The Federal Budget Picture SHAI AKABAS, ASSOCIATE DIRECTOR OF - - PowerPoint PPT Presentation

The Federal Budget Picture

SHAI AKABAS, ASSOCIATE DIRECTOR OF ECONOMIC POLICY

A Little About BPC

BPC has tackled many critical issues over the past seven years

2011 2007 2008 2009 2010

BPC Formed Foreign Policy Project Homeland Security Project Leaders’ Project on Health Care BPCAN Created National Transportation Policy Project Housing Commission Prevention Initiative Governors’ Council Debt Reduction Task Force

2012

33 Funders 40 Staff $24M 1 Funder 15 Staff 1 Project $11M 100 Funders 62 Staff $21M 50 Funders 44 Staff $19M Democracy Project

2014

150 Funders 89 Staff 14 Projects $22M 50 Funders 40 Staff $21M 15 Funders 30 Staff $24M Financial Regulatory Reform Initiative Immigration Task Force CPR CEO Health and Innovation Council Energy Project

2013

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Economic Policy Program

Economic Policy Project Financial Regulatory Reform Initiative Housing Initiative Immigration Task Force Retirement Security and Personal Savings

Governance Program

Commission on Political Reform Democracy Project Governors’ Council

National Security Program

Foreign Policy Project Homeland Security Project

Health Program

Health Project Nutrition & Prevention Initiative Health Innovation Initiative

Energy and Infrastructure Program

Energy Project

BPC Programs in 2015

Last updated 3/27/2015

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The Economy – Not Back Yet

ECO CONOM NOMY Y STIL ILL L PE PERF RFORMIN ORMING BE BELOW LOW PO POTENT TENTIAL IAL

NOTE: Axis does not start at zero. SOURCE: CBO Budget and Economic Outlook, 2015

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10 10 12 12 14 14 16 16 18 18 20 20 2005 2005 2008 2008 2011 2011 2014 2014 2017 2017 2020 2020 Trilli lions ns of 2009 09 Dollar ars Actual ual Projection jection Po Potential ntial GDP Real GDP

The Federal Budget – Present, Past, and Future

FEDERAL RAL SP SPENDI NDING NG BY M BY MAJOR AJOR CATEGORY GORY, , 20 2014

NOTE: Figures are net of offsetting receipts. SOURCE: CBO Budget and Economic Outlook, 2015

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Defense se Discre reti tionar

• nary,

, $596 96 Non-Defe efense nse Discre reti tionar

• nary,

, $583 83 Social al Security rity, , $845 45 Major r Health th Programs ams, , $831 Ot Other r Mandat dator

• ry

Programs ams, , $420 20 Net Interes erest, t, $229 29 $0 $0 $1,00 $1,000 $2,00 $2,000 $3 $3,00 ,000 $4,00 $4,000 Billions ions of Dollar ars

HI HISTORICAL ORICAL TRE RENDS NDS IN IN FEDERAL RAL SP SPENDING NDING

NOTE: Figures are net of offsetting receipts. SOURCE: CBO Budget and Economic Outlook, 2015

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Discre reti tionar

• nary

y Spending nding Social al Security rity Health th Programs ams Other r Mandat ator

• ry

Net Interes erest 0% 0% 10% 10% 20% 20% 30 30% 40% 40% 50% 50% 60% 60% 70% 70% 80% 80% 90% 90% 100% 100% 1965 1965 1972 1972 1979 1979 1986 1986 1993 1993 2000 2000 2007 2007 2014 2014 Pe Percent nt of Total al Feder eral al Spending nding

PR PROJE JECT CTED D FEDERAL RAL SP SPENDI NDING NG AS AS % O % OF GDP

NOTE: Figures are net of offsetting receipts. SOURCE: CBO Long Term Budget Outlook, 2014

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2 4 6 8 10 10 2014 2014 2019 2019 2024 2024 2029 2029 2034 2034 2039 2039 Pe Percent nt of GDP Net Interes erest Major

• r Health

th Programs Social ial Security urity All Othe her r Federal Spending nding

HE HEAL ALTHCARE THCARE AN AND SO SOCI CIAL AL SE SECUR CURIT ITY Y GROW OW QUI UICK CKLY Y BE BECAUSE USE OF AGIN ING G PO POPULA PULATION TION

