| The banner ad and navigation bar to the right is placed there by Geocities. We don't have any control over what ad is placed there. |
Created 9/16/99 -- See fb-changes.html for what's new and a revision history.
Index Of All Web Pages (1)
Master Table of Contents (2)
Index page (fb-index)
<<###PREVIOUS(fb-35)
NEXT(fb-61)###>>
[A] Robert Bixby Feb 25, 1999 Testimony About Budget 'Surpluses' and Entitlement Spending (137)
[B1] Continuation of Robert Bixby's Feb-25-1999 testimony (139)[C] Overview of Budget, Showing Growth In Entitlement Share (144)[B2] JAL commentary on Robert Bixby Testimony (140)
[B2.A] The Source Of The Entitlement Spending Percentages (141)[B2.C] Age Related Entitlements This Year Is $800 Billion, 44% Of All Federal Spending (143)
[D] Mandatory Spending And What Mandatory Means (145)
[E] The Near - Sacred Items: Hard-Core Entitlements + Net Interest + Defense (146)
[E1] Hard Core Entitlements (as defined by JAL) (147)[E2] Net Interest and Defense Spending (148)
[E3] Table of Near-Sacred Items: Hard Core Entitlements + Net Interest + Defense (149)
[E4] Federal Taxes Are Too High, But Don't Cut My Social Security and Medicare (150)
[G] Some Budget Concepts Explained (152)
[G1] On Budget, Off Budget, and Unified Budget (153)[G2] Discretionary Spending (154)
[G3] Net Interest and Gross Interest (155)
[G4] Offsetting Receipts; Interest Earned By The Trust Funds (157)
[G4.A] Table 4-7 - CBO Projections of Offseting Receipts, 1998 and 2009 (158)
This topic discusses the current federal budget numbers, and explains some budget concepts.
"The Citizen's Guide To The Federal Budget" explains some budget concepts, including how Social Security and Medicare fit into the budget and the reported National Debt figures.
The Economic and Budget Outlook: Fiscal Years 2000-2009, January 1999, by the Congressional Budget Office (CBO), E&B0199.pdf is a more detailed discussion of budget issues. I use it as my primary source material in this section. In the below I refer to it as E&B0199.pdf.
See also the discussion on the national debt in section non159.
I next quote some testimony by Robert Bixby, the Policy Director of the Concord Coalition. His concerns about growing entitlement spending and the chipping away of the budget surpluses (such as they are) are also concerns of mine.
In the sections after the Robert Bixby testimony, I discuss the meaning of the entitlement percentage numbers. I also discuss some fundamental budget information.
The below are excerpts from Robert Bixby's February 25, 1999 testimony. All emphasis is mine.
[Begin Excerpts of Robert Bixby's Feb-25-1999 testimony:]
Testimony by Robert L. Bixby
Policy Director of the Concord Coalition
before the House Armed Services Committee
Military Personnel Subcommittee
February 25, 1999
[snip]
Recently, Washington has been consumed with a new problem -- what to do with budget surpluses projected for "as far as the eye can see." After three decades of deficits, this is a welcomed problem. But one critical fact is usually overlooked. Without counting the "off-budget" Social Security surplus, the government is still running an annual deficit. And, according to recent CBO and OMB projections this condition will persist at least through fiscal year 2001 when we will do little better than break even. It is not until fiscal year 2002 that a significant "on-budget" surplus appears.
[snip]
Here is how the budget looks this year and over the next five years without counting the Social Security surplus:
==============================================Fiscal Year 1999 2000 2001 2002 2003 2004 Total Baseline - $19 - $7 + $6 + $55 + $48 + $63 + $146 Figures in billions. Source: Congressional Budget Office, Economic and Budget Outlook, Fiscal Years 2000-2009. [E&B0199.pdf]
==============================================[snip]
Another way to view the situation is to compare the non-Social Security surpluses with the Department of Defense increases proposed in the President's FY2000 budget. This amount includes his pay and retirement initiatives as well as new spending for acquisition, modernization, training and other operational needs.
[The "Baseline" is the E&B0199.pdf surplus. The "Pres. Bud." is the additional Defense spending Clinton is proposing, expressed as negative numbers. The "Balance" is the "Baseline" surplus minus the additional Defense spending].
