July 3 - Yesterday, the CBO released an updated preliminary analysis of the Senate HELP Committee health care reform bill. According to the estimate, this version of the legislation would cost around $600 billion over ten years (around $100 billion a year once phased in), compared to $1 trillion (around $150 billion a year once phased in) for the previous version. Among the major differences, in the latest version:

• Health insurance subsidies are smaller, and available for workers making up to 400% of the poverty line, instead of 500% of the poverty line
• Employers who don't offer insurance coverage are required to pay a fine of $750 dollars per employee rather than $100 per employee
• Employees who already have "affordable" health insurance through their employers are not allowed to drop it for subsidized coverage

CBO estimates that enacting the bill would reduce the number of uninsured individuals by around 35%, but does not include provisions for Medicaid expansion, which are expected to cover much of the remaining uninsured (at an additional cost).

The legislation is expected to be combined with work done by the Senate Finance Committee, which includes most of the offsets to pay for the bill. Click here for CRFB's list of potential options.

July 2 - Labor markets continue to deteriorate in June. According to the Bureau of Labor Statistics, the unemployment rate edged up to 9.5% from 9.4% in May.  Monthly employment declined by 467,000, worse than in May but better than earlier in the year.  A decline in weekly hours suggests that hiring will not pick up soon.

Job losses were widespread but particularly evident for the auto and related industries.  Health care employment was one of the few major categories that increased.  

The data released today suggested that labor market deterioration has slowed from earlier in the year, but raised questions about the pace of improvement to be expected in the coming months. The reports contained positive and negative elements, and so it is difficult to draw conclusions.  The financial markets focused on the "bad" news (June employment losses were larger than expected and worse than May's), and overlooked the fact that recent deterioration, while disappointing, is an improvement over earlier in the year.  Additional "good" news released today by the Labor Department showed a gradually improving trend in weekly unemployment claims (smaller claims on a four week moving average basis), but it was also ignored by the financial markets.   

Policymakers are no doubt increasingly nervous on the basis of today's report. The unemployment rate is approaching the politically sensitive rate of 10%, which most experts expect to see this year - perhaps sooner rather than later.   Until the job market improves, it will be difficult for the administration to point to success from its stimulus package.  From the perspective of many economists, however, a lag is understandable and even to be expected based on recent experience.  In the previous two recessions, the U.S. has experienced "jobless recoveries" in the early phase of increased economic activity as firms rebuilt their balance sheets before taking on new hiring expenses.

Today, CRFB released Principle #3 of its health care reform series -- Making Medicare and Medicaid Sustainable. Demonstrating that Medicare and Medicaid will soon consume an enormous part of the US federal budget if not reformed, it focuses on the need for health care reform to focus on controlling their long-term costs. The paper discusses some of the options available to reduce costs, but warns that:

"enacting cost-saving policies in Medicare and Medicaid to pay for coverage expansion will leave these policies unavailable to mediate the unsustainable fiscal situation. Policies that save money one place to spend it somewhere else may be worthwhile, but they do nothing to help the overall fiscal picture."

CRFB also concluded by arguing that:

"the fact that we do not yet know how to make Medicare and Medicaid fully sustainable only strengthens the case that we must act now, as part of comprehensive health care reform, to begin to bring these programs under control."

July 1 - CBO recently released a letter on the potential effects of higher interest rates on the budget trajectory. AS CRFB warned in its Budget Update on the Long Term Budget Outlook, "an unanticipated uptick in interest rates -- which could easily result from fiscal pressures -- would further erode the budget situation."

CBO finds that if interest rates on 10-year Treasuries approximate the average level over the 1991-2000 period (6.6%) over the next decade, the deficit would increase by $1.3 trillion over the 10-year period -- more than the anticipated cost of the massive health care coverage expansion being considered by Congress.

If interest rates approximate the average level over the 1981-1990 period (10.5%) the deficit would increase by $5.3 trillion over the 10 year period.

Given the upwards pressure on interest rates that could result from the increased borrowing needs of the U.S., these scenarios are not unlikely, and would lead to massive increases in one of the most wasteful areas of the budget - interest costs.

June 30 - Yesterday, CRFB released a paper on CBO's Long Term Budget Outlook, which focused on the need for government to act promptly in order to remedy what is projected to be a dire economic future. The long term outlook -- made public by the CBO last week -- projects deficits to hit record levels, reaching 15 percent of GDP by 2035 and 45 percent by the end of the seventy-five year period. The CRFB paper discusses the sources of increased spending growth, focusing in particular on the rising cost of entitlement programs such as Social Security, Medicare, and Medicaid. Finally, CRFB argues for serious tax and spending changes, which if absent from future fiscal policy, could create an even more severe economic crisis.

June 26 - Can we measure the effects of the economic stimulus legislation?  We are just starting to see effects show up in U.S. economic data.

The initial direct effects of the stimulus legislation on personal income are estimated in monthly personal income and spending data released today by the Bureau of Economic Analysis (which produces the GDP numbers).

The BEA tells us that people had a lot more money in their pockets in April and May because of the stimulus legislation, which lowered personal taxes and increased payments to individuals by the government.   

	Average Q1 '09	April	May
With Stimulus	-	+1.3%	+1.6%
Without Stimulus	+0.5%	+0.9%	+0.2%

Did people save or spend the additional money?  (Economists call this the "multiplier" effect.) Today's data suggests that while they boosted spending, they may have increased their savings proportionately more.  However, it may be too soon to tell:  income stimulus often feeds through to spending with a lag, as confidence builds.  Stay tuned for more spending, confidence and savings data in the months ahead.