NOTE: Figures are net of offsetting receipts. SOURCE: CBO Long Term Budget Outlook, 2014

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2 4 6 8 10 10 2014 2014 2019 2019 2024 2024 2029 2029 2034 2034 2039 2039 Pe Percent nt of GDP Net Interes erest

Majo jor Health th Progra

• grams

ms So Socia ial l Se Security ity

All Othe her r Federal Spending nding

NET IN INTERES REST T GROWS OWS AS AS IN INTERES EREST T RA RATES ES RE RETURN URN TO NORM RMAL AL

NOTE: Figures are net of offsetting receipts. SOURCE: CBO Long Term Budget Outlook, 2014

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2 4 6 8 10 10 2014 2014 2019 2019 2024 2024 2029 2029 2034 2034 2039 2039 Pe Percent nt of GDP

Net t Int nterest

Major

• r Health

th Programs Social ial Security urity All Othe her r Federal Spending nding

PR PROJE JECT CTION ION ERR RRORS RS CAN AN BE BE SI SIGNI NIFIC FICANT ANT

SOURCE: CBO Budget and Economic Outlooks, 2010 and 2015

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$0 $0 $50 $50 $100 $100 $150 $150 $200 $200 $250 $250 $300 $300 $3 $350 50 $400 $400 $450 $450 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 Billions ions of Dollar ars Actual ual Net Intere rest t Costs ts 2010 Proj

• jection

ection of Net Interes erest t Costs ts Total al Savings ings: : $352 2 billion ion

Revenue

CU CURR RRENT NT LAW W RE REVENU NUE E WI WILL BE BE TOO O LOW LOW

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19.9 .9% 19.8 .8% 20.6 .6% 19.5 .5% 18.1% 1% 16% 16% 17 17% 18% 18% 19% 19% 20% 20% 21% 21% 1998 1998 1999 1999 2000 2000 2001 2001 2015-20 2015-2025 Avera Average ge

NOTE: Axis does not start at zero. SOURCE: CBO Long Term Budget Outlook, 2015

Revenues averaged 20% of GDP when the budget last balanced… …but are projected to average just over 18% in the next ten years.

40 40 80 80 120 120 160 160 1975 1975 1985 1985 1995 1995 2005 2005 2015 2015 2025 2025 2035 2035 2045 2045 2055 2055

THE HE BOTT TTOM OM LIN INE: : GROWING OWING DEBT BT

SOURCE: CBO Long-Term Budget and Economic Outlook

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Debt Held by the Publi lic 100% % of GDP Actual ual Projecte jected

Upcoming Issues: Highway Trust Fund

HEADER GOES HERE

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• Funds infrastructure and construction
• Provides funding for highway and transit programs in

the form of reimbursements to states

• Multiple accounts
• Highway Account
• Mass Transit Account
• Main source of revenue is the gas tax

OVERV RVIEW IEW OF HI HIGHW HWAY Y TRUS UST T FUN UND

HEADER GOES HERE

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• Highway user taxes (e.g., “gas tax”) have been

extended through September 30, 2016

• Most budget authority in form of contract authority –

authority to incur obligations in advance of appropriations

• Obligation limits, usually set in the annual

appropriations acts, govern how much contract authority can be used in a given year

OVERV RVIEW IEW OF HI HIGHW HWAY Y TRUS UST T FUN UND

CB CBO PR PROJECT JECTS S LAR ARGE GE SH SHORTF TFAL ALL

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10 20 30 40 50 60 70 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Billions of Dollars Fiscal Year

Projections of Highway Trust Fund CUMULATIVE SHORTFALL: $166 Billion

Outlays Revenues and Interest

SOURCE: Congressional Budget Office

WHAT’S CAUSING THE LONG-TE TERM RM PR PROBLEM? BLEM?

