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09-28-2010, 10:29 AM   #16
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Growth in spending on health care programs remains the central fiscal challenge facing the nation. CBO projects that if current laws do not change, federal spending on major mandatory health care programs will grow from roughly 5 percent of GDP today to about 10 percent in 2035 and will continue to increase thereafter. (Mandatory programs are those that do not require annual appropriations; the major mandatory health care programs include Medicare, Medicaid, the Children’s Health Insurance Program, and the subsidies that will be provided through the insurance exchanges that will be established as a result of the new health care legislation.)

That estimate includes all of the effects of the recently enacted health care legislation. Although, CBO expects the legislation to reduce federal budget deficits over the first 10 years and in subsequent decades (through its effects on both revenues and spending), it is expected to increase federal spending in the next 10 years and for most of the following decade; by 2030, however, that legislation will slightly reduce federal spending for health care if all of its provisions are fully implemented, CBO projects. (The estimates for the health care legislation that are used in this report are unchanged from the ones that CBO and the staff of the Joint Committee on Taxation published in March, when the legislation was being considered.)

Under current law, spending on Social Security is also projected to rise over time as a share of GDP, albeit much less dramatically—from 5 percent to 6 percent of GDP. (Later this week, CBO will release a report on a number of different policy options for changing Social Security.)

All told, CBO projects, the aging of the population and the rising cost of health care will cause spending on the major mandatory health care programs and Social Security to grow from roughly 10 percent of GDP today to about 16 percent of GDP 25 years from now if current laws are not changed. (By comparison, spending on all of the federal government’s programs and activities, excluding interest payments on debt, has averaged 18.5 percent of GDP over the past 40 years.)

In the report, CBO presents the long-term budget picture under two scenarios that embody different assumptions about future policies governing federal revenues and spending. Budget projections grow increasingly uncertain as they extend farther into the future, so this report focuses largely on the next 25 years.

One scenario, the extended-baseline scenario, adheres closely to current law. That set of policies would result in steadily higher average tax rates because they incorporate the assumptions that most of the tax cuts enacted in 2001 and 2003 expire and that the alternative minimum tax applies to more and more people each year—and because the combination of economic growth and the structure of the tax system generates additional tax revenues as a percentage of income. Those rising rates, combined with the tax provisions of the recent health care legislation, would push total revenues to 23 percent of GDP by 2035—much higher than has typically been seen in recent decades—and to larger percentages thereafter. At the same time, government spending on everything other than the major mandatory health care programs, Social Security, and interest on federal debt—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. Despite those substantial revenue increases and constrained spending for a portion of the budget, the rising costs of health care programs and Social Security would lead to continued budget deficits, and federal debt held by the public would grow from an estimated 62 percent of GDP this year to about 80 percent by 2035.

The budget outlook is much bleaker under the alternative fiscal scenario, which incorporates 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. In this scenario, CBO assumed that Medicare’s payment rates for physicians would gradually increase (which would not happen under current law) and that several policies enacted in the recent health care legislation that would restrain growth in health care spending would not continue in effect after 2020. In addition, under the alternative scenario, spending on activities other than the major mandatory health care programs, Social Security, and interest would fall below the average level of the past 40 years relative to GDP, though not as low as under the extended-baseline scenario.

More important, CBO assumed for this scenario that most of the provisions of the 2001 and 2003 tax cuts would be extended, that the reach of the alternative minimum tax would be kept close to its historical extent, and that over the longer run, tax law would evolve further so that revenues would remain at about 19 percent of GDP, near their historical average.

Under that combination of policy assumptions, federal debt would grow much more rapidly than under the extended-baseline scenario. With significantly lower revenues and higher outlays, debt would reach 87 percent of GDP by 2020, CBO projects. After that, the growing imbalance between revenues and noninterest spending, combined with spiraling interest payments, would swiftly push debt to unsustainable levels. Debt as a share of GDP would exceed its historical peak of 109 percent by 2025 and would reach 185 percent in 2035.

Neither of those scenarios represents a prediction by CBO of what policies will be in effect during the next several decades—but these projections, encompassing two very different sets of policy assumptions, provide a clear indication of the serious nature of the fiscal challenge facing the nation.

Nobody can see into the future with 100% certanity, true, but the insurance industry, for example, has tools that allow them to make predictions. The above is what the CBO tells us on this matter.

It comes down to this: demographically, there will be a lot more non-working elderly people using up government entitlements. Social security will grow some, as a fraction of projected GDP, but medical costs will explode. (And if this is what the government is looking at, us individuals, if things remain as is, are looking at a similar or greater explosion in cost - of insurance, of medicine, of non-covered procedures, etc etc.)

