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and Jun Zhu Taz George
| Posted: March 6th, 2014
Over the past decade, the number of new home purchase mortgages dramatically decreased. According to Home Mortgage Disclosure Act (HMDA) data, 4.9 million purchase mortgages were originated in 2001, rising to 6.0 million in 2005, then dropping to 2.7 million in 2012 (the latest available data, dark blue line below). The drop constitutes a 44 percent decline from 2001 and a 55 percent decline from 2005’s peak volume. Excluding rental properties, purchase loans declined by an even greater 47 percent.
What’s behind the mortgage volume drop?
A deeper dive into the numbers explains the decrease (and speaks to the urgency of expanding the credit box). New and existing home sales dropped over the last 11 years, meaning there are fewer purchases that could potentially be financed by a mortgage. Sales volume rose from 6.3 million units to 8.4 million units between 2001 and 2005, then took a steep fall to 5.0 million units by 2012. But this 20 percent decrease accounts for less than half of 2001-2012’s new purchase mortgage decline.
An increase in all-cash purchases, a sign of investor activity in the housing market, explains the bulk of the decrease in purchase mortgages. CoreLogic numbers indicate that from 2001 to 2007, the share of cash sales crept from 18 percent up to 23 percent, before soaring to 39 percent in 2012 (see figure below). This increase coincides nearly exactly with the decrease in purchase mortgages. Thus, the drop in first-lien mortgage purchases is reflective of the concurrent decline in home sales and increase in the cash-only share.
What demographic and economic factors are at play?
In 2001-2005, rapidly increasing home prices (See February’s At A Glance, page 17) spurred new home construction and enabled homeowners to “trade up”, while affordability products such as interest-only and neg-am loans enabled some riskier borrowers to purchase first homes. Then, during the recession, high unemployment and house price depreciation contributed to a decrease in household formation and lower homeowner mobility—down from 7.5 percent per year in 2005 to 5 percent in 2012—as borrowers with little or negative equity were locked into their homes, and few found jobs that require them to relocate.
Limited credit availability has further compounded the reduction in purchase mortgages. The rise in the cash share reflects a 3 to 5 year credit lock-out for borrowers after experiencing a foreclosure or short sale, and the difficulty for renters and newly formed households to obtain a mortgage. First time homebuyers, many of whom have limited or strained credit histories, now make up only 26 percent of current homeowners, the lowest on record since the series began in 2008. As the figure below depicts, in 2012, low FICO lending was just a fraction of its 2001 market share—dropping from more than 27 percent of new purchases secured with a sub-650 FICO score to less than 7 percent. And because the lack of credit deters current owners from trading up and keeps first-time home-buyers out of the market, many of the 7 million foreclosed homes have fallen into the hands of investors paying cash. If credit were readily accessible, more of these homes would be owner-occupied at an opportune time for these households to build wealth.
Will purchase mortgages bounce back anytime soon?
Though HMDA data, the most accurate count of mortgages, only exists through 2012, we believe that 2013 will show a small increase in purchase mortgages. Home sales rose from 5.0 million units to 5.5 million units in 2012 and the cash share dropped from 39.5 to 38 percent, reflecting the continuing recovery and lower investor interest as house prices have gained. But will these shifts translate into more first-time homeowners and housing demand? Only if credit-worthy borrowers can actually get loans.
Filed under: Economy |Tags: credit, homes, housing, housing finance, lending, mortgages, Urban Institute Add a Comment »
Graham MacDonald Erika Poethig
| Posted: March 3rd, 2014
Many Americans struggle to afford a decent, safe place to live in today’s market. Over the past five years, rents have risen while the number of renters who need moderately priced housing has increased. These two pressures make finding affordable housing even tougher for the very poor households in America. For every 100 extremely low-income (ELI) renter households in the country, there are only 29 affordable and available rental units. Extremely low-income households—a definition used by the U.S. Department of Housing and Urban Development (HUD)—earn 30 percent of area median income or less. Depending on the area of the country, for a family of four, this translates into incomes of less than $7,450 to $33,300.
Not one county in the United States has an even balance between its ELI households and its affordable and available rental units. As a result, ELI households have to search harder for a place to live, spend more than 30 percent of their income on rent, or live in substandard housing.
Some markets are tighter than others. Of the top 100 U.S. counties in 2012, Suffolk County, Massachusetts, has the smallest gap in units that are affordable and available for ELI households; Cobb County, Georgia, has the largest. But does this mean ELI households in Suffolk County have it easy? The answer is no. Even in Suffolk County, which is home to Boston, only 50 units are affordable and available for every 100 families earning $29,350.
