Category: Public Finance

The Rich Aren’t Rich Enough to Balance the Federal Budget

Mary Pat Campbell

Link:https://www.wsj.com/articles/the-rich-arent-rich-enough-to-balance-the-federal-budget-with-tax-increases-60969410

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As budget deficits surge toward the stratosphere, Congress will soon have to get serious about savings proposals. Yet reforming Social Security and Medicare—the leading drivers of long-term deficits—remains a political nonstarter. Neither party is willing to raise middle-class taxes. And cutting defense and social spending would save at most $200 billion annually from deficits that are projected to approach $3 trillion by 2034.

That leaves one option: Tax the rich. It won’t be nearly enough.

There are a few excessive tax loopholes and undertaxed corporations that lawmakers could address. It’s farcical, however, to suggest that the tax-the-rich pot of gold is large enough to rein in our deficits and finance new spending programs. Seizing every dollar of income earned over $500,000 wouldn’t balance the budget. Liquidating every dollar of billionaire wealth would fund the federal government for only nine months.

In a study for the Manhattan Institute, I set upper-income tax rates at their revenue-maximizing level, while paring back tax loopholes and fighting tax evasion. As background, the Congressional Budget Office projects that our budget deficits—which currently exceed 7% of gross domestic project—will surpass 10% of GDP over the next three decades. My research shows that the “tax the rich” model would raise at most 2% of GDP in additional revenue over the long term.

Author(s): Brian Riedl

Publication Date: 22 Jan 2024

Publication Site: WSJ, op-ed

Fixing Medicare Starts With Cracking Down On A Multibillion-Dollar Catheter Scam

Mary Pat Campbell

Link: https://thefederalist.com/2024/02/20/fixing-medicare-starts-with-cracking-down-on-a-multibillion-dollar-catheter-scam/?utm_source=feedly&utm_medium=rss&utm_campaign=fixing-medicare-starts-with-cracking-down-on-a-multibillion-dollar-catheter-scam

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The New York Times reported recently about a sharp spike in Medicare spending on catheters, amid numerous signs that scammers have targeted that benefit to bilk the government out of taxpayer funds. With Medicare rapidly approaching insolvency, the problem is twofold: Criminals still consider the program such an easy source of cash — because the feds do such a poor job at finding and catching the crooks. 

Times reporters interviewed several seniors explaining how they had been billed for catheters they never received and do not need or use. It also noted that the number of Medicare beneficiary accounts billed for catheters rose roughly nine-fold last year, from 50,000 to 450,000. 

The pattern of Medicare spending on catheters echoes the increase in beneficiaries billed. Based on this graph from the Times story, it doesn’t take a doctorate in economics to realize that something fishy has happened regarding payments for catheters — and that, assuming most or all of the increase is due to fraud, Medicare has already given the scammers billions of dollars.

Over and above whether and when the feds can catch the scammers, the real question is: How did this happen? Or, given the federal government’s history of permitting fraud in federal health care programs, how does this keep happening?

Author(s): Christopher Jacobs

Publication Date: 16 Feb 2024

Publication Site: The Federalist

Trends in Mandatory Spending

Mary Pat Campbell

Link:https://crsreports.congress.gov/product/pdf/R/R44641

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In FY2023, mandatory spending accounts for an estimated 63% of total federal spending. Social Security alone accounts for about 21% of federal spending. Medicare and the federal share of Medicaid together account for another 25% of federal spending. Therefore, spending on Social Security, Medicare, and Medicaid now makes up almost half of total federal spending.

These figures do not reflect the implicit cost of tax expenditures, which are revenue losses attributable to provisions of the federal tax laws that allow a special exclusion, exemption, or deduction from gross income or provide a special credit, a preferential tax rate, or a deferral of tax liability.8 As with mandatory spending, tax policy is not controlled by annual appropriations acts, but by other types of legislation.

