Category Archives: Congressional Budget Office

Nebraska Voters, We Are Nearing a National Crisis …

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Our debt is growing so fast that we will soon be bankrupt if we don’t change what we are doing. We have simply got to figure out how to fix the debt. I am Jack Heidel, a retired UNO math professor and not looking for a new career.  I am confident that I can make a difference in one six year term in the U.S. Senate. Please vote for me on May 15 in the Republican Primary.

This is the text of a TV commercial which begins running this weekend in the Omaha and Lincoln areas. It attempts to summarize in one short statement what I have been saying for a long time:

  • Our debt (the public part on which we pay interest) is now 78% of GDP and predicted by the Congressional Budget Office to reach almost 100% in the next ten years. Annual deficits are growing rapidly and will be back to almost $1 trillion by next year.
  • The incumbent Deb Fischer is totally ignoring the debt and has actually voted twice recently to make it worse than it already is. The new tax law, for all of its good individual features, will increase the debt by $1 trillion over ten years, even after new growth is taken into account. The new two year budget, also voted for by Fischer, increases the debt by another $1 trillion.
  • Fixing the debt doesn’t mean paying it off but rather shrinking annual deficits way down so that they are less than the rate of growth of GDP. Then the debt will begin to shrink as a percentage of GDP just as it did after WWII.
  • Entitlement reform and, in particular, the high cost of American healthcare, is the only practical way to deal with the debt problem. All of us, as healthcare consumers, must have more personal responsibility for holding down the cost of our own healthcare.

Conclusion. I am so alarmed by our enormous and out-of-control debt that I am challenging an incumbent U.S. Senator in a primary election. If you live in Nebraska I would appreciate your support!

Why We So Badly Need New People in Congress

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I am a candidate for the U.S. Senate in the May 15 Republican Primary against the incumbent Deb Fischer because she is ignoring our enormous and out-of-control national debt. In fact she has voted twice recently to make our debt even worse than it already is.  I am referring to both the new tax law which, in spite of its good individual features, raises our debt by $1 trillion over the next decade and also the 2018 budget agreement which increases the debt by a similar amount.
The nonpartisan Congressional Budget Office estimates that this year’s budget deficit will be over $800 billion and next year’s at $981 billion, almost back to the trillion dollar level seen for four years after the Great Recession.
The likewise nonpartisan think tank, the Committee for a Responsible Federal Budget, concludes that over half of next year’s huge deficit is the direct result of legislation passed since 2015 and signed by President’s Obama and Trump, as shown in the chart.


In more detail:

  • The largest contribution to next year’s deficit, $230 billion, is from the December 2017 tax bill.
  • The next largest contribution is $190 billion from the 2018 Bipartisan Budget Act.
  • But the 2015 doc fix and tax extender bills also add $100 billion to the 2019 deficit.

As CRFB says, “It is no longer enough for Congress to ‘do no harm’ in the near term and ensure solvency of entitlement programs over the long term. Fixing our debt will now require reversing the harm which has already been done with tax cuts and spending increases.”

Conclusion. Historically the Republicans have been the party of fiscal responsibility. But now the GOP is completely in charge and annual deficits are increasing rapidly.  Is it not very clear that big changes are needed in who represents us in Washington?

Why Millennials Should Support Me for U.S. Senate II. Our Appallingly Bad Fiscal Outlook

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I am a candidate in the Nebraska Republican Primary for U.S. Senate against the incumbent Deb Fischer because she is ignoring out enormous and out-of-control national debt. In fact she has voted twice recently to make the debt much worse than it is already.
In my last post I made the case that debt is by far the biggest long term problem facing our country and that it will be a huge burden on future generations, starting with the millennials.
A new report from the Congressional Budget Office shows just how bad the problem really is:

  • To just stabilize our debt at the current level of 78% of GDP (for the public part on which we pay interest) will take a savings of at least $5.4 trillion over the next ten years. To achieve even this modest goal would require reducing annual deficits by roughly 50%.

  • To balance the budget by 2028 (allowing ten years to accomplish this) would take a savings of least $7 trillion over the next decade.  This would mean reducing annual deficits by $700 billion per year on average, an extremely difficult task.

