Budget Blog

November 18 - Democratic Senator Max Baucus, who last week released his own proposal for comprehensive reform of the U.S. health care system, expressed doubt that his proposal could adhere to pay-as-you-go (PAYGO) budget rules.  PAYGO rules, which are designed to prevent increases in the federal deficit, require that any new spending or tax cuts be offset by other tax increases or spending cuts over either a five or ten-year period.  Since the most recent PAYGO rules were adopted in 2007, Congress has waived the provision several times.  The article quotes Robert Bixby of the Concord Coalition, on these developments:

"If they want to waive PAYGO for health care, [Democrats] are going to have to come up with a rationale for why the resulting deficits aren't as bad as the deficits from Bush's tax cuts," Bixby said. "People are going to argue it's better to have health care coverage than to have tax cuts for upper-income people. That's a legitimate political debate. But if ‘x' amount of deficit is economically ruinous, it doesn't matter what causes it."

November 17 - The International Herald Tribune reports that many states are facing the serious prospect of major budgetary shortfalls due to the economic downturn. Because many states are required by law to balance their budgets, some will be forced to either raise taxes or significantly cut spending to make up the difference.  California, providing one of the most dramatic examples, has a $15 billion gap between estimated revenues and expenditures.  In sum, all but approximately twelve states-mostly those with rich oil and mineral resources--will likely have difficulty balancing their budget for 2009. Already, over the past few weeks, several cities and

November 17 - On the blog "Capital Gains and Games," contributor Stan Collender imagines an alternative fiscal history in which the previous two presidential administrations had worked to pay off the national debt by the end of this decade:

"The bailouts we're implementing and talking about today would have been of far less concern than they are.  Indeed, the $2 trillion or so in additional debt the federal government is going to incur this year would likely have been welcomed by the bond market.  The additional interest payments that we're going to have to pay for decades would have been on top of an annual interest bill that by now would have been less than $100 billion a year and, therefore, not much of a concern."

 

November 17 - Pricewaterhouse Cooper has released a study on the costs and coverage potential of President-Elect Barack Obama's health care reform plan.  The study concludes that the cost of Obama's plan would rise from $75 billion in 2009 to $130 billion in 2018.  These projections are partially based upon data of Massachusetts' attempt to create universal healthcare, and do not account for some unspecified savings promised by Obama's plan.  PwC's study also states that the Obama plan would extend insurance coverage to 30 million out of 47 million currently uninsured.   The study goes on to consider the implications of Obama's proposal for different players within the system--providers, insurers, pharmaceutical and biotech companies, and employers-and offers five "big ideas" for improving healthcare.

November 14 - Troubled mortgage firm Freddie Mac disclosed today that it lost $25 billion from July through September, and now has assets exceeding its liabilities.  Freddie Mac has asked for the government to provide $14 billion of the $100 billion which was authorized for the federal conservatorship of Freddie Mac and Fannie Mae.  On Monday, Fannie Mae announced that it had lost $29 billion in the third quarter, and may also have to tap part of its $100 billion rescue fund.

November 13 - The Treasury Department announced today that October's budget deficit was $237.8 billion dollars, making it the worst monthly deficit in history, and four times larger than the October 2007 budget deficit of $56.8 billion. Last week, CBO projected a much lower (but still high by historic standards) October deficit of $134 billion; most of the difference between the two estimates is the result of how CBO and Treasury account for the portion of $700 billion TARP rescue package spent in October. CBO accounts for this $115 billion on a net present value basis, predicting the net cost will be $17 billion; the Treasury Department, meanwhile, accounts for the $115 billion on a straight cash-flow basis. 

Earlier this week, the Committee for a Responsible Federal Budget projected that the 2009 budget deficit will reach $1.01 trillion.

November 12 - The Wall Street Journal reported this morning that Senator Max Baucus, chairman of the Senate Finance Committee, plans to release a health care reform proposal. The Journal reports that Baucus' plan resembles the one put forward by Obama campaign in many respects: both focus on covering as many of the country's 46 million uninsured as possible, and both feature a Health Insurance Exchange. Baucus' plan, however, would feature a mandate to purchase coverage, one of the major points of contention between Senators Obama and Clinton during the primaries. The report gives only indirect indications of the plan's cost:

"Some experts predict that a health system covering all Americans would necessitate $100 billion to $150 billion in new Federal spending per year. But savings from the reforms proposed earlier in this Call to Action and the financing mechanisms in this section can make the net cost of reform much smaller."

November 12 - In his New York Times blog, this morning, Paul Krugman suggested that the government should pass a stimulus package in the range of $600 billion -- far more than the $190 billion package proposed by President-Elect Obama or the $300 billion which Congress is rumored to be considering. Krugman argues:

"In normal times, [this economic downturn] would be a reason to cut interest rates. But interest rates can't be cut in any meaningful sense. Fiscal policy is the only game in town...[and if] fiscal policy ends up being too expansionary...the Fed can tighten a bit, and no harm is done... fiscal policy should take risks in the direction of boldness."

In a recent paper, the Committee for a Responsible Federal Budget agreed that "it makes sense to err on the side of caution in determining whether more stimulus is appropriate," but has warned that "if the federal government borrows too much, it risks creating serious long-term damage to the nation's economy."

November 11 - Democratic representative Pete Stark, chair of the House Ways and Means Health Subcommittee, declared yesterday that Congress should waive its PAYGO rules to pass a fundamental reform of the healthcare system and to avoid massive Medicare payment cuts to physicians. Stark cited the waiving of PAYGO for other spending measures like the $700 billion dollar rescue package and Iraq war costs, and asked why large numbers of uninsured should not represent an equally urgent priority. US Budget Watch estimated that plan for health care reform put forward by the Obama campaign would add $52 to $106 billion to the deficit in 2013.