Wonkbook: What you need to know about the CBO’s new report on the deficit

August 28

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(Photo by Andrew Harrer/Bloomberg)

Wonkbook’s Number of the Day: $506 billion. That's the CBO's newest projection for the fiscal year 2014 federal deficit, up slightly from a previous projection but still down significantly from last year's deficit.

Wonkbook’s Chart of the Day: A look at income inequality, hour by hour.

Wonkbook's Top 4 Stories: (1) A mixed fiscal picture from CBO; (2) a potential immigration September surprise; (3) volume turned up in Comcast merger debate; and (4) is Obama really sidestepping the Senate on climate?

1. Top story: Mixed signals on U.S. finances from the CBO

This fiscal year's budget deficit: relatively modest. "The federal government is expected to finish its fiscal year with a relatively modest budget deficit as the gap between revenue and spending continues a sharp decline, the Congressional Budget Office said Wednesday. The improvement in the government’s financial health has shifted political debate in Washington, and arguments on the midterm campaign trail, from the level of federal spending to the uses of that money. It has frustrated economists who argue that the government’s restraint has held back the economic recovery." Binyamin Appelbaum in The New York Times.

Primary source: The CBO's full report.

Video: All you need to know about the federal debt and deficit in 3 minutes.

The 10-year outlook has improved, but that may not last. "The agency has also lowered its 10-year deficit forecast....But that improvement is due primarily to...changes in the way CBO calculates interest payments on the debt....Those improvements could be wiped out, however, once lawmakers get back to work this fall. Simply extending the raft of expired and expiring tax provisions could add nearly $900 billion to deficits by 2024, the CBO said. And if Congress eases automatic budget cuts, known as the sequester, the red ink could swell by as much as $900 billion more by the end of the decade." Lori Montgomery in The Washington Post.

Future deficits still could still be high, CBO warns. "Federal budget shortfalls are projected to rise substantially through the next decade, more than doubling to $960 billion by 2024, forcing higher federal spending on interest payments and limiting lawmakers' flexibility to deal with fiscal challenges, congressional auditors warned Wednesday....The main causes? A rise in Social Security spending for an aging population...expansion of federal subsidies for health insurance...and the growing interest payments on federal debt. These grim projections come despite what the report says is a federal deficit that, for now, is still declining. But that will soon change." Billy House in National Journal.

Lower corporate tax revenue, sparked by uncertainty over tax provisions, helped grow deficit. "Revenues to the government from company tax payments are expected to total $315 billion, down from an estimated $351 billion in April. The bigger budget deficit comes because companies are deferring tax payments while they wait for Congress to decide whether to revive expired tax breaks, CBO officials said. Lawmakers are expected to take up legislation after the November elections to renew through 2015 a mix of 50 temporary tax breaks, known in Congress as 'tax extenders,' that expired at the end of 2013....Businesses see the extension of the tax breaks as necessary while Congress dithers on a broader tax overhaul." Mark Felsenthal in Reuters.

Speaking of corporate taxes, Congress agrees on need to stem inversions. But it still doesn't agree on how. "Sen. Charles E. Schumer (D-N.Y.) said in a statement that he and other lawmakers are now drafting a proposal that would combat the 'egregious cost-cutting ploy' of tax inversion....That proposal, which would limit how companies use the interest payment deduction, could emerge when Congress returns next month, a spokesman said....But Republicans have taken to blaming Burger King’s switcheroo on the U.S. tax code itself, which a spokesperson for Sen. Orrin Hatch, the Senate Finance Committee’s top Republican, decried as arcane and anti-competitive. Hatch, the spokeperson said, is working with other lawmakers on a separate proposal." Drew Harwell in The Washington Post.

Suddenly, Medicare doesn't look like such a budget-buster. "Every year for the last six years in a row, the Congressional Budget Office has reduced its estimate for how much the federal government will need to spend on Medicare in coming years....The changes are big. The difference between the current estimate for Medicare’s 2019 budget and the estimate for the 2019 budget four years ago is about $95 billion....The reduced estimates mean that the federal government’s long-term budget deficit is considerably less severe than commonly thought just a few years ago. The country still faces a projected deficit in future decades...but it is not likely to require the level of fiscal pain that many assumed several years ago. The reduced estimates are also an indication of what’s happening in the overall health care system." Margot Sanger-Katz and Kevin Quealy in The New York Times.

