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VIDEO: Blahous on CSPAN – Medicaid Expansion
| March 8, 2013 | 5:37 pm | Chuck Blahous | No comments

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VIDEO: Blahous – Medicare Trustee on Entitlement Costs
| November 26, 2012 | 5:44 pm | Chuck Blahous | No comments

Published for Bloomberg, November 26, 2012

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Blahous: How Did Federal Surpluses Become Huge Deficits?
| August 29, 2012 | 9:20 am | Chuck Blahous | No comments

Published for www.economics21.org, August 20, 2012

Non-partisan analysts agree that the federal government faces an enormous budget shortfall. This shortfall cannot be resolved unless we accurately diagnose its causes and devise solutions that address them.

Discussions of federal deficits too often feature partisan blame-laying when what is needed is problem-solving analysis. To prevent a future fiscal meltdown, we must address the causes of unsustainable future deficits. On this question there is little disagreement among non-partisan scorekeepers. The Congressional Budget Office (CBO) projections show that future fiscal strains will be driven almost entirely by growth in federal entitlement spending, driven in turn by population aging and by the growth of federal health benefits per capita. Under current law, the projected problem is not one of insufficient taxes (which would grow to far exceed historical norms) or appropriated spending (which would shrink relative to the economy). Seriously addressing the long-term fiscal problem means restraining entitlement spending growth, plain and simple.

We spend a great deal of time, however, debating not the future of the budget but past policy choices. How is it that we have such large deficits already? The two parties debate this in part to establish their own relative credibility as future stewards of the nation’s finances. This debate also affects perceptions of which policies are thus far “at fault,” and thus of who can fairly be asked to sacrifice going forward.

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Blahous: Did the Supreme Court Ruling Render Health Law’s Finances Untenable?
| July 2, 2012 | 9:42 am | Chuck Blahous | No comments

Published for economics21.org, June 29th, 2012

It is quite possible that this week’s Supreme Court ruling has just changed the 2010 health care law in such a way that it will add substantially to federal deficits from almost any vantage point. We will know more after the Congressional Budget Office completes its analysis.

Let’s review the background. CBO’s last complete score of the health care law, in March 2011, found that it would reduce federal deficits by $210 billion from 2012-2021. That was before the suspension of the CLASS program provision, which takes the positive score down to $123 billion. As I pointed out in my recent study, those scores are not relative to actual prior law but to a hypothetical budget baseline scenario that CBO uses under the procedures of the Deficit Control Act. Relative to actual prior law, by contrast, the health law — had it been upheld in its entirety — would add more than $340 billion to federal deficits over the next ten years.

Let’s nevertheless reference the positive score of $123 billion here since, flawed or not, it’s what arises under Congress’s scorekeeping rules. If this week’s ruling worsens the bill’s budget impact by more than $123 billion over ten years, then the legislation adds to federal deficits even by the standard adopted by its proponents. Will this score remain positive after the Supreme Court ruling?

The Supreme Court left intact most of the health care law’s provisions, excepting only one section that would have allowed the Secretary of HHS to withdraw “existing Medicaid funding” from states that fail to comply with the law’s expansion of Medicaid eligibility.

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Blahous: Does the Government Really Need More Help than the Private Sector?
| June 14, 2012 | 8:21 am | Chuck Blahous | No comments

Published for economics21.org, June 14th, 2012

One can quite easily argue that the past few months represent not only a natural but a desirable correction – a belated movement from public-sector employment into private-sector employment, restoring some equilibrium that had been disrupted by the recent recession. If on the other hand one sees a given level of government-supported employment as intrinsically desirable, one is more likely to look at recent trends with alarm.

The current debate reveals that policy makers are divided on the roles they would assign to the private and public sectors. It is natural, for example, for public employee representatives to see the recent decline in government-supported employment as a problem in and of itself; some other left-of-center advocates appear to be sympathetic to this view.

