US Deficit Just Under $1 Trillion, Highest in 7 Years: CBO

US Deficit Just Under $1 Trillion, Highest in 7 Years: CBO

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Plus, 'unsupported' drug price hikes cost Americans billions
Tuesday, October 8, 2019

2019 Deficit Was Just Under $1 Trillion, Highest in 7 Years: CBO

The federal budget deficit for fiscal year 2019 grew to $984 billion, or 4.7% of GDP, the highest since 2012, the Congressional Budget Office estimated on Monday.

The total for 2019 is 26% higher than the 2018 deficit and 48% above 2017 levels. CBO noted that the deficit has now grown as a percentage of the economy for four straight years.

Revenues rose: Revenues in fiscal 2019 totaled just under $3.5 billion, up 4% from 2018, CBO said. Individual income and payroll tax receipts rose by 4% while corporate income taxes increased 12%. Full-year revenues exceeded CBO’s August 2019 projection by $11 billion. Revenues would be expected to rise in a period of solid economic growth and low unemployment.

Spending rose more: Outlays in fiscal year 2019 were $4,446 billion, up $338 billion, or 8%, over 2018. (Excluding the effects of a shift in certain payments in 2018, the increase would have been 7%.) Net interest payments on the public debt rose by $52 billion, or 14%, because of higher average interest rates on short-term compared with 2018 and because the federal debt was larger than in the previous year.

The largest spending increase among federal agencies was at the Department of Defense (up $47 billion, or 8%). Outlays for Social Security and Medicare each rose by 6%, while Medicaid spending rose by 5%. In all, the federal government’s outlays exceeded CBO’s August projection by $35 billion.

Actual numbers coming soon: The CBO estimate is based on data from the Treasury Department, which is expected to report the actual annual deficit on Thursday. Treasury’s numbers should be close to CBO’s, though there still may be a chance that the full-year deficit tops $1 trillion.

Why it matters: The full-year numbers are a reminder of the government’s fiscal picture at a time when there’s little appetite among political leaders to bring down rising deficits.

“Federal Reserve Chairman Jerome Powell and other mainstream economists have said the government's fiscal course is not sustainable,” The Washington Examiner says. “Yet there are fewer and fewer calls for legislation in Congress by Democrats or Republicans to attempt to reduce the federal budget deficit. Fiscal hawks have acknowledged that their calls for deficit reduction are going ignored.”

At the libertarian site Reason, Peter Suderman writes that the rising deficit represents a broken promise by President Trump — and one that congressional Republicans who howled about deficits under President Obama have been content to ignore. “Republicans in Congress have reacted with muted concern at best, and more like a collective shrug,” Suderman says. “Trillion-dollar deficits under a Democrat were a national emergency. Trillion-dollar deficits under Trump are no biggie. It's almost like the real problem, for many Republicans, wasn't the deficit.”

Why Huge Deficits Could Be Here to Stay

Even as annual deficits climb back toward the $1 trillion mark, “the deficit fear-factor” continues to recede in Washington, says Bloomberg’s Steve Matthews, reporting on a debate organized this week by the National Association for Business Economics. One big reason for the lack of concern is that rising deficits haven’t produced obvious problems for the economy, despite years of warnings from deficit hawks that they would.

Conservatives and moderate Democrats have toed the line on fiscal discipline in large part because they have been convinced that interest rates would soar and damage the economy if the government produced large deficits, Matthews says. But contrary to expectations, interest rates have fallen even as deficits have moved sharply higher in recent years, with long-term Treasury yields now sitting near record lows.

One result is that more Democrats are rejecting the idea that the U.S can’t afford ambitious social welfare programs such as Medicare for All and are turning to Modern Monetary Theory, the economic school of thought that says that government spending is constrained by inflation, not revenue. “You can see it politically, it’s already happening,” Julia Cornado, a former Federal Reserve economist who runs her own research shop, told Matthews. “The progressive camp is frustrated, they have had it, and are saying ‘You guys are wrong, you have been wrong about everything and now it’s going to be our turn.’”

Most mainstream economists remain unconvinced, however. Cristina Romer, chair of the Council of Economic Advisers under President Obama, warned that there could still be a price to pay for rising deficits. “The idea that ‘let’s have a party now’ and not even be thinking about how much the fiscal situation is predicted to deteriorate because of demographics and health care and long-run trends, is just really deeply irresponsible,” she said.

‘Unsupported’ Price Increases on Seven Drugs Cost $5.1 Billion Over Two Years: Report

Drugmakers over the last two years raised prices on seven widely used medications above the rate of medical inflation and without any new clinical evidence to justify the increases, according to a new report from the Institute for Clinical and Economic Review — and those higher prices cost American patients and insurers an additional $5.1 billion.

  • “Drugmakers weren't hiking prices because their medications were safer or more effective than when they were approved,” Axios’s Bob Herman writes. “They did it because they could.”
  • “Interesting side note on this list - most were facing generic or biosimilar competition - a typical time to jack up prices without adding value,” Erin Fox, senior director of drug information and support services at the University of Utah, said in a tweet.

In an appendix to the report, the drugmakers disputed the findings or disagreed with the methodology behind it.

These are the seven drugs, their manufacturers and the net spending impact of their price changes:

  • Humira (AbbVie): $1.86 billion
  • Rituxan (Roche): $806 million
  • Lyrica (Pfizer): $688 million
  • Truvada (Gilead Sciences): $550 million
  • Neulasta (Amgen): $489 million
  • Cialis (Eli Lilly): $403 million
  • Tecfidera (Biogen): $313 million

Quote of the Day

“What stands in the way of reducing waste [in U.S. health care] — especially administrative waste and out-of-control prices — is much more a lack of political will than a lack of ideas about how to do it.”

– Donald Berwick, a physician and senior fellow at the Institute for Healthcare Improvement, quoted in a New York Times piece on a new study that found that about 25% of American health care spending is wasteful.

States Get a Third of Their Revenue from Uncle Sam

The federal government provided 32.4% of all state revenues in the 2017 fiscal year, according to a new analysis by the Pew Charitable Trusts. That’s roughly in line with the year before, when federal payments amounted to 32.6% of state revenues, but well above the 20-year average recorded from 1978 to 1997, when the federal government provided about 25% of state revenues.

Federal dollars play an increasingly important role in state budgets, driven in large part by rising health care spending, as the report makes clear:

“Historically, the federal share of 50-state revenue has ranged from about one-quarter to one-third. The highest shares occurred just after the Great Recession, when a temporary influx of federal economic stimulus dollars and falling state tax revenue caused the federal share of states’ revenue to reach 35.5 percent in fiscal 2010 and 34.7 percent in fiscal 2011. The third-highest share was in fiscal 2016, largely because of growth in Medicaid grants to states. Medicaid accounts for about two-thirds of federal grants to states.”

The largest single source of revenues for the 50 states in 2017 was taxes, including income, sales and property taxes, which together provided 48% of the overall revenue pool. Service charges, including tolls, tuition fees and hospital charges, contributed about 12%. Miscellaneous charges, such as fines and fees from property sales, made up the remaining 8%.

Seven states received more money from the federal government than from any other source: Alaska, Arizona, Louisiana, Mississippi, Montana, New Mexico and Wyoming.

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