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Home :  Federal Budget & Tax : 
Federal Budget & Tax:      News     Blog     Background    



Wednesday, March 26, 2008

Paulson's Hand Waving Underscores Social Security's Financial Fitness

In a statement by Treasury Secretary Henry Paulson on the 2008 Social Security and Medicare Trust Fund Reports, the Secretary reaches deep to find big bad numbers to support his and the president's call for reform of the Social Security program.

Social Security's unfunded obligation--the difference between the present values of Social Security inflows and outflows less the existing Trust Fund--equals $4.3 trillion over the next 75 years and $13.6 trillion on a permanent basis. To make the system whole on a permanent basis, the combined payroll tax rate would have to be raised immediately by 26 percent (from 12.4 percent to about 15.6 percent), or benefits reduced immediately by 20 percent.

The "permanent basis" to which Paulson is referring is an infinite time horizon. That's right, the report says that a 3.2 percentage point increase in Social Security taxes is required to bring the program into actuarial balance forever. But, the report also says that to bring the program into balance over the next 75 years would require a 1.7 percentage point payroll tax increase - that's about half the increase the Paulson quotes and not quite as scary.

I also want to point out Paulson's citation that to bring the program into actuarial balance on an infinite time horizon would require cutting Social Security benefits today and forever by 20 percent. Immediately cutting benefits by 20 percent to avoid a chance of insolvency would be really stupid, because, as the report points out, when the trust fund is exhausted in 2041 - the date of insolvency - tax revenues will be sufficient to cover 78 percent of promised benefits. Got that? In 2041, we can cut benefits by 22 percent and maintain solvency forever.



Posted by Craig Jennings, 11:06:51 AM



Tuesday, March 25, 2008

Social Security: It's Long-Term Outlook Is Still Just Peachy

In fact, it's getting better. The Social Security Trustees Report for 2008 was released by the Social Security Administration today (it's quite the page-turner). Here are the key facts:

  • Social Security's "insolvency" date remains the same as last year - 2041. This is the year in which the program's payments will exceed its income.
  • The year in which program's payments will exceed tax revenues remains unchanged - 2017. This is the year that the trust fund will first be used to make payments to beneficiaries
  • The actuarial deficit over a 75-year horizon is 1.70 percent of taxable payroll - a 0.26 percentage point reduction from last year. This number represents the combination of increased revenues and decreased benefits as expressed by percent of taxable payroll that is required to avoid insolvency

Also included in the report is the cost of the program over the next 75 years. And as much as certain pundits (I'm looking at you Bob Samuelson!) would like you to believe that Social Security is a large bit of the long term fiscal challenge, the report underscores how small a portion of the Entitlement CrisisTM Social Security is.

Expressed in relation to the projected gross domestic product (GDP), OASDI cost is estimated to rise from the current level of 4.3 percent of GDP, to 6.0 percent in 2030, and then to decline to 5.8 percent in 2082.

At its peak in 2030, Social Security will cost 1.7 percent of GDP more than it does today - keep in mind, too, that in 2030, Social Security is still solvent. That's not pocket change, but it's not the soul-crushing, economy-killing, puppy-eating monster that Entitlement CrisisTM Henny Pennys make it out to be. To put into perspective, if President Bush's FY 2008 war supplemental request is fulfilled, that $196 billion would represent about 1.4 percent of current GDP. And while the war is an expensive project, it's hardly bringing the economy to a halt.

The real challenge in the long-term fiscal challenge is still health care costs. Data from GAO's Long Term Fiscal Outlook indicate that Social Security's modest cost increase (4.2 percent of GDP today to 5.3 percent in 2082) is a pittance compared to the growth in Medicare and Medicaid expenditures, which increase from 3.9 percent of GDP today to 13.9 percent in 2082.



Posted by Craig Jennings, 06:19:38 PM



Friday, March 14, 2008

Democrats Pass Budget in House & Senate

The House and Senate successfully passed their versions of the FY 2009 budget resolution yesterday. The House passed their spending outline on a mostly party-line vote 212 - 207 and the Senate passed their version early this morning 51 - 44 (roll call not available yet). Sixteen Democrats in the House opposed the budget along with all Republicans and in the Senate, Sens. Olympia Snowe (R-ME) and Susan Collins (R-ME) supported the budget, while Sen. Evan Bayh (D-IN) opposed it.

The House and Senate versions are similar in a number of areas, but the House blueprint is more fiscally responsible - strictly adhering to PAYGO rules by requiring offsets for mandatory spending increases and any additional tax cuts - particularly offsetting changes to the alternative minimum tax. Way to go House of Representatives!

There were tons of amendments in the Senate all through the day and night on key fiscal issues. We'll be dissecting the amendments and votes throughout the day today here on the BudgetBlog. Stay tuned!



Posted by Adam Hughes, 09:25:16 AM



Thursday, March 06, 2008

Senate Budget Committee Approves FY 2009 Budget Resolution

Voting along party lines - 12-10 -, the Senate Budget Committee has approved its FY 2009 budget resolution. The $3.1 billion resolution includes a one-year, non-offset $62 billion AMT patch. And at $472 billion, its non-defense, domestic top line is 2.2% more than Bush's $462 billion proposal.



Posted by Craig Jennings, 05:27:24 PM



DAILY FISCAL POLICY REPORT -- Mar. 6, 2008

The House budget resolution, legislation and statements

  • Legislation
  • Statements

The Senate budget resolution, legislation and statements
  • Legislation
  • Statements

Taxes -- House Appropriations Financial Services Subcommittee Chairman Jose Serrano (D-NY) and committee member Rep. Maurice Hinchey (D-NY) will continue their efforts to kill the IRS private tax collection program through fiscal 2009 appropriations.

Contracting -- Sen. John McCain's (R-AZ) role in killing an Air Force deal with Boeing several years ago resurfaces as the row over the Air Forces's decision to contract with Airbus's parent, EADS, for a fleet of new tanker planes



Posted by Craig Jennings, 09:51:43 AM



Monday, March 03, 2008

CBO's Report on Bush's FY09 Budget Projections

Today, the Congressional Budget Office (CBO) released a publication, Preliminary Analysis of the President's Budget Request for 2009, that showed some key differences with the administration regarding budget deficit projections. If enacted, the report indicates, the president's budget would:

  • produce growing deficits of $396 billion in 2008 and $342 billion in 2009, 2.8 percent and 2.3 percent, respectively, of gross domestic product (GDP). By comparison, the deficit in 2007 totaled 1.2 percent of GDP
  • result in reduced revenues of $2.1 trillion below CBO's baseline projections over the 2009—2018 period, largely because of proposed extensions of various provisions of the Bush tax cuts of 2001 and 2003

CBO's estimate of discretionary spending for 2009 is $41 billion below that of the Administration. About three-quarters of that difference stems from CBO's lower estimate of defense outlays. In addition, CBO's forecast of lower interest rates for 2009 results in net interest costs that are $43 billion less than the Administration's calculation.

But CBO also estimates that mandatory outlays will be $17 billion above the Administration's total for 2009, with about $10 billion of that amount stems from CBO's higher estimate of unemployment insurance benefits.

CBO's and the Administration's estimates of revenues under the President's policies are nearly identical for 2009.



Posted by Dana Chasin, 03:49:26 PM




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