It does look ugly. Reality, as it now stands, is somewhere between their rosy outlook, and their disaster scenario. That is, the tax cuts will likely be extended etc, but cost controls on medical expense won't expire.

"More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly" - Woody Allen, NY Times Op Ed August 10, 1979

09-28-2010, 10:36 AM   #17
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QuoteOriginally posted by jeffkrol Quote
consider that the cost of extending the Bush tax cuts for individuals who make more than $200,000 annually is roughly equivalent to the cost of guaranteeing solvency the next 75 years.
The tax code is broken too. We need to increase revenue, that means letting the Bush tax cuts expire. I don't think I have ever advocated otherwise.

We need to close the deficit and I don't think spending cuts or modifications to the tax code will be enough by themselves, we need both. Unfortunately, washington is doing neither.
09-28-2010, 10:40 AM   #18
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Congress not helping

QuoteOriginally posted by mikemike Quote
The tax code is broken too. We need to increase revenue, that means letting the Bush tax cuts expire. I don't think I have ever advocated otherwise.

We need to close the deficit and I don't think spending cuts or modifications to the tax code will be enough by themselves, we need both. Unfortunately, washington is doing neither.
Actually I agree.... all expire OR upper level expire.. I'm not opposed to either.
NOW stuff like this certainly is not helping:
Founding Fathers would be horrified at today’s Senate | Jay Bookman
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McConnell, you see, is much too accommodating for DeMint and others like him. In the four years that McConnell has served as Republican leader, they have turned to the filibuster to block Senate votes a mere 257 times, which is hardly nine times more than the total from 1919 to 1960.

And with more than 100 vacancies on the federal judiciary, a vacancy level that is making it difficult to conduct court business, the Senate has confirmed “fewer judges … during President Obama’s first 20 months in office than during any administration since Richard Nixon’s,” which further proves that McConnell is an Obama lackey.

And just to be clear: Filibusters, holds and other devices used to block votes in the Senate are not constitutional provisions. To the contrary, the Founding Fathers who drafted the Constitution distrusted requirements for a legislative supermajority, and limited their use to only a handful of very specific cases and well-defined cases, such as passage of treaties, impeachment and removal of a member.
Ezra Klein - Did Jim DeMint just take control of the Senate?
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What is Sen. Jim DeMint doing?

Senate staffers I spoke to weren't exactly sure -- but whatever it is, they're really not happy about it. "This is really, really, really, really, really, really bad," one said. "In a precedent-setting institution like the U.S. Senate, letting one person anoint themselves king is not a good idea."................What's riled so many in the chamber, however, is that DeMint is turning that preference into a demand. Given the power that unanimous consent affords to individual senators, the chamber's functioning is always fragile. It relies on 100 egotistical people with differing procedural preferences to compromise with their leadership and their colleagues. That's what you see in Coburn and McCaskill's bill: an effort to get enough senators behind them to make this the new rule.

DeMint, by contrast, is saying that if this is not the new rule, he won't let the Senate vote on these bills before recess. That's a challenge to the Senate, of course, and to the Democratic leadership. But it's most directly a challenge to the Republican leadership, who've argued that the Democrats don't give them time to read the bills, but haven't demanded a change in the underlying rules. By making news with a hard-line stance on the rule, he's highlighting the Republican leadership's hypocrisy on the point.
09-28-2010, 10:43 AM   #19
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QuoteOriginally posted by Nesster Quote
Social security is a 'regressive' tax because the 'marginal rate' goes to 0 when the maximum income limit is reached.
I am saying that by design social security should not be considered a tax at all. You are buying an annuity on layaway. The only odd thing about it is that you cannot control how large you want that annuity to be by contributing more or less than the ~12% of your income to the program. I wouldn't see any problem with them letting someone who earns $50,000 contribute an extra 12% of their salary and receive benefits equivalent to someone who earns $100,000 and contributes only the minimum.

09-28-2010, 10:49 AM   #20
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While it's correct that other people are involved in anyone's becoming a millionaire, it's not entirely a myth as very few people ever take the risk to step out and start their own business. The odds are against you and most fail. Those who have become millionaires will admit to some failures along the way but even after failure, they kept trying.
09-28-2010, 11:12 AM   #21
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QuoteOriginally posted by reeftool Quote
While it's correct that other people are involved in anyone's becoming a millionaire, it's not entirely a myth as very few people ever take the risk to step out and start their own business. The odds are against you and most fail. Those who have become millionaires will admit to some failures along the way but even after failure, they kept trying.
That is indeed true - the point I was trying to make is that regardless of original set-up, some people will make it to the top of the heap in any circumstance.

