Fiscal Austerity & the Federal System (Paul Posner, 2013 ABFM Conf)
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Fiscal Austerity & the Federal System (Paul Posner, 2013 ABFM Conf)

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"Fiscal Austerity & the Federal System" presentation by Paul Posner, George Mason Unviersity, presented during "Sequestration's Impact on State Budgets" plenary session, 2013 ABFM Annual Conference, ...

"Fiscal Austerity & the Federal System" presentation by Paul Posner, George Mason Unviersity, presented during "Sequestration's Impact on State Budgets" plenary session, 2013 ABFM Annual Conference, October 3, 2013

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Fiscal Austerity & the Federal System (Paul Posner, 2013 ABFM Conf) Fiscal Austerity & the Federal System (Paul Posner, 2013 ABFM Conf) Presentation Transcript

  • Fiscal Austerity and the Federal System Paul L. Posner George Mason University
  • Current U.S. federal fiscal system is unsustainable • Major shifts in social and economic forces generating revenue and spending pressures – Globalization – Advancing technologies – Knowledge based economy – Aging of population – Rise in health care costs
  • BABY BUST, BABY BOOM, BABY BUST 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 1920 1940 1960 1980 2000 2020 2040 2060 2080 Fertility Rate (Births per woman) Note: Projections based on intermediate assumptions of the 2002 Trustees’ reports. Source: The 2002 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds.
  • LABOR FORCE GROWTH 0 1 2 3 1975 2000 2025 2050 2075 Percent change (5-year moving average) Note: Projections based on intermediate assumptions of the 2002 Trustees’ reports. Source: The 2002 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds.
  • Medicare Beneficiaries
  • SOURCE OF LONG-TERM GROWTH (CBO’S ALTERNATIVE BASELINE, PRIMARY SPENDING AS A PERCENT OF GDP) Source: Congressional Budget Office, The Long-Term Budget Outlook (June 2009), http://www.cbo.gov/doc.cfm?index=10297. Note: The Alternative long-term baseline follows CBO’s published 10-year baseline projections with some changes to the economic and demographic assumption which incorporates policy changes that are widely expected to occur and that policymakers have regularly made in the past.
  • FACTORS EXPLAINING FUTURE FEDERAL SPENDING ON MEDICARE, MEDICAID, AND SOCIAL SECURITY ( AS A PERCENTAGE OF GDP) Source: Congressional Budget Office, The Long-Term Budget Outlook (June 2009), http://www.cbo.gov/doc.cfm?index=10297.
  • All Proposals Exceed the 2014 Cap 2012 Enacted 2013 After Sequester 2014 Caps 2014 House 2014 President & Senate Defense Discretionary 554 509 498 552 552 Non-Defense Discretionary 517 477 469 415 506 Total 1,071 986 967 967 1,058 Source: Barry Anderson, National Governors Association. August, 2013.
  • Long Term Federal Debt
  • State sales tax bases have been eroding 14
  • The Great Recession and States
  • Long Term State and Local Fiscal Outlook
  • State and Local Fiscal Gap
  • Composition of State and Local Spending
  • The evolution of fiscal interdependence and conflict • Dual Federalism • Cooperative Federalism • Coercive Federalism • Contentious Federalism
  • 20 State Revenues: Key and Increasing Role of Federal Grants Source: GAO Analysis of U.S. Census Bureau Government Finance Statistics. Note: The components of general revenue are own-source revenues (taxes, charges, miscellaneous revenues, etc.) and intergovernmental revenues (revenues received from federal and local government). These data represent aggregates for the sector. State revenue sources vary considerably by state. For example, seven states have no state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others, New Hampshire and Tennessee, tax only dividend and interest income.
  • 0 100 200 300 400 500 600 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2011 Constant(FY2005)Dollars Year TRENDS IN FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS (Outlays in billions of dollars) Payments for Individuals Physical Capital Other Grants Total
  • Federal Grants to State and Local Governments • Categorical – Over 900 programs • Block Grants – 25 programs • General purpose assistance – 0 programs • Tax expenditures – Deductibility for state and local taxes – Tax exemption for state and local bonds
  • Tools of Regulatory Federalism • Direct order mandates • Program Specific Grant Conditions • Crosscutting Requirements • Crossover Sanctions • Preemptions – Total – Partial
  • Centralizing Forces • National and global economy • Shifting nature of political incentives • Growth of more competitive national media • Interest group activism • Collapsing constraints on the federal role • Chronic federal fiscal pressures • Eclipse of federalism as a primary value
  • Number of Federal Preemption Statutes Enacted per Decade
  • State Driver’s Licensure: Growing Federal Encroachment • Air quality requirements • Motor voter registrations • Drunk driving requirements • Commercial drivers license requirements • Real ID Act
  • Emergence of State Resistance • No Child Left Behind • Real ID • Recovery Act programs • Health Reform
  • Growing Role of States
  • Inflection Point? Fiscal Austerity and the Intergovernmental System • Fiscal Pressures Sweep in From Outside the Beltway • The Three Fiscal Commissions • Conservative Tide in the Congress and the States • Federal Retrenchment May Affect The Federal Role – Banker for Recessions – Federal Grants – Regulations – Tax expenditures – Tax policy
  • Centralizing Effects of Austerity for the Federal System • Growing Federal Reliance on States for Implementation of Federal programs • Growing Federal Reliance on Mandates • Growing Dependence of States on Federal Grants • Potential Nationalization of State Tax Sources
  • Centralizing Effects of Deficit Commission Proposals  Reduced discretionary budgets will prompt cuts in federal grants  Tax expenditures reexamined  State and local deduction  Tax exempt bonds  Cost shifts and mandates  Extend social security coverage  Revenue nationalization - VAT  Cap and consolidate  Medicaid long term care  Homeland security grants
  • Federalism in an Age of Austerity  Go it alone federalism  Partial and ineffective solutions  Public confusion  Cost shifting  Unfunded mandates  Fiscal substitution  Fiscal coordination  Win-win strategies  VAT  Sorting out responsibilities
  • Barriers to Intergovernmental Collaboration • Weak electoral incentives for national leaders • Conflict among state and local officials • Insufficient focus on long term • Absence of national intergovernmental institutions
  • Expand States’ Capacity to Cope in An Age of Austerity • Strengthen capacity of state groups to represent longer term states’ interests • Rainy day fund expansions • Long term budgeting • Enhance collective capacity for joint national, not federal, programs – Sales tax simplification – Insurance standards – Potential collective action for pension solvency?
  • Future Prospects for Reform: Intergovernmental Institutions: • 1980 – ACIR – OMB – GAO – Congressional IGR subcommittees – Academy for State and Local Government • 2010 – CBO cost estimation – GAO