That vantage point is reflected in statements like those of Vice President Biden, arguing for increased federal support to state governments by referencing sympathetic constituencies like teachers, police and firefighters. The position is further reflected in the Administration’s continued push for federal bailout funds for state governments. Left-of-center thinkers also often express a broader view that taxpayers will in the future need to contribute more tax revenue to ensure that government can function as desired. In short, this viewpoint generally holds that the private sector needs to do more to support the public sector.

An opposing viewpoint is expressed by some right-of-center proponents, including Governors Scott Walker and Chris Christie. They argue that the public sector should be trying to alleviate the burdens of the private sector rather than the other way around.

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Blahous: What the Recent CBO Report Tells Us About Fiscal Stimulus and the Federal Budget
| June 12, 2012 | 4:51 pm | Chuck Blahous | No comments

Published for economics21.org, June 11th, 2012

The Congressional Budget Office (CBO) recently released two important reports on the federal budget. One analyzes the short term, the other the long term.

The first report explains what is projected to happen, both to the federal budget and to the larger economy, in the near term due to year-end expirations of various tax and spending policies.

The other report projects what will happen to the federal budget over the upcoming decades.

Both reports analyze two scenarios; first, if certain provisions of current law (raising taxes and cutting spending) are upheld, and second, if they are legislatively overridden.

The findings of CBO’s gloomy long-term report come as no surprise. Over the most recent four years, the U.S. government has engaged in continued massive deficit spending on a scale not seen since World War II. CBO finds that the continuation of such policies in future years will lead to federal fiscal ruin and severe economic hardship.

The short-term report is more nuanced. CBO finds that continued deficit-spending will increase economic growth in the near-term but weaken growth over the long term.

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Blahous and Capretta: Exposing the Medicare Double Count

Published for www.online.wsj.com, May 1, 2012

One of the enduring mysteries of President Obama’s health law is how its spending constraints and payroll tax hikes on high earners can be used to shore up Medicare finances and at the same time pay for a massive new entitlement program. Isn’t this double counting?

The short answer is: Yes, it is. You can’t spend the same money twice. And so, thanks to the new health law, federal deficits and debt will be hundreds of billions of dollars higher in the next decade alone.

Here’s how it works. When Congress considers legislation that alters taxes or spending related to Medicare’s Hospital Insurance Trust Fund, the changes are recorded not just on the Hospital Insurance Trust Fund’s books, but also on Congress’s “pay-as-you-go” scorecard.

The “paygo” requirement is supposed to force lawmakers to find “offsets” for new tax cuts or entitlement spending, and thus protect against adding to future federal budget deficits. Putting the Medicare payroll tax hikes and spending constraints on the “pay-as-you-go” ledger was instrumental in getting the health law through Congress, because doing so fostered a widespread misperception that the law would reduce future deficits.

But the same provisions add to the Hospital Insurance Trust Fund’s reserves, which expands Medicare’s spending authority. Medicare can only pay full benefits so long as its trust fund has sufficient reserves to meet these obligations. If the trust fund has insufficient resources, then spending must be cut automatically to ensure the fund does not go into deficit. The health law’s Medicare provisions prevent these spending cuts from taking place for several more years.

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Blahous: The Fiscal Consequences of the Affordable Care Act
| April 10, 2012 | 12:26 pm | Chuck Blahous | No comments

Published for www.economics21.org, April 10, 2012

This morning the Mercatus Center is publishing my study, “The Fiscal Consequences of the Affordable Care Act,” which evaluates the comprehensive health care reform law (the ACA) enacted in 2010. In this study, I project that the ACA will add over $1.15 trillion to net federal spending and more than $340 billion to federal deficits over the next ten years, and far more thereafter.

That this law on which so many high hopes were placed will significantly worsen federal finances is an unfortunate but unambiguous result. The finding is based upon analyses published by the Congressional Budget Office (CBO) and CMS Medicare Actuary, and it reflects an optimistic fiscal scenario in which all of the law’s cost-saving provisions work as currently envisioned.