The other side of the coin is that nobody makes it in isolation; a society that provides a stable environment, infrastructure, and a decent environment for investment helps these people get to the top of their field - and in many cases, reap the financial rewards.

Let's take symphony orchestras - the classical music business - as a thought experiement. The big stars making the big money are the conductors and the soloists.

However, if the financial rewards were such that the big name conductors and soloists made 99% of the money, the means for their greatness and ability to make the money eventually would be limited by the sorry state of the orchestras and the also-rans, the 100 or 1,000 would be conductors or soloists.

The famous conductor can evoke great music from the orchestra, and sell tickets and records. But the conductor understands that the musicians in the orchestra also need to be paid well enough to make playing in the orchestra their first priority (instead of waiting tables or teaching 10 year olds to play violin).

The free marketer insists that the conductor earned his money and should be able to make as much as he can, and that in a market economy the orchestra members will wind up getting paid their worth. Sounds good, until one sees that the orchestra members haven't received a raise in 10 years, while the conductor's pay has increased 17 fold. Soon enough those European (and Chinese!) orchestras are out-playing and out-earning this American symphony orchestra.

A wise conductor will understand this and - while making his money - he moderates his voraciousness to pay his supporting cast a decent wage.

A foolish politician will insist that the only way we can have a great orchestra - and a great conductor - is to maximize the conductor's pay.
09-28-2010, 11:25 AM   #22
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You could take the example of professional team sports.

Athletes spend years as amateurs playing for nothing in local leagues, high school, and college hoping for a shot at the big leagues. Then 1/1000 get a shot at the big league dream.

If you look at Major League sports it isn't uncommon for superstars to earn 50-100x the league minimum in salary alone, not to mention endorsements.

I don't think the quality of teams has suffered as a result.
09-28-2010, 11:30 AM   #23
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QuoteOriginally posted by mikemike Quote
I am saying that by design social security should not be considered a tax at all. You are buying an annuity on layaway. The only odd thing about it is that you cannot control how large you want that annuity to be by contributing more or less than the ~12% of your income to the program. I wouldn't see any problem with them letting someone who earns $50,000 contribute an extra 12% of their salary and receive benefits equivalent to someone who earns $100,000 and contributes only the minimum.
If it weren't before, it became a tax when the government started using it to fund general revenues and counting the funds against the deficit. Some of those who say the fund is insolvent as early as 2016 count the fact that it must be funded through general revenues starting on that date as the government bonds become due. That was by design in the 1983 tax reforms.

It is hard to find any investment, public or private, that has anything like guarantee of solvency past 2037.

09-28-2010, 11:38 AM   #24
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QuoteOriginally posted by mikemike Quote
You could take the example of professional team sports.

Athletes spend years as amateurs playing for nothing in local leagues, high school, and college hoping for a shot at the big leagues. Then 1/1000 get a shot at the big league dream.

If you look at Major League sports it isn't uncommon for superstars to earn 50-100x the league minimum in salary alone, not to mention endorsements.

I don't think the quality of teams has suffered as a result.
Ah, well played!
09-28-2010, 11:51 AM   #25
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QuoteOriginally posted by mikemike Quote
You could take the example of professional team sports.

Athletes spend years as amateurs playing for nothing in local leagues, high school, and college hoping for a shot at the big leagues. Then 1/1000 get a shot at the big league dream.

If you look at Major League sports it isn't uncommon for superstars to earn 50-100x the league minimum in salary alone, not to mention endorsements.

I don't think the quality of teams has suffered as a result.
One the other side, he/she/they is usually never in a vacuum. their supporting cast adds to the success. quarterbacks usually "reward" linemen (or at least not antagonize them ) in order to insure their success....
Some great sports players fall apart in "systems" not to their liking or expertise. Paying well rarely guarantees success and high paid success means little in a "weak, nonsupporting" system.. like private enterprise in a communist system.....
Granted this breaks down for "single player sports" but that is not really applicable in a social setting....
To add a bit "overpriced" athletes can cause a team to suffer. Rarely has a the best money can buy team (ie the cowboys) actually been the best.... also if the pay disparity gets very large, with a perceived less ROI the "underpaid" can become dis-spirited and indeed cause a team to suffer..so in that sense yes a team can suffer..........
Throw the most talented, highest paid anything in space and watch him become completely WORTHLESS......

Last edited by jeffkrol; 09-28-2010 at 11:57 AM.
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