Saturday, June 25, 2011

Congressional Budget Office 6/2011 and Budgets, Decisions, Decisions

What does the CBO say about the Nations budget?
They project the federal debt to reach roughly 70 percent of gross domestic product. The sharp rise in debt stems partly from lower tax revenues and higher federal spending related to the recent severe recession. However, the growing debt also reflects an imbalance between spending and revenues that predated the recession." The retirement of the baby-boom generation portends a significant and sustained increase in the costs of Social Security, Medicare, and Medicaid to rise from 10% of the GDP to 15%.
If current laws are kept in place, meaning that Medicare’s payment rates for physicians will decline by about a third, tax cuts enacted in 2001 and extended in 2010 are allowed to expire (2021), the growing reach of the alternative minimum tax, the tax provisions of the recent health care legislation, and the way in which the tax system interacts with economic growth - revenues would grow to be much higher than typically seen in recent decades reaching 23% by 2035 and still growing. Activities such as national defense and a wide variety of domestic programs would decline to the lowest percentage of GDP since before World War II. These revenues would offset almost all of the rising costs attributed to aging boomers. Debt and the interest accumulated would slowly rise from 69% of the GDP to 84% by 2035.
There are "several changes to current law that are widely expected to occur or that would modify some provisions of law that might be difficult to sustain for a long period." These include; further extension of tax cuts enacted in 2001 and extended in 2010, "the reach of the alternative minimum tax being restrained to stay close to its historical extent; and that over the longer run, tax law will evolve further so that revenues remain near their historical average of 18 percent of GDP. This scenario also incorporates assumptions that Medicare’s payment rates for physicians will remain at current levels", and that some policies enacted in the March 2010 health care legislation to restrain growth in federal health care spending will not continue in effect after 2021. If these changes are made, the significantly lower revenues and higher outlays will cause federal debt to grow much more rapidly, exceeding 100% of GDP by 2021, 109% by 2023 and approach 190% by 2035.
"To keep deficits and debt from climbing to unsustainable levels, policymakers will need to increase revenues substantially as a percentage of GDP, decrease spending significantly from projected levels, or adopt some combination of those two approaches. Making such changes while economic activity and employment remain well below their potential levels would probably slow the economic recovery. However, the sooner that medium- and long-term changes to tax and spending policies are agreed on, and the sooner they are carried out once the economy recovers, the smaller will be the damage to the economy from growing federal debt. Earlier action would permit smaller or more gradual changes and would give people more time to adjust to them, but it would require more sacrifices sooner from current older workers and retirees for the benefit of younger workers and future generations." Please see attached full report

The causes of these problems were attributed to a combination of; baby-boomers aging, what has come to be known as "The Bush Bailout" and "Obama's Stimulus Package" as well as growing interest on these debts and budget imbalance prior to 2007.
Several states have experienced budget deficits. States received Federal monies from the stimulus and, unfortunately, did not plan for future revenues to cover existing costs. Federal and States are deciding how to raise revenues. Someone will be paying more taxes. Will it be the wealthiest, middle-America, the poorest or a combination?
In Wisconsin, Governor Walker understands that revenue must be increased but is afraid that raising taxes on the wealthiest and/or profitable companies will scare business away from the state. He chose to increase revenue by raising taxes on those earning under $24,680 that do not receive public assistance and working families that qualify for the Federal Earned Income Credit.
Minnesota is at a standstill. The Governor wants to reinstate some higher taxes on the wealthiest and profitable companies but refuses to raise taxes on the poor and middle-class. The Senate and House Majorities, similar to WI, refuse to raise taxes on the wealthiest and profitable companies and insist on raising taxes on the poor and middle class. If they don't make a decision by Thursday, the state will, as it did under Former Governor Pawlenty, experience a costly shut-down.

These same National Debates continue. Who will pay higher taxes?

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