Such numbers as these show how frightfully serious our fiscal situation is.   Our national leaders should be working hard to focus the country’s attention on this awful problem and how we are going to address it. Instead they won’t even come together to negotiate sensible annual budgets.

Conclusion. How will our debt problem be resolved? Will it take a new crisis to wake up the country to our extremely dire fiscal situation?  I prefer to be optimistic and hope for sensible action to head off a new crisis.  But there is absolutely no guarantee that common sense will prevail.

What Do I Mean When I Say I’m a Fiscal Conservative?

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Americans are a very fortunate people. We are protected by two oceans and friendly neighbors to our north and south.  We are the strongest country in the world, both economically and militarily.  We provide the world with cutting edge leadership in many areas such as technology, finance, energy production, scientific research and university education.
In short we live in a very successful, prosperous and complex society.  We do have serious problems but they are being addressed by our elaborate legal and governmental processes and structures. Slowly but surely life in America is getting better and better all the time.
Given our country’s size, complexity and dominance in the world, it is inevitable that government will also grow in size and structure in order to take on new responsibilities. It is completely unrealistic to think that we can return to a more limited form of government that existed in the past.
When I say, then, that I’m a fiscal conservative, I am not advocating for less government but merely that we pay for the government that we have, in other words, act in a fiscally responsible manner.


And we are not doing this at the present time:

  • Our national debt, now 77% of GDP (for the public debt on which we pay interest), is the highest since right after WWII. It is predicted by the Congressional Budget Office that it will keep steadily getting worse without major changes in current policy.
  • The urgency of the debt problem is based on the fact that interest rates are now so low that it is almost “free” money. But interest rates will inevitably return to more normal historical levels and, when this happens, interest payments on the debt will skyrocket. Eventually this will lead to a Fiscal Crisis, much worse than the Financial Crisis of 2008.
  • The solution to this problem need not be drastic. Federal spending is growing by 5% per year while tax revenues are growing by 3% per year. If we would just hold spending increases down to 2.5% per year, the federal budget would be balanced in a few years and our debt would start shrinking as a percentage of GDP.

Conclusion. Spending restraint, with very few actual spending cuts, is all that it will take to put our debt problem on a path to solution. Surely we are capable of acting in a fiscally responsible manner like this!

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Getting Started on Fiscal Responsibility

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This blog is devoted to fiscal and economic issues facing the U.S. Both the Trump Administration and the Democrats are working to speed up economic growth and I believe there is a good chance that this will happen.
However there is not nearly enough interest in addressing an even bigger problem:  our national debt, is now larger, in relative terms, than at any time since the end of WWII.


This is a very difficult political problem because elected representatives would much rather say yes than say no to new programs and more spending.  It is even more difficult to try to restrain the growth of, let alone cut, existing programs.
The Congressional Budget Office has recently published a long list of possible ways to decrease federal spending (or increase federal revenues) over the next ten years. It is interesting to pull out several of these suggestions to see what can be accomplished:

Program                                                                                              10 year savings

  • Eliminate concurrent receipt of retirement pay and disability              $139 billion for veterans.
  • Use an alternative measure of inflation to index mandatory               $182 billion
    programs.
  • Reduce funding for International Affairs Programs.                            $117 billion
  • Limit highway funding to expected highway revenues.                          $40 billion
  • Reduce the size of the federal workforce through attrition                     $50 billion
  • Reduce funding for grants to state and local governments                    $56 billion
  • Impose caps on federal spending for Medicaid                                    $680 billion
  • Increase premiums for Medicare Parts B and D from 25% to              $331 billion 35% of cost.
    Total     $1595 billion

Conclusion. This brief list of budget restraints would reduce deficit spending by about $160 billion per year.   This is significant but not nearly enough compared to the projected deficit of $685 billion for just the 2017 fiscal year alone.  About 2/3 of the savings come from the two entitlement programs of Medicare and Medicaid. The idea here is to give specific examples of the sort of changes which will be necessary to seriously confront our debt problem.