Author(s): Congressional Research Service

Publication Date: last updated 7 Nov 2023

Publication Site: U.S. Congress

What do rising interest rates mean for government debt?

Mary Pat Campbell

Link: https://lizfarmer.substack.com/p/rising-interest-rates-mean-for-governments?utm_source=post-email-title&publication_id=560793&post_id=135712385&isFreemail=false

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The higher the interest rates, the more costly the financing of a new project is over the long run, thus increasing pressure on the municipal budget.

The example below compares the cost of a 20-year, $10 million debt issuance at different rates. “Coupons” refer to the interest rate that bondholders get back on their investment. “PV” stands for “present value,” or the face value of the bonds when they’re issued.

Author(s): Martin Feinstein

Publication Date: 18 Aug 2023

Publication Site: Long Story Short, Liz Farmer’s Substack

D.C. to Silicon Valley: Drop Dead

Mary Pat Campbell

Link: https://www.city-journal.org/article/d-c-to-silicon-valley-drop-dead

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For venture capitalists and startup entrepreneurs, 2023 was a year dedicated to the destructive phase of Joseph Schumpeter’s notion of creative destruction. Silicon Valley Bank collapsed in the second-largest bank failure in American history, 400,000 tech jobs were eliminated in what Wired dubbed “The Great Tech Layoffs,” and dozens of high-potential startups transformed from unicorns into “zombies.”

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It’s no surprise that the startup industry needed to retrench—that’s been clear to observers for some time. What is surprising, however, is the reaction of policymakers in Washington, D.C., who apparently see this moment of tech-industry weakness as an opportune time to hobble the innovation economy. Take the mess that’s become of Section 174 of the Internal Revenue Code. For decades, this section has allowed companies to expense their research and development costs for software in the current year, which means that salaries paid to software engineers are entirely deductible upfront. That’s a critical calculation for early-stage tech startups, since development costs are high and revenues are low at inception.

But as negotiators were finalizing the 2017 tax reform, they ran into a quandary: they needed to find an accounting gimmick that would add revenue to the bill so that it would be budget-neutral in the ensuing decade and pass muster with Congress’s arcane budget reconciliation process. Among other components, negotiators settled on a poison pill: five years on, starting in 2023, Section 174 accounting benefits would radically shrink, suddenly choking off the cash flow for America’s most innovative companies.

No one considered that the punishing provision would arrive just when startup innovation is shriveling in the face of higher Fed interest rates after the inflation-stoking over-exuberance of the Covid-19 economy. Industry publications and commentators have warned about the impending doom for more than a year. This week, a bipartisan group of legislators offered a path forward, coupling an antidote to the R&D poison pill with an expansion of child tax credits. But with days to go before companies must start calculating their taxes, the prospects are dim that Congress will pass the fix.

Author(s): Danny Crichton

Publication Date: 18 Jan 2024

Publication Site: City Journal

The Fed Is Very Concerned Over Spending and Interest on the National Debt

Mary Pat Campbell

Link: https://mishtalk.com/economics/the-fed-is-very-concerned-over-spending-and-interest-on-the-national-debt/

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  • The current setup is nothing like the situation following WWII. Don’t expect another baby boom.
  • Instead, expect a massive wave of boomer retirements (already started) that will pressure Medicare and Social Security.
  • Depending on the kindness of foreigners to increase demand for US treasuries is not exactly a great plan.
  • Artificial Intelligence (AI) will undoubtedly increase productivity. But that is not going to offset the willingness of Congress to spend more and more money on wars, defense, foreign aid, child tax credits, free education, and other free money handouts, while trying to be the world’s policeman.

Author(s): Mike Shedlock

Publication Date: 12 Feb 2024

Publication Site: Mish Talk

Americans Should Be Less Complacent About Social Security

Mary Pat Campbell

Link: https://www.discoursemagazine.com/p/americans-should-be-less-complacent

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In December 2023, Gallup released the results of its latest survey of Americans’ expectations of Social Security. Gallup has been conducting these surveys in essentially similar form for many years, and their latest results qualitatively resemble previous ones. They show a slight uptick in Americans’ optimism that Social Security will make good on future benefit promises, producing Gallup’s headline finding: “Americans More Upbeat About Future Social Security Benefits.”

