such as by raising exemption amounts for the alternative minimum tax, adding a new Making Work Pay tax credit, and creating enhanced deductions for depreciation of business equipment.

CBO’s Projections of Federal Spending Over the Next Decade

February 24, 2014 Comments off

CBO’s Projections of Federal Spending Over the Next Decade
Source: Congressional Budget Office

In The Budget and Economic Outlook: 2014 to 2024, CBO projects that deficits under current law will decline through 2015, but start rising thereafter—both in dollar terms and relative to the size of the economy—because revenues are expected to grow at roughly the same pace as gross domestic product (GDP) whereas spending is expected to grow more rapidly than the economy. That growth in spending is driven by a few large benefit programs and by the rising costs of interest on the government’s debt.

CBO — The Effects of a Minimum-Wage Increase on Employment and Family Income

February 19, 2014 Comments off

The Effects of a Minimum-Wage Increase on Employment and Family Income
Source: Congressional Budget Office

Increasing the minimum wage would have two principal effects on low-wage workers. Most of them would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.

CBO — Frequently Asked Questions About CBO’s Estimates of the Labor Market Effects of the Affordable Care Act

February 10, 2014 Comments off

Frequently Asked Questions About CBO’s Estimates of the Labor Market Effects of the Affordable Care Act
Source: Congressional Budget Office

Last week CBO released its latest report on the outlook for the budget and the economy; we also released a companion report that takes a closer look at the slow recovery of the labor market. The budget and economic projections presented in those reports include an updated analysis of the effects of the Affordable Care Act (ACA) on labor markets, which we explain in Appendix C of the report on the outlook. That analysis has attracted a great deal of attention and raised several questions. In this blog posting, we try to answer a few of the questions we have been asked.

CBO — The Slow Recovery of the Labor Market

February 5, 2014 Comments off

The Slow Recovery of the Labor Market
Source: Congressional Budget Office

The deep recession that began in December 2007, when the economy began to contract, and ended in June 2009, when the economy began to expand again, has had a lasting effect on the labor market. More than four and a half years after the end of the recession, employment has risen sluggishly—much more slowly than it grew, on average, during the four previous recoveries that lasted more than one year. At the same time, the unemployment rate has fallen only partway back to its prerecession level, and a significant part of that improvement is attributable to a decline in labor force participation that has occurred as an unusually large number of people have stopped looking for work.

To a large degree, the slow recovery of the labor market reflects the slow growth in the demand for goods and services, and hence gross domestic product (GDP). CBO estimates that GDP was 7½ percent smaller than potential (maximum sustainable) GDP at the end of the recession; by the end of 2013, less than one-half of that gap had been closed. With output growing so slowly, payrolls have increased slowly as well—and the slack in the labor market that can be seen in the elevated unemployment rate and part of the reduction in the rate of labor force participation mirrors the gap between actual and potential GDP.

To a smaller degree, the slow recovery of the labor market is the result of structural factors that stem from the recession and the slow recovery of output but that are not directly related to the economy’s current cyclical weakness. For example, an exceptionally large number of people have been unemployed for long periods, and the stigma attached to their long-term unemployment, along with a possible erosion of their job skills, has made it difficult for them to find new work.

CBO — Approaches to Reducing Federal Spending on Military Health Care

February 4, 2014 Comments off

Approaches to Reducing Federal Spending on Military Health Care
Source: Congressional Budget Office

In 2012, the Department of Defense (DoD) spent $52 billion on health care for service members, retirees, and their families. The department offers health care to nearly 10 million people through its TRICARE program, an integrated system of military health care providers and regional networks of civilian providers. Established in 1993, TRICARE now consists of three major plans: TRICARE Prime, TRICARE Standard, and TRICARE Extra. The following groups of people are eligible to participate in TRICARE (with the respective populations in 2012 shown in parentheses):

  • All members of the four military branches as well as members of the Coast Guard and the commissioned corps of the Public Health Service and of the National Oceanic and Atmospheric Administration (1.8 million);
  • Families of current service members (2.6 million); and
  • Retired service members and their families (5.2 million).

The cost of providing that care has increased rapidly as a share of the defense budget over the past decade, out-pacing growth in the economy, growth in per capita health care spending in the United States, and growth in funding for DoD’s base budget (which finances the department’s routine activities but has excluded funding for operations in Iraq and Afghanistan). Between 2000 and 2012, funding for military health care increased by 130 percent, over and above the effects of overall inflation in the economy. In 2000, funding for health care accounted for about 6 percent of DoD’s base budget; by 2012, that share had reached nearly 10 percent. By 2028, health care would claim 11 percent of the cost of implementing DoD’s plans, CBO estimates.

CBO — The Budget and Economic Outlook: 2014 to 2024

February 4, 2014 Comments off

The Budget and Economic Outlook: 2014 to 2024
Source: Congressional Budget Office

The federal budget deficit has fallen sharply during the past few years, and it is on a path to decline further this year and next year. CBO estimates that under current law, the deficit will total $514 billion in fiscal year 2014, compared with $1.4 trillion in 2009. At that level, this year’s deficit would equal 3.0 percent of the nation’s economic output, or gross domestic product (GDP)—close to the average percentage of GDP seen during the past 40 years.

As it does regularly, CBO has prepared baseline projections of what federal spending, revenues, and deficits would look like over the next 10 years if current laws governing federal taxes and spending generally remained unchanged. Under that assumption, the deficit is projected to decrease again in 2015—to $478 billion, or 2.6 percent of GDP. After that, however, deficits are projected to start rising—both in dollar terms and relative to the size of the economy—because revenues are expected to grow at roughly the same pace as GDP whereas spending is expected to grow more rapidly than GDP. In CBO’s baseline, spending is boosted by the aging of the population, the expansion of federal subsidies for health insurance, rising health care costs per beneficiary, and mounting interest costs on federal debt. By contrast, all federal spending apart from outlays for Social Security, major health care programs, and net interest payments is projected to drop to its lowest percentage of GDP since 1940 (the earliest year for which comparable data have been reported).

CBO — Projected Costs of U.S. Nuclear Forces, 2014 to 2023

January 6, 2014 Comments off

Projected Costs of U.S. Nuclear Forces, 2014 to 2023
Source: Congressional Budget Office

In its most recent review of U.S. nuclear policy, the Administration resolved to maintain all three types of systems that can deliver nuclear weapons over long ranges—submarines that launch ballistic missiles (SSBNs), land-based intercontinental ballistic missiles (ICBMs), and long-range bombers—known collectively as the strategic nuclear triad. The Administration also resolved to preserve the ability to deploy U.S. tactical nuclear weapons carried by fighter aircraft overseas in support of allies. Nearly all of those delivery systems and the nuclear weapons they carry are nearing the end of their planned operational lives and will need to be modernized or replaced by new systems over the next two decades. In addition, the Administration’s review called for more investment to restore and modernize the national laboratories and the complex of supporting facilities that maintain the nation’s stockpile of nuclear weapons. The costs of those modernization activities will add significantly to the overall cost of the nation’s nuclear forces, which also includes the cost of operating and maintaining the current forces.

As directed by the Congress in the National Defense Authorization Act for Fiscal Year 2013 (Public Law 112 239), CBO has estimated the costs over the next 10 years of the Administration’s plans for operating, maintaining, and modernizing nuclear weapons and the military systems capable of delivering those weapons. CBO’s estimates should not be used directly to calculate the savings that might be realized if those forces were reduced: Because the nuclear enterprise has large fixed costs for infrastructure and other factors, a partial reduction in the size of any segment of those forces would be likely to result in savings that were proportionally smaller than the relative reduction in force.

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