This situation would be much worse without HUD rental assistance, which we estimate provides almost 3.2 million affordable and available units to ELI households. HUD assistance comes in three forms: public housing, Housing Choice Vouchers, and privately owned but federally assisted housing. Without HUD rental assistance, we estimate that there would be 1 affordable and available rental unit for every 100 ELI households in the United States. The number would drop from 50 to 7 rental units for every 100 ELI households in Suffolk County, where an estimated 85 percent of the affordable and available rental housing for ELI households is federally assisted.
Why isn’t the private market filling this gap? The answer is relatively simple. With a few exceptions, the economics do not pencil out. Without subsidy, private developers cannot build or operate a new unit of rental housing at a cost ELI households can afford to pay.
The good news is some counties have been closing the affordability gap, including places like Suffolk County, Massachusetts, and Hennepin County, Minnesota, which is home to Minneapolis and its surrounding suburbs. Over the past decade, these two communities have engaged in intensive state and local efforts to preserve existing federally assisted housing that have stemmed the tide of losses. In addition to federal assistance, stakeholders in these communities invest significant state, local, and philanthropic resources in affordable housing serving ELI households.
Other counties have been losing significant ground. Wayne County, Michigan, and the District of Columbia offer two examples of how the affordability gap can widen under two dramatically different sets of market conditions: a really weak market, where incomes are low and lower-cost units are dropping out of the stock, versus a hot market where incomes are better but rents are rising faster. Wayne County (where Detroit is located) lost just over 22,400 rental units that are affordable and available to ELI households, likely due to demolitions of rental housing, but added approximately 10,700 ELI households competing for the units that remained. Between 2000 and 2012, DC lost approximately 8,000 units that are affordable and available for ELI households, likely due to gentrification, while losing just over 2,000 ELI households. DC’s overall affordability gap worsened during this period; in 2012, 23 percent fewer units are affordable and available for every 100 ELI households. That said, it is still near the top of the largest 100 counties with the highest number of units that are affordable and available for ELI households.
To zero in on trends for your own region, we encourage you to explore this new interactive map.
The Urban Institute will update this map periodically. And, as data become available, we will track the affordability gap for ELI households, as well as very low-income and low-income households.
The Assisted Housing Initiative is a project of the Urban Institute, made possible by support from Housing Authority Insurance, Inc. (HAI, Inc.), to provide fact-based analysis about public and assisted housing. The Urban Institute is a non-profit, nonpartisan research organization and retains independent and exclusive control over substance and quality of any Assisted Housing Initiative products. The views expressed in this and other Assisted Housing Initiative commentaries are those of the authors and should not be attributed to the Urban Institute or HAI, Inc.
Filed under: Economy |Tags: affordable, homes, map, poverty, rent, Urban Institute 6 Comments »
| Posted: February 28th, 2014
I wrote most of this post more than a month ago. It sat in my outbox for weeks for the same reason that most academics are reluctant to be on Twitter—I was worried that if I posted it, it would diminish my scholarship. After all, if I am writing about something as seemingly frivolous as Twitter, it must mean that I am not a serious person.
But ultimately, I decided to post it, mainly motivated by Nicholas Kristof’s New York Times article condemning scholars for cloistering themselves in the shroud of academia, and in the process, making themselves irrelevant in the public discourse. As unpopular as it may be among my colleagues, I happen to believe Kristof’s thesis is generally correct. Pursuing knowledge for knowledge’s sake is wonderful, but irresponsible for anyone with a public policy orientation.
But rather than fighting that battle, I thought I would do something more constructive. So, I’m sharing my guiding principles for scholars using Twitter to talk about their work.
One way to think about Twitter is to work through the mechanics of tweeting and following and gaining an audience. But maybe a better way to approach Twitter is to think about how you create your Twitter gestalt, your personal narrative. I propose starting there. In no particular order, here are my 19 Twitter commandments (19 because prime numbers are awesome). This is my script—yours will be different.
1. Put the social in social network. Interact as much as you can.
2. Don't be scared. You can delete a tweet. And even though a mistake will be archived forever, seriously, no one cares. Just behave the way you would in a business meeting and you'll be fine.
3. Writing a tweet is about writing a headline. Experiment to figure out how to write headlines that resonate with others.
4. Follow people who say interesting things that you will want to comment on or retweet, particularly folks in the business (that includes reporters, policymakers, and other compelling tweeters, not just researchers/academics).
