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Tag Archives: federal budget

Our story starts with Ida Mae Fuller.

At 65, in 1940, Ms. Fuller got the first US monthly Social Security retirement check for $22.54. In 1941, she got $22.54 each month. In 1942, 1943, and 1944 she still got her $22.54. Until 1950, she received $22.54 a month.

You can see that Ida May Fuller had a problem. Each year, her check bought less. In 1949, she needed a monthly check for $38.32 to have the same buying power.

Realizing that beneficiaries’ purchasing power was plunging, in 1950 Congress gave Social Security its first taste of a COLA, a Cost-Of-Living-Adjustment. Since then, at first through special legislation and then automatically based on the CPI, Social Security check amounts have usually risen.

And that takes us to Social Security’s problem. A pay-as-you-go system, current workers pay current beneficiaries. With the baby boomer population bulge, today’s wage earners just won’t provide enough money. Add to that the pressures of a ballooning national debt and you get the need to control the future cost of Social Security.

One way is through COLAs. Just diminish any cost of living increase and the checks can be smaller. Proposed by President Obama, a chained CPI is one way to create these lower COLAs. For the regular CPI, the prices of close to 80,000 goods and services ranging from hockey gloves, to navel organges to hotel rooms are checked regularly. Month to month, exactly the same item is monitored. With a chained CPI, the approach recognizes more realistic buying habits. For example, by recording discount buying, it inputs lower prices. (Please see AARP graph, below.)

Opposing the chained CPI proposal, elderly beneficiaries point out that it does not reflect how they spend. Living in smaller apartments, they do not buy in bulk from a Costco. Unable to drive, they do not search for discounts. Older, they are uneasy with new technology. And finally, unlike a typical market basket, medical spending is a sizable chunk of their spending.

This PBS Paul Solman video provides an excellent explanation.

Just like Mayor Bloomberg has had difficulty downsizing COLAs, so too might President Obama. The Mayor is talking about sugary drinks and the President about Social Security. Both though are talking about what government can give us and what it can take away.

Sources and Resources: For the complete picture, combining an excellent Bloomberg article with the PBS Paul Solman video, you can grasp the whole chained CPI issue. Then you can add this Social Security Administration site for historical facts and COLA stats. For example, during 1980, the COLA was 14.3%. For 2010 it was 0.0%. This year, the COLA will be 1.7%. Finally, for the specific impact of a chained CPI, you might also look at the AARP (American Association of Retired Persons) report that is the source of the following graph:

CPI-E is a market basket based on typical elderly purchases. C-CPI-U is chained CPI. CPI-W is the current CPI market basket used to calculate social security COLAs.

CPI-E is a market basket based on typical elderly purchases. C-CPI-U is chained CPI. CPI-W is the current CPI market basket used to calculate Social Security COLAs.

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Today’s sequester is not the first.

Just like now, in 1985, cutting the deficit was popular…in theory. The question, though, was how to get legislators to do it. The answer was Gramm-Rudman (aka the Gramm-Rudman-Hollings Act or the Balanced Budget and Emergency Deficit Control Act of 1985). One of its authors, Warren Rudman, called the act, “a bad idea whose time has come.”

The goal of Gramm-Rudman was to intimidate lawmakers into acting by making the alternative much worse. Yes, it is all about BATNA, Best Alternative To a Negotiated Agreement. Targeting 1993 as the year that the budget had to be balanced, a rewritten Gramm Rudman listed annual automatic cuts that would kick in if the Congress did not pare spending down gradually.

Did it work? If we rewind to 1990, we could say, “Yes.” Most analysts say that the first President Bush and the Congress agreed on a 1990 deficit reduction package because of it. Basically, the 1990 deal said “paygo.” Any tax cuts or spending increases? They have to be paid for before they happen. Soon after, Alice Rivlin, President Clinton’s OMB head said, “it isn’t that no one ever thought of adding prescription drugs to Medicare. We just couldn’t find a way to pay for it. There was very real restraint.”