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The Need to Put Medicaid on a Budget II. Our Growing Debt

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Most of the controversy generated by the healthcare bill passed by the House, and the one now being considered by the Senate, concerns the way Medicaid is funded. The current system whereby states are reimbursed by the federal government for a percentage (national average 53%) of their Medicaid expenses would be replaced by putting the federal contribution on a strict per-capita basis, indexed to the annual rate of inflation.
Medicaid is a vast program now serving 73 million low-income and disabled Americans and is doing a good job especially for the elderly and the disabled with special needs. But it costs the federal government nearly $400 billion per year and the cost is growing rapidly.  It is essential to get open-ended Medicaid spending under much better control and one good way to do this is to put the federal contribution on a fixed budget.


The Congressional Budget Office has just issued its latest Budget and Economic Outlook report.  It shows the ever-worsening fiscal condition for the U.S., unless current policy is changed.


For example:

  • The deficit for 2017 is predicted to be $693 billion or 3.6% of GDP.
  • Deficits will grow dramatically over the next decade with trillion dollar deficits returning by 2022.
  • Debt held by the public (on which interest is paid) will grow by $11.2 trillion between now and 2027, from $14.3 trillion today.
  • Spending will grow from 20.9 percent of GDP in 2016 to 23.6 percent in 2027, while revenues will rise from 17.8 percent in 2016 to 18.4 percent by 2027.
  • The vast majority of spending growth over the next decade (83%) is the result of rising costs for health care, Social Security, and interest on the debt.

    Conclusion.       The national debt is growing much too fast. The only way to turn this dangerous situation around is to reform all entitlement programs, including Medicaid, to get their costs under much better control.

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Objections to the Trump Budget

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President Trump’s budget for 2018 presents a plan to achieve a balanced federal budget in ten years, by 2027.  This is a highly desirable goal but there is much skepticism about whether or not his budget is realistic, see here and here.


My thoughts on this important matter are:

  • Fiscal restraint is a common sense necessity, and is not austerity. Our public debt (on which we pay interest) now stands at 77% of GDP, the highest since WWII, and will continue to increase without major changes in public policy. Right now the debt is almost “free” money because interest rates are so low. As interest rates inevitably go up in the near future, interest payments on the debt will skyrocket and become a huge drain on our federal budget and make annual deficits even worse than they already are.
  • 3% annual GDP growth, as assumed in the Trump budget, is almost certainly too optimistic. However the Trump Administration is on track to achieve significant deregulation  and averaging 2.5% growth over the next ten years is doable.
  • Insufficient entitlement reform is a big drawback for the budget. It will be very difficult, essentially impossible, to achieve and sustain a balanced budget without modifying Social Security and Medicare to make them self-financing. Turning Medicaid into a block grant program to the states would finally put Medicaid on a sensible budget.
  • Requiring able-bodied welfare recipients to work is a good idea and is the basis for cutbacks in social welfare programs.
  • The Departments of State, Interior, Education and Justice should be able to absorb cutbacks and operate more efficiently.

Conclusion. There are many good initiatives built into the Trump budget. Unfortunately there are also some invalid assumptions and glaring omissions.  It does not represent a bona fide plan to balance the budget in ten years but at least it recognizes the importance of doing so.

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How Fast Can the Economy Realistically Be Expected to Grow?

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Both President Trump and the Republican Congress want the economy to grow faster than the slow 2% growth which we have experienced since the Great Recession ended in June 2009. The Congressional Budget Office predicts (see chart below) that growth will average just 1.8% over the next ten years under current policy.


The Committee for a Responsible Federal Budget, using CBO data, believes that several policy changes can help boost growth on an annual basis as follows:

  • Immigration reform, .3%, by increasing the number of workers.
  • Tax reform, .18%, if well designed. However, deficit-financed tax reform would ultimately harm growth.
  • Increase the Social Security retirement age by two years, .15%, by keeping people in the workforce longer.
  • Reduce deficits by $4 trillion over ten years, .1%. This is enough deficit reduction to put our debt on a sustainable, downward path.
  • Continue expanding energy production at the shale boom level, .09%.
  • Repeal of the Affordable Care Act, .08%, will keep more people in the workforce.
  • Ratifying the Trans Pacific Partnership, .01%, by increasing foreign trade.
  • Increasing public investment in infrastructure, education and research by $40 billion per year, .1%.