5. Stick to the script. My script is: be myself— serious researcher and archivist of current events with enough humor to be human. However I behave at work, that’s how I behave on Twitter.
6. No politics. Ever.
7. No personal business. Ever. (Most of my communications colleagues disagreed with this point, but as I said, this is my script.)
8. Whenever reasonable, link to your written work. But only when it's reasonable.
9. Promote your colleagues. It's really hard to self-promote in a human way, so let's help each other.
10. Be human. There are lots of hilarious parodies of academics on twitter. Don’t be one.
11. If you have the *slightest* doubt about a tweet, don't tweet (but know that your doubts will wane as you get more comfortable with the medium).
12. Don't respond to tweets by big national figures. It's like publicly shouting at your TV.
13. Be gracious. Never punch down. You have status (whether you believe it or not).
14. Be gracious. Promote the work of people outside your organization.
15. Be gracious. Check your @connect tab to see who is connecting with you and respond.
16. Be gracious. If you find a story on Twitter and re-write the headline, give the original author a “hat tip” (H/T @JohnKRoman).
17. Be well-rounded, and tweet about stuff you don't study.
18. Never, ever go on Klout or Kred or any of the others to see your ”score.” It will lead you to engage in social networking practices that will violate every principle above.
19. If you feel the need to snark (and the pull of the snark on Twitter is strong, my friend) create another account (they're free, you know).
Enjoy Twitter. It's a wonderful, enriching, democratizing platform.
Follow John Roman (@JohnKRoman) on Twitter. Illustration by Daniel Wolfe, Urban Institute
Filed under: Economy |Tags: academic, audience, communication, research, twitter, Urban Institute 2 Comments »
Sam Bieler Debbie Mayer
| Posted: February 21st, 2014
Beyond Google’s reach lies a part of the World Wide Web invisible to the casual net searcher: the Deep Web.
The Deep Web is vast, 400 to 550 times larger than the surface web. Most of it is innocuous—the contents of email inboxes, company intranets, and searches on websites like eBay or Amazon that exist online, but cannot be accessed via search engines. However, a subset of the Deep Web consists of sites that are intentionally hidden and may require sophisticated encryption techniques to access. This hidden internet has gained notoriety as a haven for drugs and illegal pornography and a place for contract killers and drug dealers to ply their trade. It has even acquired a name to match its sinister reputation: the Dark Web.
The Dark Web entered the public spotlight with the rise of the website Silk Road. Operating relatively openly on Tor, a Dark Web network, Silk Road was an online black market, known primarily for facilitating drug purchases until its demise in October 2013.
Since then, the Dark Web has grown in the public consciousness. The Netflix hit House of Cards saw journalists attempting to use Tor on the “Deep Web” to hack phone records. By referring to Tor as the Deep Web, rather than distinguishing it more accurately as the Dark Web, House of Cards perfectly illustrates the public’s confusion about these concepts.
This confusion exists because Dark Web research is inherently challenging. While researchers are beginning to develop more data on prominent sites like Silk Road, the Dark Web is designed to promote anonymity, making it difficult to determine the scope or nature of illegal activities taking place.
In the absence of sound research, misinformation has run rampant. Wild claims about the kind of services readily accessible through sites like Silk Road include guns, hitmen, and forcible medical experiments. Many of these claims are pure fiction: Silk Road maintained a list of items banned for sale (including guns and child pornography), which appears to have been largely respected.
Perfect anonymity is another Dark Web myth. Silk Road’s founder and a Harvard student who called in a bomb threat both learned that determined law enforcement can trace Dark Web users.
While all criminal justice topics have their share of hyperbole and misunderstanding, the fact that there is so little research and so much misinformation on Dark Web crime makes it difficult to identify the actual law enforcement challenges the Dark Web poses. If we are going to address Dark Web crime effectively, the first step must be a dedicated research effort that provides us with answers in three areas:
Volume: How large is the illegal market operating on the Dark Web? This information is key to understanding and contextualizing the scope of the online drug market problem. For example, Silk Road’s $1.9 million in monthly revenue (~$22 million annually) from a worldwide market sounds like a thriving black market, until you realize that a single Chicago neighborhood might see $10–20 million in cocaine sales alone. So law enforcement may ask if Dark Web drug policing is the best use of resources.
