Congressional Budget Office Director's Blog

Talk to the National Economists Club - September 25th, 2009

My topic was CBO’s outlook for the federal budget and the economy, drawing on our August report The Budget and Economic Outlook: An Update and our June report The Long-Term Budget Outlook. You can read the slides from my remarks.

CBO estimates that, if current laws remained in place, the federal deficit would shrink significantly—from about 11 percent of GDP this fiscal year to around 3 percent of GDP between 2013 and 2019. The country has experienced persistent large deficits before; for example, deficits averaged about 4 percent of GDP during the economic expansion of the 1980s. However, the budget challenge facing policymakers during the coming decade will be more acute than the challenge they faced during the 1980s in three important respects:

• First, federal debt held by the public will exceed 50 percent of GDP at the end of this fiscal year, compared with roughly 30 percent when the expansion of the 1980s began. As a result, further large deficits and increases in the debt will raise more serious economic risks. Under current law, CBO projects that debt held by the public will reach 68 percent of GDP by 2019, the highest level since 1950, and will be continuing on an upward trajectory.

• Second, the difference between current law (which underlies CBO’s baseline projections) and current policy as perceived by many people (in particular, the personal income tax rates now in effect) is especially large now. For example, most of the tax cuts enacted in 2001 and 2003 are scheduled to expire at the end of December 2010, and the exemption amount for the alternative minimum tax (AMT) is scheduled to fall back sharply; those provisions of current law are reflected in CBO’s baseline projections, adding to projected revenues. If, instead, the tax cuts were extended and the AMT exemption was indexed for inflation after 2009, the revenue loss and the resulting increase in interest payments on the federal debt would widen the deficit to more than 6 percent of GDP by 2019.

• Third, the aging of the U.S. population and rising costs for health care are making federal spending on Social Security, Medicare, and Medicaid a much larger burden relative to GDP. During the expansion of the 1980s, federal spending on those three programs stayed close to 7 percent of GDP; in the 2013 to 2019 period, CBO projects that spending on those programs will rise from just over 10 percent of GDP to a little below 12 percent. Beyond the 10-year budget window, CBO expects that this share would continue to rise rapidly under current law.

This sobering outlook for the federal budget is likely to weigh on policy decisions for some time. High deficits in the near term may be an inevitable consequence of the severe economic downturn and the turmoil in the financial markets. However, continued large deficits and increases in federal debt over time would adversely affect the nation’s economic growth by lowering saving and investment.

Insurance Coverage for Unauthorized Immigrants Under Current Law and Proposed Health Care Legislation - September 23rd, 2009

Yesterday CBO released a letter responding to a request by the Ranking Member of the Senate Committee on Finance for additional information about health insurance coverage among nonelderly unauthorized immigrants under current law and under proposals being considered in the Senate and the House.

Current Law

Estimates of the unauthorized immigrant population residing in the United States are derived from survey data that identify foreign-born individuals but do not specify their legal status. As a result, CBO and the staff of the Joint Committee on Taxation (JCT) must use statistical methods to impute legal status when modeling the effects of proposals affecting health insurance coverage. Although the best available information is used in that process, the data have substantial limitations, and the estimates described in CBO’s letter are subject to a significant amount of uncertainty.

Under current law, CBO projects that the nonelderly unauthorized immigrant population will total about 14 million in 2019. Of those individuals, nearly 60 percent (about 8 million) will be uninsured. A further 25 percent (about 4 million) will have employment-based coverage, and about 7 percent (1 million) will have some alternative form of insurance (other than Medicaid). The remaining 10 percent (about 1 million) will make use of some Medicaid coverage, reflecting the current law that allows unauthorized immigrants—who are not eligible for full Medicaid benefits—to receive limited Medicaid coverage for emergency care if they would be eligible for the program apart from their unauthorized status. The number using Medicaid may also include some unauthorized immigrants who manage to obtain full Medicaid coverage even though they do not qualify for it; however, we believe that state agencies administering the Medicaid program successfully screen out most ineligible individuals.

Proposed Legislation

Under the proposal put forth by Senator Baucus-the Chairman’s mark for proposed health care legislation released by the Committee on Finance on September 16 (the America’s Healthy Future Act of 2009)- unauthorized immigrants would not be eligible to participate in the new insurance exchanges or receive refundable tax credits for health insurance coverage; that proposal indicates that the verification process might be similar to what is required under current law for Medicaid. The effect of those provisions would depend on the legislative language that is drafted to reflect those specifications and the rules that are ultimately developed to enforce them. More stringent enforcement procedures would increase the likelihood that unauthorized immigrants could not obtain insurance or subsidies through the exchanges, but they could also discourage eligible individuals from seeking coverage. More rigorous methods would thus reduce subsidy costs; they would also increase administrative costs to some extent. For the people who would not obtain insurance under more stringent rules, the amount of medical care they would receive and the source of financing for that care are difficult to predict.

CBO and JCT have completed a preliminary analysis of specifications for the Chairman’s mark that were provided by committee staff, rather than the Chairman’s mark itself. Moreover, we have not reviewed legislative language that would specify the policies involved and their enforcement provisions. In the absence of such language, we assumed that enforcement mechanisms would be in place that would be highly effective at keeping ineligible individuals from receiving tax credits. However, we have also assumed that there would be some noncompliance—resulting from misreporting of income, family circumstances, or other qualifying conditions to obtain more generous subsidies. Illegal participation by unauthorized immigrants would fall into this category. We have no basis for quantifying those factors separately for this or other proposals.

The same conclusion applies to H.R. 3200, the America’s Affordable Health Choices Act of 2009, as it was introduced in the House in July 2009.  That bill also indicated that unauthorized immigrants would not be eligible to receive premium and cost-sharing credits for health insurance coverage. As was the case with Senator Baucus’s proposal, our preliminary analysis of H.R. 3200 took into account a variety of factors that would affect compliance with its requirements, but again, CBO cannot provide a specific figure for coverage of unauthorized immigrants under that proposal.

CBO’s Analysis of Premiums Under the Chairman’s Mark of the America’s Healthy Future Act - September 23rd, 2009

The Effects of Two Specified Policy Options for Health Care on the Federal Budget Deficit - September 22nd, 2009

The Economic Effects of Legislation to Reduce Greenhouse-Gas Emissions - September 17th, 2009

How Regulatory Standards Can Affect a Cap-and-Trade Program for Greenhouse Gases - September 17th, 2009

Preliminary Analysis of Specifications for the Chairman’s Mark of the America’s Healthy Future Act - September 16th, 2009

Source: Congressional Budget Office Director's Blog