Unfortunately, the optimism expressed by Gallup’s respondents is at odds with the reality of Social Security’s deteriorating finances, as evidenced by the worsening actuarial shortfall documented in its trustees’ annual reports. Never before have Americans had greater reason for concern that they will not receive the benefits Social Security is promising. The reason Americans are feeling blithe about Social Security’s future is not because of its actual condition, but because elected officials and media figures avoid a subject whose harsh realities contradict their preferred political narratives.

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Another recurring feature of the Gallup surveys is to question respondents as to whether they would prefer that Social Security solvency be restored by raising taxes or by “cutting” or “curbing” benefits. Whenever the question is phrased in such a way, Americans express a preference for raising taxes, a preference that increased in the latest poll. The rising preference for raising taxes may partially reflect the bigger-government tilt of young adults, combined with the large number of baby boomers on the verge of claiming benefits. However, a portion of that expressed preference has been present in every survey, and it is worth understanding why.

All Social Security survey responses tend to be extremely sensitive to the wording of questions and to background understanding of the program. For example, a previous Gallup poll showing majority opposition to proposals to “curb” benefits for middle- to high-income workers was contradicted by a contemporaneous poll finding that 59% of respondents favored slowing the rate of benefit growth for middle- to high-income workers. When proposals to moderate future benefit growth are accurately described as such, they tend to draw much more support than when proposals are described as “cutting” or “curbing” benefits. Language such as “cut” or “curb” implants the mistaken notion that such proposals would reduce benefits from current levels.

Author(s): Charles Blahous

Publication Date: 9 Feb 2024

Publication Site: Discourse Magazine

Connecticut starts new year with better pension funding

Mary Pat Campbell

Link: https://insideinvestigator.org/connecticut-starts-new-year-with-better-pension-funding/

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According to the latest valuations, Connecticut’s State Employees Retirement System (SERS) increased its overall funded ratio from 48.5 percent in 2022 to 52 percent in 2023, and the Teachers Retirement System (TRS) increased its funded ratio from 57 percent to 59.8 percent.

Although neither is considered healthy in terms of pension funding, it does mark a turnaround following years of increasing unfunded liabilities and, therefore, increasing annual payments toward the debt, increased taxes and contract negotiations with state employees that increased their contributions and lowered benefits to make up the difference.

Former Gov. Dannel Malloy had stated that Connecticut’s tax increases in 2011 and 2015 went entirely to pay for the escalating cost of state employee and teacher pensions.

While the year-over-year change seems somewhat small, the change in funding ratio over the past eight years is much more substantial. In 2016, SERS was only 36 percent funded with $20.3 billion in unfunded liabilities. While SERS continues to have roughly $20 billion in unfunded liabilities, its assets have grown by $10 billion during that period, significantly increasing the funding ratio.

Meanwhile, the unfunded liability for TRS has increased by $3.3 billion over that same time frame, but assets increased by nearly $8 billion, increasing the funded ratio from 56 percent to nearly 60 percent. The total unfunded debt for TRS currently stands at $16.4 billion.

Author(s): Marc E. Fitch

Publication Date: 2 Jan 2024

Publication Site: CT Inside Investigator

Is There a “Pecking Order Theory” for US Government Debt?

Mary Pat Campbell

Link: https://govmoneynews.com/bills-blog/f/is-there-a-pecking-order-theory-for-us-government-debt

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I got a great question from a finance student today, asking whether the “pecking order” theory of corporate capital structure could be applied to the government. OK, let’s think this out. Who comes first, in the pecking order?