CBO expects 1.5 pct. growth in 2014 thanks to winter blues; deficit within 3 pct. of GDP. "The new assessment was considerably more pessimistic than the Obama administration's....Looking ahead, the CBO said it expected the economy to grow by 3.4 percent over 2015 and 2016, and predicted that the unemployment rate would remain below 6 percent into the future... When the deficit is measured against the size of the economy, the comparison used most by analysts, it is within historic levels at 2.9 percent of GDP." Andrew Taylor in the Associated Press.

How the Fed is relieving the budget pressure. "The Federal Reserve has helped put the federal budget on a more sustainable path by holding interest rates very low and making big payments to the U.S. Treasury....The CBO said Wednesday the federal budget deficit over the next decade will be smaller than previously forecast as the government continues to benefit from low borrowing costs. The Fed has held short-term interest rates near zero since late 2008 and is buying bonds to lower long-term rates. Also helping to narrow the budget gap are the Fed’s growing payments to the Treasury Department, called remittances." Pedro Nicolaci da Costa in The Wall Street Journal.

Other economic/financial reads:

SEC adopts rules on loan-backed securities. Marcy Gordon in the Associated Press.

What's the unemployment rate? New research suggests that we have no idea. Peter Coy in Bloomberg Businessweek.

Consumers have confidence, but not that much cash. Kathleen Madigan in The Wall Street Journal.

New proposal could raise mortgage costs, report says. Joe Light in The Wall Street Journal.

DICKINSON: The biggest tax scam ever. "The crisis of corporate tax avoidance is far more pervasive — and destructive — than either Obama or Lew is letting on. At a moment when Congress appears impossibly divided, a strong, bipartisan consensus has, in fact, emerged in Washington: The world's richest corporations will get away with fleecing hundreds of billions of tax dollars from the rest of us. In public, Democratic politicians blast corporate tax dodgers. But the party's most viable comprehensive 'reform' proposals would reward the crooked accounting of U.S.-based multinationals. Republican­backed legislation — no surprise — would only make the crisis worse." Tim Dickinson in Rolling Stone.

FOX: Guess who pays corporate taxes — possibly you. "Most public discussions of corporate taxes in the U.S., however, still ignore the possibility that workers might actually be the ones bearing the burden. Perhaps this is because other public figures really want to avoid sounding like Mitt Romney. Perhaps tax incidence is just too difficult a concept for non-economists to get their heads around....Perhaps it’s that the evidence is still so mixed....Perhaps it’s that the corporate executives who lobby for lower tax rates don’t quite have the chutzpah to argue that this could result in higher wages. Or perhaps it’s just that, if corporations pay lower taxes, individuals have to pick up the slack. And...a direct tax is still more noticeable than an indirect one." Justin Fox in Harvard Business Review.

McARDLE: Burger King and the tax whopper. "Most Americans...seem to be under the misimpression that companies that invert, or people who renounce their citizenship, are doing so to get a lower tax rate on income they earn here. And in a few intellectual-property-based businesses...these complaints have some basis. In most cases, however, including Burger King, they’re doing it because the U.S. inexplicably insists on taking a big chunk off the top of all their foreign income, and making their lives miserable in the process. If we’re worried about inversion, then the U.S. government should follow the lead of other developed countries, and move to territorial taxation. Otherwise, we should stop complaining." Megan McArdle in Bloomberg View.

WEISSMANN: Is Burger King really not trying to dodge taxes? "But the idea that Burger King won’t really get any tax advantages out of relocating to Canada, where the corporate rate is about 15 percent compared with 35 percent in the U.S., seems transparently untrue. Yes, it will continue paying American corporate rates on its U.S. profits, just like any other foreign company. But Canadian citizenship will likely give it more opportunities to use various accounting and business tricks to shift profits north of the border and out of the reach of the IRS (multinationals with foreign subsidiaries excel at that sort of thing). Inverting will also leave Burger King more flexibility to move its international profits freely." Jordan Weissmann in Slate.