==============================================Fiscal Year 2001 2002 2003 2004 Total Baseline +$6 +$55 +$48 +$63 +$172 Pres. Bud. - $9.6 -$17.1 -$13 -$15 -$ 54.7 Balance - $3.6 +$37.9 +$35 +$48 +$117.3
==============================================As this table shows, the President's DoD budget, deemed inadequate by many in Congress, would nevertheless consume about one-third of the projected non-Social Security surplus over the next five years. If this figure is adjusted upward to accommodate the level of increased spending advocated by the Joint Chiefs last September (i.e., roughly $150 billion through FY2005) virtually the entire non-Social Security surplus would be consumed. And that assumes that these surpluses will actually materialize. If the surpluses fail to materialize, this level of defense spending could lead to a reappearance of budget deficits, even without a tax cut or increased spending on any other national priority.
It is further relevant to note that the projected surpluses are based on these assumptions:
- The economy will indefinitely continue its now record peacetime expansion.
- Congress will adhere to the tight discretionary spending caps of the 1997 Balanced Budget Act.
- All surpluses, including Social Security, will be used to reduce publicly-held debt, resulting in a virtuous cycle of lower interest costs and higher surpluses.
Any change in these baseline assumptions would alter or obliterate the projected surpluses.
[ snip ]
Today's healthy fiscal condition is unlikely to continue without some hard choices being made about the future. Simply put, even with the strong economy of recent years, both the Congressional Budget Office and the General Accounting Office have concluded that our current fiscal policy is unsustainable over the long-term.
The problem is a combination of changing demographics and age-related federal entitlement programs such as Social Security, Medicare, Medicaid, and government pensions for both civilian and military employees. At a combined $800 billion this year, these programs account for 44 percent of all federal spending. They are expensive but affordable. This is because we have a relatively small number of retirees compared to a relatively large number of working age citizens. But the picture is about to change, dramatically and permanently.
The large baby boom generation is poised to begin retiring at the end of the next decade. At the same time, longevity is also increasing, perhaps faster than official projections note. These twin pressures will result in an increase in the proportion of elderly from about 12% of the nation's population today to between 20 to 24 percent by 2040. Today's preschoolers, who will be working age taxpayers when that time comes, will find it a struggle to finance Social Security, Medicare, Medicaid, and the other retirement and health care costs of a much older population.
[ snip ]
But even, running surpluses will not be enough. Currently projected obligations to programs such as Social Security, Medicare, Medicaid, and federal retirement programs, are already unsustainable over the long-term. Social Security's unfunded obligation is pegged at $9 trillion. For Medicare and other federal entitlements the amount is approximately $8 trillion. Thus any proposal that has the effect of increasing the burden on future taxpayers must only be undertaken if there is a clearly demonstrated need, and only if its costs are fully and honestly accounted for.
[ snip ]
[End Excerpts of Robert Bixby's Feb-25-1999 testimony]
In 1962 entitlements consumed just 32% of all federal spending. By 1986, when Redux was enacted, that percentage had risen to 47%. In fiscal year 1998 entitlements had grown to 57% of all federal spending. More troubling, however is the projected growth. Despite growing public awareness of the relentless growth of entitlement spending and the conclusion of a Presidential Commission that "current trends are not sustainable," we are nevertheless on track to devote 73% of all federal spending to entitlement by 2009. [And this is before the first boomers reach age 65!].
==============================================Growth in Entitlement Spending As a Percentage of the Budget 1962 32% 1970 37% 1986 47% 1998 57% 2009 73% (projected) Source: CBO, The Economic and Budget Outlook: Fiscal Years 2000-2009, January 1999. p. 68 {92} [E&B0199.pdf]
==============================================[ snip ]
[End of excerpts of Robert Bixby's Testimony]
E&B0199.pdf is "The Economic and Budget Outlook: Fiscal Years 2000-2009", by the Congressional Budget Office (CBO).
In the above table, entitlement spending is projected to be 73% of total spending in 2009. More documentation of that number, and the other numbers in the above table of "Entitlement Spending as a Percentage of the Budget" are in the following non144 section. But briefly these numbers are Mandatory Spending / Total Outlays from E&B0199.pdf xviii {18}. The Mandatory Spending figures do NOT include interest on the publicly - held debt (which is roughly what the CBO calls "net interest" (non161)). Nor do they include interest paid to the trust funds (since that is a intra-governmental transfer -- see non157 for more on this topic).