Author(s): Bill Bergman

Publication Date: 6 Dec 2023

Publication Site: GovMoneyNews, Bill’s Blog

Our Most Expensive Failure

Mary Pat Campbell

Link: https://www.governforcalifornia.org/news/2023/12/1/our-most-expensive-failure

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When launching GFC in 2011 it was my hope that we would see meaningful pension reform by 2020, but we have failed to achieve that objective and the negative consequences for public services and taxpayers have been enormous. As evidence, just look at the four-fold explosion in annual pension spending by the Los Angeles Unified School District this year compared to ten years ago:

Pension spending will keep exploding. That’s because California’s public pension funds still have inadequate ratios of assets to liabilities despite more than $200 billion of pension contributions and a doubling of the stock market since 2013-14.

Pension reform is not the only thing I got wrong. I thought it would be even easier to terminate California’s unnecessary spending on other post-employment benefits (OPEB), especially after the creation of Obamacare and that program’s generous federal healthcare subsidies, but LAUSD alone is spending $365 million on OPEB this school year. Together, pensions and OPEB consume one of every six LAUSD dollars, leaving that much less for classrooms and salaries. 

Author(s): David Crane

Publication Date: 1 Dec 2023

Publication Site: Govern for California

‘Worse Than People Can Imagine’: Medicaid ‘Unwinding’ Breeds Chaos in States

Mary Pat Campbell

Link: https://kffhealthnews.org/news/article/medicaid-unwinding-disenrollment-redetermination-state-delays/

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Seven months into what was predicted to be the biggest upheaval in the 58-year history of the government health insurance program for people with low incomes and disabilities, states have reviewed the eligibility of more than 28 million people and terminated coverage for over 10 million of them. Millions more are expected to lose Medicaid in the coming months.

The unprecedented enrollment drop comes after federal protections ended this spring that had prohibited states from removing people from Medicaid during the three pandemic years. Since March 2020, enrollment in Medicaid and the related Children’s Health Insurance Program had surged by more than 22 million to reach 94 million people.

The process of reviewing all recipients’ eligibility has been anything but smooth for many Medicaid enrollees. Some are losing coverage without understanding why. Some are struggling to prove they’re still eligible. Recipients and patient advocates say Medicaid officials sent mandatory renewal forms to outdated addresses, miscalculated income levels, and offered clumsy translations of the documents. Attempting to process the cases of tens of millions of people at the same time also has exacerbated long-standing weaknesses in the bureaucratic system. Some suspect particular states have used the confusing system to discourage enrollment.

Author(s): Phil Galewitz and Katheryn Houghton and Brett Kelman and Samantha Liss

Publication Date: 2 Nov 2023

Publication Site: Kaiser Health News

PREPA bond parties make offer and file suits

Mary Pat Campbell

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202311131617SM______BNDBUYER_0000018b-ca27-d799-afbf-dbf739470092_110.1

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Puerto Rico Electric Power Authority bond parties that oppose the Oversight Board’s proposed debt deal filed suits challenging part of the deal, asked for compensation for Puerto Rico central government’s actions since March 2022 and proposed an alternate bond deal.

The parties filed the suits this weekend in the U.S. District Court for Puerto Rico and filed an informative motion Friday in the bankruptcy telling U.S. District Judge Laura Taylor Swain about their bond deal offer.

GoldenTree Asset Management and Syncora Guarantee sued Puerto Rico’s central government for actions taken since March 2022 to interfere with PREPA’s ability to pay bondholders. The court has yet to appoint a judge in that case.

The bond parties allege the commonwealth government has manipulated PREPA’s fiscal plans and budgets to deprive the bondholders of their claim on the authority’s revenues and depress the value of the bonds.

The board rejected former Oversight Board member Justin Peterson’s suggestion to use commonwealth financial surpluses for PREPA because the commonwealth didn’t owe the authority money.

Author(s): Robert Slavin

Publication Date: 13 Nov 2023

Publication Site: Fidelity Fixed Income/Bond Buyer