COLLENDER: How to repeal the corporate income tax without increasing the deficit. "Repeal it and at the same time eliminate all federal support for corporations on the spending side of the budget. There is clearly $300 billion of subsides and other kinds of support for corporations in the federal budget in fiscal 2014. In fact, if you define federal corporate support broadly and include direct support, insurance, indirect subsidies and other types of payments to all industries, the amount of spending is at at least that level. It could be substantially higher. This would create a serious debate within the corporate community that hasn’t existed so far." Stan Collender in Forbes.

Top opinion

KRISTOF: Everyone is a little racist. "Here’s what evidence does strongly suggest: Young black men in America suffer from widespread racism and stereotyping, by all society — including African-Americans themselves. Research in the last couple of decades suggests that the problem is not so much overt racists. Rather, the larger problem is a broad swath of people who consider themselves enlightened, who intellectually believe in racial equality, who deplore discrimination, yet who harbor unconscious attitudes that result in discriminatory policies and behavior." Nicholas Kristof in The New York Times.

BERNSTEIN: Why we should dethrone 'King Dollar.' "There are few truisms about the world economy, but for decades, one has been the role of the United States dollar as the world’s reserve currency. It’s a core principle of American economic policy. After all, who wouldn’t want their currency to be the one that foreign banks and governments want to hold in reserve? But new research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status." Jared Bernstein in The New York Times.

KESS AND COHN: 'Loser pays' rules make a comeback. "The abuse of class-action litigation is clear. In 2013, 612 of the approximately 650 mergers and acquisitions valued over $100 million resulted in litigation. In every year since 2010, shareholders filed lawsuits in more than 90% of such deals. It is difficult to imagine that all of the transactions challenged involved fraud or a breach of fiduciary duties....Legislative reforms...have been somewhat effective. But we think a loser-pays rule, forcing plaintiffs attorneys to be more careful about choosing to file a claim, may be a better reform. And this reform can be adopted without legislation." Avrohom J. Kess and Yafit Cohn in The Wall Street Journal.

SAMUELSON: Some hidden good news about wealth inequality. "Buried in the bad news was some astonishing good news: The elderly defied trends and got wealthier. This is a big deal. People save for retirement; it’s the main savings motive for many (possibly most) households. If the elderly are getting wealthier, it suggests that, by their 60s, many Americans have changed their behavior to compensate for earlier undersaving or overspending. The so-called 'retirement crisis' looks overblown." Robert J. Samuelson in The Washington Post.

CHAIT: Obama's climate deal doesn't need Senate, but... "The danger in this approach is that a future administration could renege. But that possibility depends, in turn, on how well the regulations actually work. The Obama administration’s climate regulations are modest, but they are also projected to impose low costs on consumers and business. If the regulations actually deliver, encouraging the market to find inexpensive ways to switch to cleaner fuels, and to save money through conservation, then the incentive to revert back to unregulated carbon emissions will be small. Doing so might even impose new costs on businesses that had adjusted to Obama’s regulations." Jonathan Chait in New York Magazine.

SMITH: The economics food fight. "Econ has plenty of critics, who slam it for being too deductive, axiomatic or chock-full of unrealistic assumptions....But econ isn't just a cheaper, poorer version of science, or a more nerdy, uptight version of literature. There are insights that you get from doing economics that you won’t get in a physics lab or from Shakespeare. The main insight, in my opinion, is that most things in the world have some randomness in them. Economics deals with hideously complex systems where controlled experiments are usually impossible. If you want to isolate one phenomenon, you’re going to have to ignore an awful lot of interesting stuff. But if you think about it, that describes most of the situations we face in our daily lives." Noah Smith in Bloomberg View.

KENDZIOR AND LEE: St. Louis' decaying black suburbs are about to be forgotten again. "This is life in Ferguson, Missouri, in late August 2014: a media circus in which the complicated racial politics of St. Louis County’s 90 municipalities are parsed by pundits who, weeks before, could not have found Ferguson on a map. But when the circus leaves town, as it is already starting to do, what will be left behind? Will St. Louis really have changed? Everything might feel different in Ferguson — money, support and attention have been rolling into the town from all over the country in the past few weeks — but with the media’s eye trained on the woes of just one St. Louis suburb, many are ignoring the larger picture." Sarah Kendzior and Umar Lee in Politico Magazine.

