The federal budget deficit tripled to a record $1.4 trillion for the 2009 fiscal year that ended last week, congressional analysts said Wednesday.
The Congressional Budget Office estimate, while expected, is bad news for the White House and its allies in Congress as they press ahead with health care overhaul legislation that could cost $900 billion over the next decade.
The unprecedented flood of red ink flows from several factors, including a big drop in tax revenues due to the recession, $245 billion in emergency spending on the Wall Street bailout and the takeover of mortgage giants Fannie Mae and Freddie Mac. Then there is almost $200 billion in costs from President Barack Obama’s economic stimulus bill, as well as increases in programs such as unemployment benefits and food stamps.
The previous record deficit was $459 billion and was set just last year.
John B. Taylor writes:
Simple charts vividly demonstrate the immensity of the exploding debt problem now faced by the United States. The large expansion of debt in World War II looks like a small blip compared to what’s coming if we do not change policy. Click here to see the charts I used to compare U.S. debt history with CBO projections in my Economics lectures at Stanford today. The source is the spreadsheet for CBO’s alternative fiscal scenario in its June Long-Term Budget Outlook.
From the Economist:
Chris Edwards, the author of “Downsizing the Federal Government”, points out that the average compensation (pay plus benefits) of a federal worker is now nearly $120,000 a year, twice what private-sector workers make.
And that’s in addition to cast-iron job security. A federal employee has only a 1 in 5,000 chance of being fired in any given year.
Just a thought, as the deficit explodes: can we afford such generosity?
Click here to read my previous post on the ascent of Federal pay.
The Bureau of Economic Analysis has released its annual data on compensation levels by industry. The data show an expanding pay advantage for federal civilian workers over private-sector workers.
Figure 1 shows at average wages. In 2008, the average wage for 1.9 million federal civilian workers was $79,197, compared to an average $49,935 for the nation’s 108 million private sector workers.
Figure 2 shows that the federal advantage is even larger when worker benefits are included. In 2008, federal worker compensation averaged $119,982,smore than double the private sector average of $59,909.
According to Politico,
The White House is likely to dramatically increase its projected 10-year budget deficit estimate next week by nearly $2 trillion, senior administration officials said Friday.
Obama administration officials have concluded the economy was much worse last year — and tax revenues much lower — than they had initially assumed, which means that the estimated budget deficit will increase from $7 trillion to about $9 trillion over the coming decade.
So what does each one of these trillion dollars look like?
HT: Manarin On Money
According to Douglas W. Elmendorf, director of the Congressional Budget Office (CBO),
Although different types of preventive care have different effects on spending, the evidence suggests that for most preventive services, expanded utilization leads to higher, not lower, medical spending overall.
That result may seem counterintuitive. For example, many observers point to cases in which a simple medical test, if given early enough, can reveal a condition that is treatable at a fraction of the cost of treating that same illness after it has progressed. In such cases, an ounce of prevention improves health and reduces spending—for that individual. But when analyzing the effects of preventive care on total spending for health care, it is important to recognize that doctors do not know beforehand which patients are going to develop costly illnesses. To avert one case of acute illness, it is usually necessary to provide preventive care to many patients, most of whom would not have suffered that illness anyway. Even when the unit cost of a particular preventive service is low, costs can accumulate quickly when a large number of patients are treated preventively. Judging the overall effect on medical spending requires analysts to calculate not just the savings from the relatively few individuals who would avoid more expensive treatment later, but also the costs for the many who would make greater use of preventive care.
Elmendorf’s complete letter can be downloaded here.
Marguerite Roza, Research Associate Professor at the University of Washington’s College of Education writes on the tradeoff between teacher wages and layoffs to meet budget cuts. Roza based her analysis on the fact that,
93 percent of school districts in the U.S. negotiate and structure teacher-pay according to a fixed salary schedule, consisting of annual as well as step increases. Step increases average 3.16 percent a year. The annual increase for the salary schedules she calculated at the average Consumer Price Index (CPI) for the 1997–2007 period at 2.87 percent.
As Milton Friedman pointed out in 1962,
With respect to teachers’ salaries …. Poor teachers are grossly overpaid and good teachers grossly underpaid. Salary schedules tend to be uniform and determined far more by seniority.