Note that all of these changes would increase growth by an estimated .83% of GDP per year. Added to the 1.8% base this yields a growth rate of 2.63%. Unfortunately, many of these reforms are unlikely to occur.  On the other hand, various deregulatory actions being taken by the Trump administration are likely to increase growth by an unknown amount.

Conclusion. It is reasonable to anticipate that growth can and will be speeded up to about 2.5% of GDP per year under the Trump administration.  Along with the tight labor market now developing (current unemployment rate of 4.4%), blue-collar and other middle class workers should continue to receive decent pay increases for the foreseeable future.

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“The Federal Government’s Budget Is on the Road to Hell”

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So declared Douglas Holtz-Eakin, former director of the Congressional Budget Office, in March 2011.  At the time, federal debt held by the public (on which we pay interest) stood at 63% of GDP.  Now, just six years later, that ratio stands at 77% and is projected by the CBO to reach 150% by 2047 if current laws remain unchanged.


The CBO has just released its latest (March 2017) report and the debt situation continues to get worse:

  • The interest rate on federal debt has averaged 5.8% over the past 60 years. It is now at an unusually low 2% and the CBO projects that it will climb no higher than 4.4% by 2047. Even with such a conservative projection, the total cost of servicing the debt will rise to almost 1/3 of federal revenue by 2047, compared with just 8% today.

Here are some of the dire consequences of such a large and growing debt:

  • Reduces national savings and income in the long term because more of people’s savings would be used to buy Treasury securities, thus crowding out private investment.
  • Increases the government’s interest costs and thus makes it much more difficult to lower deficits.
  • Reduces the ability to respond to unforeseen events. For example, when the Financial Crisis hit in 2008, public debt stood at 40% of GDP and lawmakers had the flexibility to respond to the crisis with both TARP and a fiscal stimulus. Such costly actions will be much more difficult next time.
  • Increases the chances of a new fiscal crisis if investors become less willing to finance more federal borrowing or demand higher interest rates in return.

Conclusion. The more debt that accumulates and the higher interest rates rise, the more painful it will become to implement a solution. What is really scary is that nothing will be done until a new crisis occurs.  Then we will be forced to act and it will be very painful indeed.

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The GOP Can Do Better on Healthcare Reform

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The Congressional Budget Office has just released its analysis of the GOP Healthcare Reform Bill, the American Health Care Act, designed to replace the Affordable Care Act.  The Committee for a Responsible Federal Budget has summarized its main features as follows:

  • The AHCA would reduce federal deficits by $337 billion over the next ten years.

  • CBO estimates that there would be 24 million fewer Americans with health insurance under the AHCA as compared with the ACA by 2026, with 14 million fewer Medicaid beneficiaries (see the above chart). The decrease in individuals with employer coverage would result from dropping the employer mandate. The decrease in individual coverages would result from smaller subsidies under the AHCA.

I have previously summarized the AHCA pointing out its strengths and weaknesses:

  • Strengths: discards mandates, fewer regulations, turns Medicaid into block grant program to states.
  • Weakness: huge discrepancy between lavish tax treatment of employer-paid care (no upper limit on tax exemption) and much stingier tax credits for individuals

The U.S. now spends 18% of GDP on healthcare, both public and private, almost twice as much as any other developed country. Such high costs are a big drain on government revenue as well as a drag on economic growth.  The AHCA should take a much bigger step towards controlling the cost of healthcare.  Block granting Medicaid to the states, and giving the states more flexibility in implementation, definitely helps, but it is not enough.
But basic fairness as well as fiscal responsibility requires a major cutback in the tax exemption for employer provided care.  This is essentially a subsidy to employees.  It should have no greater value than the refundable tax credit provided to individuals who purchase health insurance on their own.

Conclusion. A free market healthcare system allows more individual choice and delivers more medical innovation. But our current system is too expensive to be sustainable for much longer.  Either the GOP fixes this problem or a single-payer system will be the inevitable result.

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