Products: What can you buy on the Dark Web? Drugs are widely available and other Dark Web sites provide access to child pornography, but it’s an open question as to whether more esoteric services like hitmen actually exist. No legitimate evidence has ever been found of many of these services. Properly prioritizing Dark Web law enforcement activities means determining if it is really facilitating a new, more efficient criminal market, or if it is simply a smaller-scale outlet for items criminals could already get fairly easily elsewhere.
People: Who’s using the Dark Web? With the Dark Web’s sinister name and reputation, it’s easy to forget that hidden networks can be a vital tool for political dissidents in repressive countries. Tor even receives significant US Department of Defense support. Understanding the user base before launching aggressive enforcement efforts will be important if US foreign and domestic agencies don’t want to become a circular firing line, with one agency disassembling the Dark Web as fast as another supports it. Alternatively, Dark Web enforcement may become more attractive if it leads to the targeting of more sophisticated criminals than could be captured through conventional law enforcement operations.
Developing policy without answering these questions risks letting overreaction and misinformation squander scarce law enforcement resources on a topic that may generate more hysteria than crime.
Illustrations by Daniel Wolfe of the Urban Institute.
Follow Sam Bieler (@sdbieler) on Twitter.
Filed under: Economy |Tags: dark web, deep web, guns, house of cards, internet, silk road, trafficking, Urban Institute Add a Comment »
| Posted: February 20th, 2014
Some pundits and stories in the media have argued that the value of a college education is declining and that college isn’t worth the price anymore. They are wrong.
It’s important to refute these myths or people are likely to be deterred from continuing their educations and will lose out on important opportunities for improving their lives. (Next Monday the Urban Institute will host a panel discussion about the benefits of higher education.)
The data are clear. Even at current prices, postsecondary education pays off for most people in terms of higher pay, more job opportunities, better health, and a variety of other advantages. College graduates don’t just earn more, they are also more likely to be employed and more likely to work full time when employed. In 2012, four-year college graduates who worked full time, year round, earned 60 percent more than high school graduates. The gap was 69 percent for all workers and 79 percent if we include those seeking work.
But outcomes vary considerably both within and across levels of education and types of credentials. It is not surprising that there are examples of real people whose investment in college did not work out as well as they had hoped, and their outcomes also deserve our attention.
Getting the full benefit of a college education takes time
The stories of recent college graduates struggling in the labor market, while real and painful, are more signs of a weak economy than of the failure of higher education. Unemployment rates are over twice as high for high school graduates in the same age range. Also, the earnings premium for a college education grows as workers age so it takes time to reap the full benefits. Full-time workers ages 25 to 34 with bachelor’s degrees have a 53 percent earnings premium over high school graduates. That premium grows to 72 percent for those ages 35 to 44, and to 79 percent for workers ages 45 to 54.
But not all college graduates earn more than all high school graduates—at any age. One in six bachelor’s degree recipients working full time earns less than the median earnings for high school graduates working full time. There are many reasons for this, including occupational and geographical differences, as well as differences in individual circumstances.
The earnings premium has grown over time
So the payoff is high. Is it declining? Twenty years ago, men ages 25 to 34 with at least a bachelor’s degree, working full time, had median earnings 57 percent higher than high school graduates. In 2012, the gap was 70 percent. For women, the earnings premium grew from 59 percent to 82 percent.
Focusing on the most recent decade, when the earnings premium has been fluctuating, makes clear how people can tell different stories with the same data. Whether the premium has risen or fallen in the past few years depends on the chosen starting point. For both men and women, the earnings premium was higher in 2012 than in 2002, but it fell and rose in the intervening years. In any case, this question is less important than the reality that the earnings gap between college and high school graduates is very large and that, for most people, an investment in higher education pays off well.
Different postsecondary paths
Too much of the college-value debate focuses only on bachelor’s degrees. It is common to hear the suggestion that many students should pass on college and instead get specific vocational training. But that training usually takes place in community colleges or for-profit postsecondary institutions—in other words, it still involves going to college.
On the other hand, the earnings premium for certificates and associate degrees relative to high school diplomas is much smaller than the premium for bachelor’s degrees. And the premium is growing faster for higher levels of educational attainment.
But no average tells the story of all individuals. Investments in education after high school are not guarantees. Even if we focus only on the monetary value, the benefit a student can expect from a college education is uncertain. Moreover, when students start down their chosen paths, they cannot be certain they will make it to the finish line. Acknowledging that not all postsecondary paths are productive for all students (and that some are productive for very few) helps put the unfortunate but atypical stories into perspective. College pays off very well for most people. Better information and more generous funding could improve opportunities for many more.