Paygo expired in 2002.

Now, do we have Gramm-Rudman Part 2?

And, just a bit more history:

1. A deficit summary:

Federal Deficits and Surpluses

2. The following CR, Continuing Resolution, from the Congress suspended the 1991 sequester:

NECESSITY TO SUSPEND SEQUESTRATION
Currently, the economy is weakening. The country is sustaining an economic shock made worse by oil price increases. The cost of Operation Desert Shield in Saudi Arabia is putting additional pressure on the deficit. The Congress and the Administration are working to address these problems, but the actions needed to work out this situation have not yet been implemented.

The Balanced Budget and Emergency Deficit Control Act recognizes that when the economy is weak, special circumstances regarding sequestration are required. Provisions included in that Act establish a procedure for the suspension of sequestration in these circumstances. Clearly, the economy has been weakening in the last several quarters. Examples indicative of this weakness are rising unemployment, fewer construction starts, a drop in retail sales, declines in industrial production, and increases in the consumer price index. Reports in the press indicate some regions of the country are already in recession.

The effect of the pending sequestration on domestic programs is massive. It would result in needless impact on a weak economy, if it were implemented, not to mention the impact on the Department of Defense during Operation Desert Shield.

Section 113 of the 1991 CR was what suspended the sequester:

SEC 113. (a) Any order on sequestration for fiscal year 1991 issued before, on, or after the date of enactment of this joint resolution pursuant to section 252 of the Balanced Budget and Emergency Deficit Control Act of 1985 is suspended and no action shall be taken to implement any such order.

Sources and Resources: Here, here and here are articles about Gramm Rudman and the Budget Control Act of 2011. For more on the current sequester, we presented a summary yesterday and here is my source for the Congressional suspension of the 1991 sequester. And for the federal debt, here is an excellent overview.

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The US is again hitting its debt ceiling.

Understanding the sequester means we have to start with the Supercommittee.

Formed during 2011, the Supercommittee was the solution to the debt ceiling impasse. At the time, the Congress refused to pass a debt ceiling increase unless we had a plan to cut spending. So they passed the Budget Control Act (BCA) of 2011 with several spending reduction approaches. The first step was the Supercommittee. Composed of 6 Democrats and 6 Republicans, the committee was supposed to create a deficit plan. If they failed, then the alternative was future automatic cuts.

You know what happened. Because the members of the committee could not agree, the cuts kick in tomorrow, March 1. They target 4 areas that you can remember with DDMM: Defense, Discretionary, Mandatory, Medicare.

And finally, a detail. The sequester hits on March 1, but when? The White House says 11:59 p.m. while the GOP says 12:01 a.m.

DDMM Details:

Sequester Examples

I also hope the following graphs are helpful. The first provides a “macro” perspective while the second, with the specifics, is “micro.”

 

Sequestration Cuts from Heritage.org

From the Washington Post

From the Washington Post

Sources and Resources: To look at additional details about the sequester, you will find this Washington Post article ideal. I used it and a Heritage.org graph and a Post graph  for most of my facts. Also, here is the Budget Control Act of 2011 and here is more detail about the disagreement over when the sequester kicks in.

 

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White House

How much of the federal budget should be spent on the White House?

Abraham Lincoln would have replied, “Not very much.” Commenting on his wife’s purchases he realized, “It would stink in the nostrils of the American people to have it said that the president of the United States had approved a bill over-running an appropriation of $20,000 for flub dubs for this damned old house, when the soldiers cannot have blankets.”

By contrast, Tony Kushner, screenplay writer for “Lincoln” points out in an NPR interview that by revitalizing a rundown White House, Mary Todd Lincoln demonstrated political acuity. She understood that a presentable presidential residence could elevate respect for the nation.