Foodie interlude: How to really eat sushi.

2. Could immigration policy be a September surprise?

Parties worry executive action could roil midterms. "In the past few days, Democratic candidates in nearly every closely fought Senate race have criticized the idea of aggressive action by Obama. Some strategists say privately that it would signal that he has written off the Democrats’ prospects for retaining control of the chamber, deciding to focus on securing his legacy instead. Senior Republicans, meanwhile, have their own worries about a 'September surprise' on immigration. They know their volatile party’s tendency to erupt at such moments — including government shutdowns and impeachment threats — and that the GOP brand is even more tattered than the Democratic one." Karen Tumulty and Robert Costa in The Washington Post.

An update on the proposals the White House is considering. "The White House is considering proposals from business and immigrant rights groups that are pressing President Obama to provide hundreds of thousands of green cards for high-tech workers and the relatives of U.S. citizens and permanent residents. The behind-the-scenes lobbying comes as Obama prepares to announce a series of executive actions that could include plans to defer the deportations of millions of people living in the country illegally, most of whom are Hispanic....The administration also is weighing measures that would streamline the legal immigration system by reducing huge backlogs of foreigners hoping to obtain legal permanent residency." David Nakamura in The Washington Post.

Explainer: 5 things Obama may do to change immigration system. Alan Gomez in USA Today.

Could a shutdown really happen? "Republicans are threatening to force a confrontation over what they describe as a power grab....Senator Marco Rubio, Republican of Florida, has said his party could seek to prevent Mr. Obama from taking unilateral action on immigration by removing the funding for it in the annual budget, which will be the top order of business when Congress returns from its break and must be passed by the end of September....Republican leaders in the House and Senate say they have no intention of shutting down the government just weeks before the midterm elections. But the conservatives who are the most passionate opponents of any immigration action could press the issue when lawmakers return." Michael D. Shear and Julie Hirschfeld Davis in The New York Times.

White House: Shutdown threats won't stop us. "'We would hope that Republicans wouldn’t do the same thing again,' Earnest said Wednesday, referring to last year’s failed effort to defund Obamacare. The threat articulated by some congressional Republicans in recent days won’t affect the president’s thinking, Earnest said." Steven T. Dennis in Roll Call.

U.S. to consider spousal abuse in deciding asylum. "A government immigration board has determined for the first time that domestic violence victims may be able to qualify for asylum in the United States....The ruling by the board that decides appeals from federal immigration courts is significant because it means that the government now recognizes domestic violence victims as a potentially protected class of people seeking refuge in the United States. The decision establishes a broad and firm foothold for an untold number of women whose asylum claims have been routinely denied in the past. But proving all the elements of any asylum case can still be difficult." Alicia A. Caldwell in the Associated Press.

U.S. to ease some deportations to Mexico in settlement with advocacy groups. "U.S. authorities have agreed to stop pressuring undocumented immigrants in Southern California to sign off on their own deportations under a legal settlement that may later allow some deportees to return from Mexico to seek U.S. legal residency, advocacy groups said on Wednesday....They will now be permitted to present their claims in U.S. immigration court, ACLU attorneys said. The settlement is limited in scope as most of reforms agreed to by U.S. immigration officials apply only in Southern California, where the ACLU documented what it said were deceptive and coercive practices dating back to 2009." Alex Dobuzinskis in Reuters.

Judges want immigration courts separate from DOJ. "Immigration courts currently are under the Justice Department's jurisdiction and the judges are appointed by the attorney general — the nation's top prosecutor. Immigration judges cannot hold federal prosecutors from the Department of Homeland Security in contempt of court because the judges are considered to be lawyers working for the Justice Department, the judges said....The judges said that the system is not fair to anyone, especially to immigrants who cannot afford an attorney to represent them and have the burden of proof to show why they should be allowed to stay in the United States. There is no constitutional right to a government-appointed attorney in civil cases." Erin Kelly in Gannett.