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• 1. Gas tax has not increased since 1993
• 2. Americans driving less per person
• 3. Vehicles becoming more efficient
• Transfers from general funds have filled the gap

IM IMMEDI EDIATE TE PR PROBLEM BLEMS

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• Highway bill authorization expires 5/31/2015
• No cost to reauthorize
• Summer FY 2015, HTF insufficient to meet
• bligations
• DoT will reduce reimbursements for state infrastructure projects
• House and Senate budgets light on solutions for HTF
• “Deficit-neutral reserve fund for transportation”
• Want to stop transfers that close gap in funding

TRUS UST T FUN UND NEARI ARING NG EXHA HAUS USTI TION ON

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PR PROPOSED POSED SO SOLUTIONS UTIONS

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• UPDATE Act (Rep. Blumenauer (D-OR))
• Doubles gas tax
• Gas Tax Replacement Act (Rep. Huffman (D-CA))
• Replace with lifecycle carbon emissions tax
• Grow America 2.0 (President Obama)
• Taxes on corporate profits held abroad
• Repatriation Tax Holiday (Sen. Boxer (D-CA), Sen.

Paul (R-KY))

• 6.5% corporate tax on money brought home
• Prominent Republicans against raising gas tax
• Including Rep. Ryan (R-WI), Sen. Hatch (R-UT)

Upcoming Issues: Debt Limit

DEBT BT LIM IMIT IT BA BASI SICS CS

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• The debt limit is:
• the maximum amount that Treasury is allowed to borrow;
• set by statute (Congress must act to change it); and
• covers most debt issued, whether held by the public (such as

Treasury bills and savings bonds) or intragovernmental (such as debt held by the Social Security trust funds).

• The debt limit was temporarily suspended from

February 18, 2014 until March 16, 2015, when it will be reinstated at a higher level than before.

• Total public debt subject to limit is about $18.1

trillion.

• In comparison, the U.S. gross domestic product (GDP) was

$17.4 trillion at the end of 2014.

Sources: Daily Treasury Statement and Bureau of Economic Analysis

RE REACH CHIN ING THE HE DEBT BT LIM IMIT IT – WH WHAT IT IT MEAN ANS

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Layers of Defense Against Default

The Treasury Department has multiple means that can be used to pay the nation’s bills. If the debt limit is reached and policymakers do not act in time, however, all of these layers of defense will be breached and the nation will default on its obligations.

ISSUE NEW DEBT TO THE PUBLIC IN TRADITIONAL MANNER EXTRAORDINARY MEASURES DAILY REVENUE AND CASH ON HAND DEFAULT ON FINANCIAL OBLIGATIONS

Debt Limit Reached EM Exhausted The X Date

WH WHAT IS IS THE HE X D DATE? TE?

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• X Date: The first day on which Treasury has

exhausted its borrowing authority and no longer has sufficient funds to pay all of its bills in full and on time.

• In other words, if the debt limit has not been raised by the X

Date, the federal government will begin defaulting on some of its obligations.

• After the X Date, bills must be paid solely out of incoming cash

flows, which will be insufficient to cover all government spending.

• BPC estimates that the X Date will most

likely occur during the 4th quarter of 2015 (between October 1 and December 31).

WH WHY WI WILL EXTRA RAORDIN ORDINARY RY MEASU ASURES RES LAS AST T SO SO LO LONG NG IN IN 20 2015? 5?

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• More extraordinary measures will be available
• In June of 2015, securities in the CSRDF (the pension fund for civil

servants) are scheduled to mature. During extraordinary measures, Treasury is not required to reinvest these securities or credit interest to the fund, which will reduce debt subject to the limit.

• The deficit has been decreasing
• Revenue growth, in particular, has been strong in recent years as the

economic recovery has picked up steam. With lower deficits, extraordinary measures cash-on-hand and last longer.

• Timing of debt limit reinstatement
• Most tax refunds are paid in February and early March. Reinstatement
• f the debt limit in mid-March avoids depleting extraordinary measures
• n the heavy cash outflows during the height of tax-refund season.

THE HE DEFICIT ICIT HA HAS S BE BEEN DECLI CLINING NING

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$(300,000) $(250,000) $(200,000) $(150,000) $(100,000) $(50,000) $- $50,000 $100,000 $150,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

U.S. Treasury - Monthly Net Operating Cash Flow (in millions)

2011 2012 2013 2014 Source: Daily Treasury Statements

TIM IMIN ING IS IS MORE RE FAVORAB RABLE LE

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$(300,000) $(250,000) $(200,000) $(150,000) $(100,000) $(50,000) $- $50,000 $100,000 $150,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

U.S. Treasury - Monthly Net Operating Cash Flow (in millions)