Described in Jean Harvey Baker’s biography of Mary Lincoln, the first lady was a magnificent wheeler dealer. Faced with a “seedy and dilapidated” White House, she started by selecting a loyal Commissioner of Public Buildings who, by law, oversaw her purchases and then presented the bills to the Treasury.

Unrestrained, she and Commissioner Wood brought new china and rugs and drapes and an army of workmen to the White House. Finding only 10 matching place settings of White House dishes, she bought a 190 piece set of Limoges china for $3195. The invoice described it as “fine porcelain dining service decorated with royal purple and double gilt…with the arms of the United States on each piece.” The new damask rug in the East Room was $2500. A bill for French wallpaper was $6800. And that was just the beginning. A 31 room mansion, the White House got new draperies, rugs, paint, wallpaper. Temporarily, Mary and the President had to move to a state guest room because their bedrooms were in disarray with painters, molders and floor waxers.

Meanwhile, the Senate decided not to confirm the first Commissioner of Public Buildings with whom she had formulated her plans. Their new appointee, Benjamin French, though, was just as cooperative. Working with Mary, he got one Congressman to “bury” a White House decorating expense for $4800 in a budget appropriations bill. Telling his boss, the Secretary of the Interior, that it was always done this way, he was able to “redirect” funding for the Capitol and other buildings to Mary through his $500,000 budget. Consequently, money earmarked for gas lamps on Capital Hill instead went to the White House. So too did kickbacks from the White House gardener who padded his budget with extra roses, and bushes and lettuces that he never received. Even selling secondhand White House furniture and manure from the stables, Mary raised extra funds.

$20,000 was a small part of the White House budget in 1861. Based on estimates from the Economic History Association using the Consumer Price Index, a market basket of goods and services that we use to measure price changes, $20,000 in 1861 would have been close to $500,000 today.

We should mention also that Mary Todd Lincoln was not the only first lady to be criticized for her additions to the White House. As a NY Times journalist reminds us, “…the cost of Nancy Reagan’s china ($210,399) was seen as wildly extravagant (though the china was a private donation and considered a necessity…). The Kennedy White House was too French; the Clintons’, too Arkansas…”

Sources and Resources: If you’ve seen “Lincoln,” you will especially enjoy the Tony Kushner NPR Fresh Air interview. His comments about Mary Todd Lincoln started me wondering about how she changed the White House. That took me to the Jean Baker Harvey biography, Mary Todd Lincoln and a NY Times article on First Ladies that ideally complemented the Lincoln facts. Wondering about the purchasing power of $20,000 in 1861, I went to the economic history service.

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The US is again hitting its debt ceiling.

Secretary of the Treasury Geithner just sent Senate Majority Leader Harry Reid a letter.

Noting that in 5 days the US will again have hit the debt ceiling, Secretary Geithner explains that actually, we might have an extra 2 months. In an appendix to his letter, he outlines 4 types of “extraordinary measures” that will let us avoid a debt default for awhile. He adds though, that he is not sure how long he can stretch it because of the uncertainty created by the current negotiations over tax increases and spending cuts. (Ironically, no Congressional tax and spending deal means more time to get a new ceiling.)

Where is the debt ceiling? $16.394 trillion.

Where were we on December 26th? $16.027 trillion.

Some history…

In 1917, Congress decided it could not keep track of every U.S. loan. So, to maintain some control over national finance, they said, “We will decide the maximum amount the U.S. can borrow.” And, from that day onward, whenever necessary, they voted to increase how much the U.S. could borrow. Since 1962, the U.S. Congress has raised its debt ceiling 76 times.

Sources and Resources: Here is Secretary Geithner’s letter and the Treasury Department daily update of US debt totals. For some debt history, John Steele Gordon’s Hamilton’s Blessing The Extraordinary Life and Times of the National Debt is wonderful. Also, this CNN article and these these econlife posts, Debt Ceiling 101 and  Looking at the Debt Ceiling, provide some background and some of the above history.

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