Other immigration reads:

Which U.S. immigrants end up becoming small-business owners? Matt Vasilogambros and Stephanie Stamm in National Journal.

Texas federal prosecutor could become first Latina to lead Immigration and Customs Enforcement. Suzanne Gamboa in NBC News.

CLARK: The American dream is an illusion. "Policymakers in rich countries have tended to treat immigration as a challenge, but a surmountable one. Previous eras of mass migration produced good outcomes, for immigrants and settlement countries alike....It would be a mistake to assume that those experiences will be repeated for all immigrants. There is reason to believe that many recent migrants to both the United States and Europe will have a much more difficult time....Meanwhile, the countries in which they settle are less likely to see the benefits of immigration as they experience heightened social tensions and widening social inequality. Policymakers would be wise to take those risks into account." Gregory Clark in Foreign Affairs.

VINIK: GOP not threatening another shutdown. "There is no excuse for the news media to inflate the quotes of Republican politicians to make it seem that they are threatening to shut down the government again. In fact, many of the GOP’s leaders have publicly stated that Cruz’s plan was a mistake, including McConnell. Maybe after November, conservatives will force McConnell to backtrack on that statement and initiate another shutdown. But that’s not what he or Rubio are saying right now." Danny Vinik in The New Republic.

Science interlude: Does alcohol really kill brain cells?

3. Why Time Warner's service outage matters

Why Time Warner's cable service outage matters to merger talks. "Time Warner Cable is currently working with Comcast to complete a $45 billion merger. TWC has a significant footprint in New York, Ohio, and California, and a merger would give Comcast control of many of the TWC customers in these areas. The massive outage, however brief, probably doesn't help the company with regulators who've signaled they'll examine the deal closely. The Federal Communications Commission is responsible for determining whether allowing the two companies to combine would be in the public interest." Brian Fung in The Washington Post.

Outage also brings up issue of infrastructure redundancy. "If TWC’s Internet infrastructure — the routers, switches and other physical stuff which help get Internet traffic into and out of your home — is added to Comcast’s, that would result in a pretty giant network. Therein lies a potential redundancy issue: If millions of post-merger subscribers are on the Comcast network and a catastrophic failure like Wednesday’s happens, millions more people would potentially be affected than would otherwise be the case. And in a post-merger world, those customers could wind up with fewer options for leaving Comcast if they got fed up with network issues, putting less competitive pressure on the company to address any network issues that arise." Alex Fitzpatrick in Time Magazine.

Comcast's generosity wins support for merger. "Comcast is proud of the millions of dollars it donates every year to charities and nonprofit groups. Now, those groups are paying back Comcast's generosity by supporting its bid to buy Time Warner Cable. Nine United Way chapters, 12 Big Brothers Big Sisters chapters, 25 Boys & Girls Club chapters, and 14 Urban League chapters all filed comments urging the Federal Communications Commission to approve the merger of the nation's two largest cable providers. Comcast is a major donor to all four organizations." Brendan Sasso in National Journal.

Explainer: What New York Mayor Bill de Blasio and others want from the Comcast-Time Warner merger. "Some, such as consumer groups and Comcast's business rivals, were quick to denounce the merger. Others, including some politicians and charities, fully supported it. And in a blog post, Comcast executive vice president David Cohen reiterated that the deal is 'pro-consumer, pro-competitive and strongly in the public interest.' The reality is that the merger, if it's approved, will likely come with strings attached. The question is what those strings will look like; expect a vigorous debate over what conditions should be imposed on the deal and how expansive they should be." Brian Fung in The Washington Post.

Chart: The Netflix case against the merger, in one chart. Peter Kafka in Re/code.

Other tech reads:

Cable group hits airwaves to overhaul TV. Julian Hattem in The Hill.

FBI probes hack into computers of JPMorgan Chase, other U.S. banks. Ellen Nakashima and Andrea Peterson in The Washington Post.

Broadcasters: Senate TV plan would cripple emergency alerts, journalism. Julian Hattem in The Hill.

Batman interlude: He was sighted on a highway recently.