2011 2012 2013 2014

Mid-March debt limit reinstatement avoids depleting extraordinary measures during tax refund season (Feb/early March)

TIM IMIN ING IS IS MORE RE FAVORAB RABLE LE

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$(300,000) $(250,000) $(200,000) $(150,000) $(100,000) $(50,000) $- $50,000 $100,000 $150,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

U.S. Treasury - Monthly Net Operating Cash Flow (in millions)

2011 2012 2013 2014

Mid-March debt limit reinstatement avoids depleting extraordinary measures during tax refund season (Feb/early March) X Date most likely to occur 4Q 2015

Upcoming Issues: Sequestration

SE SEQUES UESTRA TRATI TION ON

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• Stemmed from the Budget Control Act of 2011
• Across-the-board cuts in first year (2012)
• Stringent caps thereafter
• Applies to defense & non-defense discretionary

and some mandatory programs

• Does NOT apply to overseas contingency
• perations

DEFENSE NSE SP SPENDING NDING TO BE BE LOW LOWES EST T SI SINCE CE 196 965

NOTE: Figures are in outlays. Includes costs for Overseas Contingency Operations; does not start at zero. SOURCE: CBO Budget and Economic Outlooks, 2010 and 2015

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2. 2.0% 2. 2.5% 3. 3.0% 3. 3.5% 4. 4.0% 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 2023 2023 2024 2024 2025 2025

NON-DE DEFENS FENSE E DIS ISCR CRETION ETIONARY ARY TO RE REACH CH LOWES LOWEST T LEVEL SI SINCE CE 196 965

NOTE: Figures are outlays; graph does not start at zero. SOURCE: CBO Budget and Economic Outlooks, 2010 and 2015

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2. 2.0% 2. 2.5% 3. 3.0% 3. 3.5% 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 2023 2023 2024 2024 2025 2025

Where Are We Headed?

PRESIDENT OBAMA’S FY 2016 BUDGET

• Taxes
• Reform or institute a number of personal income tax credits for

education, child care, workers without children, two-earner couples

• Increase the capital gains rate
• Implement a tax on large financial institutions
• Broad reform of business taxation by cutting rate and broadening

base and reforming international taxation

• Repeal mandatory and discretionary sequestration
• Provide tuition-free preschool for four-year olds

(offset by increased tobacco taxes) & community college

• Use transition revenue from business tax reform to

fund reauthorization of surface transportation ($478 billion over six years)

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RE REPU PUBLI BLICAN CAN FY 20 2016 6 BUD BUDGET ETS

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• Repeal Obamacare
• Block grant and reduce funding to Medicaid/food

stamps

• Comprehensive tax reform that lowers rates
• Premium support (House only)
• Protect defense spending from sequester through
• verseas contingency account
• Substantial cuts to domestic discretionary below

sequester levels

DIS ISCRETI CRETION ONARY RY SP SPENDI NDING NG UN UNDER ER VAR ARIOUS IOUS SC SCENARIOS ARIOS

NOTE: Figures are budget authority and, aside from parentheses, include only funding within BCA caps. Also, a technical issue exists on the non-defense side with respect to changes in mandatory program spending – thus, some of the figures presented are interpretations of the actual estimates. SOURCE: CBO Budget and Economic Outlooks, 2010 and 2015; President Obama’s FY 2016 Budget; House Republican FY 2016 Budget

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Sequester Level BCA Cap Level Continuing Resolution Obama’s Request House Budget Defense 523 577 521

(64 OCO)

561

(51 OCO)

523

(94 OCO)

Non- Defense 493 530 492 527 493 Total 1017 1107 1013 1088 1017

3/16 – Debt Ceiling Reinstated

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6/30 – Ex-Im Bank Authorization Expires 3/31 – “Doc Fix” Expires 5/31 – Highway Authorization Expires 10/1 – Sequester Returns; CROmniubus and CHIP Reauthorization Expire Sep. Oct. Nov. Dec.

2015 Budget Deadlines

4th Quarter – Debt Ceiling Must be Raised 12/31 – Deadline for Retroactive Renewal of Tax Extenders 2016 – SSDI Trust Fund Is Exhausted

• Est. June-

August – Highway Trust Fund Runs Out Mar. Apr. June July Aug. May