Quantifying the Fiscal Consequences of Health Care Reform

The fiscal stakes of health care reform are high. Prior to the law’s passage its proponents and opponents disagreed on many things but they agreed on one: rising health care cost commitments were a key driver of an unsustainable federal fiscal outlook. Motivations and goals for the 2010 legislation were various, but among the most prominent was the view that such action was necessary to correct the course of federal finances. For this landmark legislation to actually worsen the fiscal situation would represent a substantial failure of governance, and it threatens disastrous consequences if the law is not corrected before its provisions become fully effective.

The ACA unambiguously worsens federal finances. As the accompanying graph shows, under a variety of possible assumptions (all based on the analyses of CBO and CMS), our annual deficits will be much larger because of the ACA than they would have been under prior law. As visually represented in this picture, up is good and down is bad from a budgetary perspective.

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Blahous: Why There is No Bipartisan Budget Deal
| December 19, 2011 | 5:32 pm | Chuck Blahous | No comments

Published at www.economics21.org, December 19, 2011

The failure this year of Congress’s joint deficit-reduction committee produced a spate of post-mortems. Some of these analyses focused on problems seen with the committee process itself – its structure, its mission, the weak deterrents to its failure, and others. There was also the predictable mutual blame-laying, with members on each side pointing to the other’s intransigence.

As we close the books on 2011, it’s worth reflecting that the joint committee’s failure was symptomatic of a larger underlying problem: it was caught in the grip of powerful forces beyond its control. There are multiple reasons why a bipartisan budget accord is now extraordinarily difficult to attain – regardless of the process adopted, and no matter how sincerely legislators approach the task. (Members and staff of the joint committee, by the way, approached their task very seriously — on both sides of the aisle — at least until it was apparent a compromise would not be reached.)

To make progress in 2012 and beyond we must understand the substantive factors inhibiting a budget deal, and develop effective methods for dealing with them:

Factor #1: In the short term, there is no bipartisan consensus that the deficit should be reduced. For the past three years we have run historically high deficits that have both spending and revenue components. The federal government spent 23.8% of total GDP in FY2011 after spending at least as much in each of FY09-10. These were the three highest years for federal spending (relative to the economy) in U.S. history, outside of a world war. Meanwhile, federal revenues are at 15.3% of GDP, well below their historical average.

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Blahous: What’s in the Social Security Trust Fund, or: Why continuing the payroll tax cut could eventually end Social Security as we know it
| December 12, 2011 | 4:42 pm | Chuck Blahous | No comments

Published for www.economics21.org, December 12, 2011

The ongoing effort to partially convert Social Security from payroll-tax-financing to income-tax-financing – by further cutting the payroll tax as a stimulus measure and replacing the funds with general revenues – may in short order put an end to the longstanding conception of Social Security as a benefit earned by worker contributions. The demise of this conception would also threaten the special political protections Social Security benefits have long enjoyed.

Most Americans do not know all of the details of Social Security finances. They do, however, retain a strong sense that Social Security participants somehow paid for their benefits, and that the program’s Trust Funds represent “their money” in a way that the financing for other government programs does not. This sense gives Social Security benefits an extra political protection relative to other programs. It would likely end if we abolished the Social Security payroll tax, did away with its trust fund, and funded the program with general budget revenues.

The proposed payroll tax cut extension would take a major step toward ending this longstanding special status. There’s no way to know where exactly the tipping point is, but it will come sooner than most observers now realize. Continuing and expanding this policy would likely soon turn bipartisan perceptions of Social Security into something more like welfare or at least like Medicare Part B: that is, benefits continually open for political renegotiation because they’re known to be subsidized from the general fund — that beneficiaries themselves did not really pay for them.

As I’ve previously written, even under a “no action” scenario Social Security risks an eventual merger into the general budget (ending the special separation originally envisioned by FDR). A recent Ralph Bristol column persuasively argues that continuing to cut the payroll tax will make it inevitable even sooner that Congress “will formally adopt a ‘reform’ that is least disruptive by simply transferring a large portion of the legal liability for Social Security benefits to (the general fund) ‘where it will have been for the past many years anyway.’”

A detailed inspection of the Trust Funds and their income sources may help explain how rapidly the payroll tax cut might end the “earned benefit” rationale for Social Security.

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