Filed under: Economy Add a Comment »
Laurie Goodman Ellen Seidman
| Posted: February 18th, 2014
The Mortgage Debt Forgiveness Act expired at the end of last year. What could happen if Congress chooses not to renew it?
If you were fortunate enough to sell your house with a $100,000 gain on January 15, 2014, how much of that gain could be subject to federal income tax? Likely none. Most gains on primary residence sales ($500,000 for couples, $250,000 for singles) are tax-exempt.
But what if you weren’t so fortunate? Let’s say instead of selling your house, you fell behind on your mortgage. You worked with your lender to lower the amount you owe by $100,000. That $100,000 would become “debt income”—and potentially subject to federal income tax.
What about those less fortunate still? Let’s say your lender foreclosed your house for $100,000 less than the debt accumulated on the mortgage. If you live in a state where the lender can’t legally come after you (like Arizona, and for most foreclosures, California) you wouldn’t owe any tax. But if you live in a state like New Jersey or New York where you’re still on the hook, and the lender didn’t pursue you, you would lose your home and have $100,000 of taxable “debt income” to boot.
It sounds unbelievable. That’s why Congress passed the Mortgage Debt Forgiveness Act in 2007 and extended it twice through 2013. The Act made most debt income from “principal reduction modifications” (mortgage loan modifications that reduced the amount owed), foreclosures, deeds-in-lieu of foreclosure, or short sales exempt from federal tax. Renewal bills have met little opposition in Congress, but remain in limbo.
Meanwhile, as we demonstrate in a concurrent commentary, over the next two years failure to renew the Act could affect 2 million delinquent or in-foreclosure borrowers. Many of these borrowers will lose their homes.
And as many as 1.4 million more borrowers could benefit from principal reduction modifications encouraged by the Act. This important settlement tool has a markedly better track record than modifications that reduce payments without also reducing the total amount owed. The Act also encouraged short sales, in which a borrower works with the lender to sell the house for less than the mortgage, a better deal than foreclosure for both parties. And the Act equalized the tax effects of a foreclosure across states, simplifying matters for everyone.
Estimating the cost of the Act’s renewal is difficult because of likely extensive underreporting and because many borrowers who undergo foreclosure or get principal reduction modifications will be insolvent before the debt reduction—exempting them from tax regardless of the Act. But if it means helping resolve the mortgage crisis more quickly, keeping families in their homes, and treating borrowers across the country equitably, the Treasury’s $2.6 billion two-year estimate may be a small price to pay.
Foreclosure sale image from Shutterstock.
Filed under: Economy |Tags: debt, foreclosure, housing, mortgage, Mortgage debt forgiveness act, Urban Institute Add a Comment »
| Posted: February 14th, 2014
Valentine’s Day is not typically a day we devote to cerebral reflection on equality of the sexes, but here’s a quick look at some gender differences in the labor market. (I don’t necessarily recommend these charts for tonight's dinner conversation.)
Overall labor force participation is falling, but women’s participation is rising relative to men.
Back in 1998, only about 80 women for every 100 men were engaged in the labor force. That ratio peaked near 83 in 2009 just after the recession.
In the prolonged jobless recovery, the ratio has remained steady around 82, well above historical averages. Women have done even better on employment relative to men.
The increase appears to be here to stay, and is not affected by changes in the composition of the population. The ratio of female-to-male labor force participation holding the population’s composition (age, race, and gender) constant at 2006 levels is nearly identical.
As women are taking on a growing share of the work burden, the gender wage gap has closed modestly.
The next chart shows the percentage difference between women’s and men’s hourly earnings (for full-time workers). It adjusts for education, industry, and occupation, so that, for example, female accountants are compared with male accountants, and female high school graduates are compared with male high school graduates.
Some argue that women face a wage deficit because of career choices they make, but those choices are not made in a vacuum. Often, occupations with increasing proportions of women become less well paid over time, becoming “velvet ghettos.” And opportunities for advancement are more limited so that differences in wages become more pronounced over the span of a career.
That women are less likely to stay in the labor force continuously is both a cause and an effect of the wage gap, since a couple considering a year off to care for children will prefer on purely economic grounds that the lower-paid worker take a year off.
The bottom line is, back in 1998 women earned only about 79 cents for every dollar comparable employed men earned, and today it’s about 83 cents.
A few cents on the dollar may not sound like the best Valentine’s Day present ever, but it does represent many thousands of dollars a year more for the average woman.
Follow Austin Nichols (@AustnNchols) on Twitter.
