how to and how not to solve the u.s. fiscal crisis/media/files/msb...•eliminating “fraud, waste...
TRANSCRIPT
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1
How To – and How Not To –
Solve the U.S. Fiscal Crisis
Michael H. Granof
The University of Texas
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Key Themes
• We’re in serious trouble; need
fundamental reforms
• U.S. of 2012 is not the same as U.S. of
1950
• Problems are “holistic” – We’re a nation of
intergovernmental, corporate and not-for-
profit interdependences
• No way to grow our way out
• Eliminating “fraud, waste and abuse” won’t
do it
.
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Key Themes
• To solve our long-term problems we first
have to solve the short-term ones
• We’re going to have to make critical
choices as to public vs. private goods
• Most popular remedies may, at best, solve
one problem, but will likely exacerbate
others
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Difference between budget and net cost
per financial statements
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Difference between budget and net cost
per financial statements
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How reliable are the numbers
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Government’s net position
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Percent of Debt Held by the Public
Owned by Foreigners (1987-2010)
This slide taken from a presentation by Robert Bixby, as part of the Concord Coalition’s “Fiscal Solutions” Tour (February 9, 2011, Austin TX) Source: United States Treasury Department, Treasury Bulletin, Table OFS-2, December 2010.
Per
centa
ge
of
Ow
ner
ship
of
Publi
cly-H
eld D
ebt
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Where the Money Goes
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Statement of net cost
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Primary deficit projections
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Primary deficit projections
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Projection of Deficits
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Projections of long-term debt
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Change in Net Position
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Statement of Social Insurance
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Statement of Social Insurance
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Statement of Social Insurance
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OASDI Will Run Out by 2036
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Part A as a % of GDP
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Part A will run out by 2024
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Part B and D – transfers in
dollars
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Part B and D as % of GDP
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Why Projections May Be
Unrealistic
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Why Projections May Be
Unrealistic
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Contingencies
• Pension Benefit Guarantee Corp.
– $250 B (vs.$190 B in 2010)
• Federal Deposit Insurance Corp.
– $16.5B (vs.$34.2 B in 2010)
• Fannie Mae and Freddie Mac
– $316B (vs. $360 B in 2010)
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Other Concerns
• Consumer Debt -- $2.4 trillion ($7,800 per
capita), excluding real estate
• Decline in manufacturing– 25% of GDP in
early 1980’s to 11% today
• Focus on financial sector (2.1% of GDP in
1950 vs. 8.4% today)
• Trade deficit – improved owing to
recession by still larger than it ever was
before 1999
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Truth and Consequences:
Balanced Budget Amendment
• Economic “Theory”
• Cash vs. Accrual Basis
• Capital vs. Operating Budget
• Budget vs. nonbudget costs
• Budgeted vs. Actual Costs
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Truth and Consequences:
Reduce Educational Expenditures
• Secondary Education – OECD Ranking
Out 34 countries U.S. Ranks:
– Reading – 14th
– Science – 17th
– Mathematics – 25th
• Post Secondary
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Truth and Consequences:
Devolve Costs to States
• 27-32% of state revenues come from the
federal government
• State revenues continue to Improve (grew by
6.1% in 3rd quarter of 2011) but have not yet
offset losses of the recession
• But recovery is slow
• Increasing Medicaid enrollment (8.5% in
2010)
• Pension and OPEB remain a major threat
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29 States Face Shortfall for
Fiscal 2013
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Truth and Consequences:
Reform State Pensions -- $1 Trillion+ Gap
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Truth and Consequences:
Switch to Defined Contribution Plans
• Defined contribution plans are more
efficient that defined benefit plans
• Average 401K balance of employees in
their 60s with more than 30 years with
employer is only $210,457
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Truth and Consequences:
Other Pension Reforms – Low Hanging
Fruit
• Eliminate Spiking
• Eliminate Early Retirement
• Eliminate Double-Dipping
• Improve Accounting
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Truth and Consequences:
Reduce Compensation of Public
Sector Employees • No question but that public sector wages are less
than those of the private sector
• Controversy is how to measure benefits
– Retiree health benefits are more prevalent in the
public sector
– Public sector workers have greater job security
– Defined benefit plans provide a guaranteed return
• On balance private sector wages are 4% greater Source: Comparing Compensation: State-Local Versus Private Sector
Workers (Center for Retirement Research at Boston College,
September 2011)
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Truth and Consequences:
Cut Expenses on Infrastructure • Aviation D
• Bridges C
• Dams D
• Drinking water D−
• Energy D+
• Hazardous waste D
• Inland waterways D−
• Levees D−
• Public parks and recreation C−
• Rails C−
• Roads D−
• Schools D
• Solid waste C+
• Transit D
• Wastewater D−
Source: The American Association of Civil Engineers’ 2009 Report Card for America’s
Infrastructure
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Truth and Consequences:
Other Potential Measures
• Meaningless gestures such as federal pay
freeze
• Accounting gimmicks (including off-the
balance sheet borrowing)
• Focus on issues of no financial
consequence
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What Can Be Done?
Reform Health Care • Health care represents 18% of economy
• Increased last year at a rate of 9%
• Average Annual Cost for Family Policy is $15,000
• Major impact on corporate and even university costs
• Potential Reforms
– Eliminate Medicare abuse
– Reduce administrative costs
– Encourage switch to electronic records
– Improve delivery of services
– Provide patient incentives for cost reduction
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What Can Be Done?
Reform tax code
• Simplify
• Review all “tax expenditures”
• Raise (lower) rates???
• Increase tax rates when impact on
investment or consumer demand will be
negligible (Short-term)
• Provide incentives for research,
investment and hiring (Short-term)
• Develop targeted stimulus programs
(Short-term)
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What Else Can Be Done?
• Acknowledge that government has to be
part of any solution
• Reform political system
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