4. Is the Obama administration really sidestepping the Senate on climate?

State Dept. denies sidestepping Senate, but Dems spooked. "The administration is in talks at the United Nations about a deal that would seek to reduce global greenhouse gas emissions by “naming and shaming” governments that fail to take significant action....The State Department on Wednesday denied...that the plan is to come up with a treaty that would not require Senate confirmation, but that appeared to provide cold comfort to Democrats worried the issue will revive GOP cries about an imperial Obama presidency. One Democratic strategist said the proposal would put swing-state candidates who are critical to the party keeping its Senate majority 'in front of the firing squad.'" Timothy Cama in The Hill.

Actually, State Dept. has sought climate treaty alternative since 2009. "But it's no secret that the Obama administration has long sought an alternative to the normal treaty process. Given the partisan gridlock of Congress and the significant party split on climate change, the odds of the Senate approving such a treaty are vanishingly small. And the administration has made it clear that it does not want a retread of the 1997 Kyoto Protocol, which the Clinton administration signed but which the Senate wouldn't ratify. Since their first appearance at a climate summit in 2009, the Obama administration's negotiating team has played a major role in steering the process away from a legally binding treaty and toward something that is 'politically binding' instead." Kate Sheppard in The Huffington Post.

Tons of power-plant CO2 emissions already locked in, paper says. "The paper...is the first to estimate the lifetime carbon emissions of power plants globally over multiple years. The drive to meet the world's ever-growing energy demand means that global power sector commitments — the projected lifetime carbon emissions of currently working power plants—have not declined in a single year since 1950. These so-called committed emissions are growing at about 4 percent a year, according to the study, and in 2012 reached 307 billion tons of carbon dioxide....The researchers suggest that current United Nations accounting methods, which chart annual carbon dioxide discharge, should also tally the projected lifetime emissions of power plants to provide a more accurate picture of their impact on global warming." Joe Eaton in National Geographic.

Other environmental/energy reads:

Why abundant coal may have "cursed" the Appalachian economy. Ryan McCarthy in The Washington Post.

Feds protect 20 species of coral as threatened. Seth Borenstein in the Associated Press.

U.S. fracking surge picks up slack for global disruptions. Ben Geman in National Journal.

Alaska referendum upholds tax system for oil companies. Kirk Johnson in The New York Times.

ALS Ice Bucket Challenge interlude: Watch Homer Simpson take the challenge — and then some.

Wonkblog roundup

Americans strongly agree: You shouldn’t stop people from reclining on planes. Christopher Ingraham.

In 30 states, a child can still legally own a rifle or shotgun. Roberto A. Ferdman and Christopher Ingraham.

The obscure part of Obamacare that takes on executive pay. Jason Millman.

Why abundant coal may have ‘cursed’ the Appalachian economy. Ryan McCarthy.

CBO: Deficit falls to $506 billion in 2014, but debt continues to rise. Lori Montgomery.

Can Mario Draghi save the euro again? Matt O'Brien.

Why immigrants weathered the housing bust better than the U.S.-born population. Dina ElBoghdady.

Et Cetera

Long read: Mental-health disorders keep thousands of homeless on the streets. Rick Jervis in USA Today.

Farm bill has become midterm flashpoint. Kristina Peterson in The Wall Street Journal.

Accidental fatal shooting of instructor by girl sparks gun age-limit debate. Sheila V. Kumar in The Wall Street Journal.

Big Food to divulge chemical info. Helena Bottemiller Evich in Politico.

Police departments weighing use of body cameras. Richard A. Serrano and Joel Rubin in the Los Angeles Times.

New Obama plan calls for implanted chips to help U.S. troops heal. Dan Lamothe in The Washington Post.

Uber's war on Lyft could prompt federal investigation. Dustin Volz in National Journal.

Consumers deal with Obamacare citizenship deadline, glitches. Jayne O'Donnell in USA Today.

GOP poll of women: Party "stuck in the past." Jake Sherman and Anna Palmer in Politico.

Got tips, additions, or comments? E-mail us.

Wonkbook is produced with help from Michelle Williams and Ryan McCarthy.

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