Filed under: Economy |Tags: labor force participation rate, Urban Institute, wage gap, wages, women Add a Comment »
Linda J. Blumberg
and John Holahan Judy Feder
| Posted: February 11th, 2014
The Obama administration yesterday announced further delays in the so-called “employer-mandate.” This provision of the Affordable Care Act would assess penalties on large employers not providing adequate, affordable insurance coverage to their workers if any of their full-time employees obtained subsidized coverage through a Marketplace. Some political controversy surrounded last summer’s first employer mandate delay, but, as we wrote then, such a move is unlikely to have much impact on the implementation of Obamacare.
In fact, the penalties are neither a driving force behind expanding coverage nor an important source of federal revenue. This excerpt is from our July post:
As we have explained elsewhere, there is very little in the ACA that changes the incentives facing employers that already offer coverage to their workers, and fully 96 percent of employers with 50 or more workers already offer coverage today. Competition for labor, the fact that most employees get greater value from the tax exclusion for employer sponsored insurance than they would from exchange-based subsidies, and the introduction of a requirement for individuals to obtain coverage or pay a penalty themselves, are the major factors that will keep the lion’s share of employers continuing to do just what they do today with no requirements in place to do so.
Lessons from the Massachusetts health reform experience are instructive here as well. The Massachusetts law has substantially lower penalties for non-offering employers than does the ACA – the Massachusetts Fair Share Requirement is a maximum of $295 per worker, compared to a potential ACA maximum of $2,000 per worker. However, nominal as those assessments are, employer-sponsored insurance actually increased post-reform, as our analyses done prior to implementation predicted. This increase in employer based coverage was the consequence of individuals facing a new requirement to obtain insurance coverage and deciding their preferred source of coverage if they had to get it was their employer.
Throughout the development and the implementation of the ACA, there has been more worry than warranted that employers will drop insurance coverage. The current furor over the delay of the employer penalties appears to be more of the same. With or without the penalties, most people will still get coverage through their employers; the fundamental structure of the law will remain intact.
Office picture from Shutterstock
Filed under: Economy, Health Care |Tags: ACA, coverage, employer mandate, Obamacare, Urban Institute Add a Comment »
| Posted: February 10th, 2014
Click image to view C-SPAN2 clip from BPC Debt Ceiling Event
The federal government hit its statutory borrowing limit last Friday and is predicted to run out of “extraordinary spending measures” by February 27th, putting before Congress yet again the task of raising the debt ceiling.
Given the frequency and contentiousness of this issue, it’s natural to wonder: is there a better way? That was the question former CBO director and current Urban Institute Fellow Rudy Penner considered on February 3 in a Bipartisan Policy Center event in which Treasury Secretary Jacob Lew urged Congress to raise the ceiling.
Below is a lightly edited transcript of Penner’s comments, in which he articulates his preference for replacing the debt ceiling altogether.
I think that the debt limit is a crock, basically. There’s a paradox here, and that is they always say that to be effective in negotiations you’ve got to be willing to shoot the hostages. We’ve never been willing to do that in the 100 years that the debt limit has been in existence.
The real place to negotiate over spending and tax matters, including entitlements, is when you’re debating the budget resolution. That’s when we set our targets for spending and revenues.
Having a separate debt limit—I don’t think it has served much of a purpose. It certainly hasn’t brought about fundamental reforms in entitlements. One of the biggest things that happened around the debt limit was the Gramm-Rudman-Hollings [Balanced Budget Act of 1985] but that quickly became bipartisan, and once the debate got going, you hardly heard any mention of defaulting on the debt.
So in terms of what to do, obviously my first choice is to get rid of the debt limit law altogether.
My second choice was alluded to by Secretary Lew: he noted what Senator McConnell did in the past, and Representative Honda has a very similar approach in the House. The basic idea would be that you would give the president discretion to set the debt limit a year in advance; the Congress would be able to disapprove of what the president did, the president could veto that law, and then you would need a supermajority to overturn the veto.
My third choice would be to go back to the Gephardt Rule, which worked fairly reasonably in the past, and that is to tie the increase in the debt to the budget resolution that was passed.
There is a practical problem with that: if you do that very rigorously, you’ve got to confront the problem that we don’t forecast deficits very well. Indeed, we often make huge mistakes, so to make that rule work practically, I think you would need some flexibility. You’d need a margin of error there.
Video clip from C-SPAN coverage of the Bipartisan Policy Center event.
Filed under: Economy, Government |Tags: congress, debt ceiling, economy, President, Urban Institute Add a Comment »