As for this statement from the Bixby testimony,
"Social Security's unfunded obligation is pegged at $9 trillion. For Medicare and other federal entitlements the amount is approximately $8 trillion"
I asked the Concord Coalition how these numbers were obtained. I got the following response:
"The unfunded liabilities are the money that the federal government has promised to today's adults in future Social Security benefits, Medicare benefits, federal employee pensions, and military pensions." [snip]
I wrote back asking the Concord Coalition some more detailed questions about how these numbers were obtained. The relevant excerpt of my letter is as follows:
"These numbers were probably found by present - worthing a stream of numbers out for at least several decades. The discount rate (essentially the interest rate) that is used in the present - worthing is a crucial number. A very small change in the discount rate assumption can make a large change in the final result.
"Also, these numbers may be quite old -- what Trustees Report (what year) were these numbers based on? The 1998 Trustees Report? The 1997 Trustees Report?
"Another question -- is unfunded liability for SS and Medicare the amount that isn't funded AFTER the current 15.30% FICA tax (combined employer + employee)? From your description, it doesn't sound like revenues from the current FICA tax is considered. It would be more interesting to me to know what the unfunded liabilities are if one considers the current 15.30% FICA tax to be part of the funding."
Here is their response:
"Here's a more detailed explanation of the figures that Bob Bixby and Pete Peterson cited on the federal government's unfunded liabilities. The information is from Richard Jackson and Neil Howe, senior advisors to Concord.
"To calculate the unfunded liability of the Social Security (or any government) trust fund, take the present value of all the benefits that have already accrued and subtract the trust fund's assets.
"The latest figure for the unfunded liability of the Social Security trust fund is $8.9 trillion as calculated by the Office of the Actuary of the Social Security Administration which prepares the Social Security trustees' annual report. It also includes data from the 1998 report of the Federal Accounting Standards Advisory Board (FASAB) entitled, "Accounting for Social Insurance: Proposed Statement of Recommended Accounting Standards, Exposure Draft", Feb. 20, 1998. FASAB, as its title indicates, is a standing government body whose purpose is to recommend proper accounting standards to federal government agencies. The head of the Government Accounting Office, Treasury, and the Office of Management and Budget (OMB) sit on the FASAB board.
"The latest figure for federal pensions' unfunded liability ($1.5 trillion) comes from the FY 2000 Federal Budget, the Analytical Perspectives volume. (That $1.5 trillion does not include the assets in the trust fund.)
"The latest figure for Medicare's unfunded liability is $7.3 trillion (as of the end of 1995). It is based on the calculations of A. Haeworth Robertson, the chief Social Security actuary in the 1970's, from his book, Social Security: What Every Taxpayer Should Know, Retirement Policy Institute, 1992. The $7.3 trillion is Neil and Richard's update of Robertson's 1992 figure at 1995 values. It is important to note that, unlike Social Security which is viewed as a pension based on individuals' specific earning histories, the Medicare figure has a lot less meaning. That is because the obligation under Medicare is to some future package of benefits and technologies that is unknowable.
"A note on the figures used. All are at present value unless otherwise noted. The discount rate is the long term interest rate on Treasury bonds using SSA's intermediate scenario.
"If you have further questions, you can call Richard Jackson at [JAL snipped phone number]. Another source of the latest data on the subject is Steve Goss, SSA's deputy chief actuary at [JAL snipped phone number], though Richard cautions that he is a very busy man and difficult to get hold of. He has written a paper on the subject but I don't have the title of it."
Hope this helps.
Ellanor Fink
That's the best I can do for now in trying to explain these numbers. I'm guessing from the above that their unfunded liabilities number does not include 15.30% FICA taxes (i.e. if the FICA taxes were counted as "funding", then the unfunded liabilities would be much less than reported above). But I don't know. Any help from readers will be appreciated.
It is interesting to me that well-respected established organizations like the Concord Coalition can use figures like $9 Trillion and $8 Trillion in Congressional testimony and in the media, and apparently are never called on to give the details or even a good explanation of how the numbers were obtained.
Another statement from the Bixby testimony that I checked on is this:
... "age-related federal entitlement programs such as Social Security, Medicare, Medicaid, and government pensions for both civilian and military employees. At a combined $800 billion this year, these programs account for 44 percent of all federal spending" ...From Table T145.1 in section non145, which comes from E&B0199.PDF, I found these figures:
Expenditures, Billions of Dollars
Fiscal Year Actual 1998 1999
Medicaid 101 108
Social Security: 376 387
Medicare: 211 220
Other Retirement & Disability: 83 86
-------------------------------------------------
Total 771 801
If the above is the source of his $800 Billion, it looks good, except that not all Medicaid goes to the elderly. I don't know what portion of it does.
(hits since Sept 16, 1999)
Get your own Free Home Page