The national debt soars. This clock is a little slow. Image: Raphiq Phillips/Flickr/CC BY-SA

The U.S. will soon hit the $14.294 trillion debt ceiling, prompting Congress to vote on again raising the limit. But Congressional Republicans have threatened opposition if the vote does not include budget cuts and long-term debt reduction. If an agreement is not reached by August, it will be an unprecedented situation that will be felt by all consumers.

The limit the U.S. can borrow

The debt ceiling is the maximum limit the government is allowed to borrow to pay its current debts. In the past, Congress has always voted to raise the limit.

If the issue is not settled by August, military employees and dependents may see severe income losses. Those dependent on Social Security may be left out in the cold. The loss of Medicare could drive healthcare expenses to levels beyond the reach of most people. Interest and credit rates could drastically increase, as well as taxes.

Taxes pay only 60 percent

“Given that the government currently only raises taxes to cover 60 percent of what it spends, being able to borrow means that the services people depend on from the government continue,” explains Stan Collender, a partner at Qorvis Communications. If Congress fails to vote for a limit increase, it could lead to much higher taxes, a reduction of expected services or both.

T-bills considered secure, for now

The U.S. government raises money by selling Treasury Bonds, or T-bills, which promise a small return on the money borrowed. As long as the purchasers are confident that the loans are safe, they are willing to trade security for small returns. However, if national loans are defaulted on, the global marketplace will lose faith in the dollar, causing foreign goods to become more expensive. The marketplace would reflect that lack of confidence by an immediate increase in cost of fuel, electronics and many other items dependent on overseas suppliers.

Jobs could be at stake

Jobs could be at stake not only for those on the government payroll, but for those in the private sector as
well. “We don’t know what will happen because this hasn’t happened before,” says Collender. “But if the debt ceiling isn’t raised and the government runs out of cash, at some point the president may decide he has to stop doing certain things, like paying government contractors, for example. That may not sound like such a big deal, but it is if someone in your family, or someone you know, is working for that contractor, or for the supplier of that contractor, or if that contractor is a big employer in your neighborhood or your state.”

Wall Street remains confident

At this point, the market seems to be ignoring the debt ceiling debate, confident that a solution will be reached. Banks are still lending money, interest rates remain low and the stock market is relatively stable.

Sources

Daily Finance
CBS
Huffington Post

Before most legislation is passed, the CBO has a chance to review it. Image from Wikimedia Commons.

When any bill that affects the federal budget begins to make its way through Congress, it makes a stop that, more often than not, the public does not see. The Congressional Budget Office is an independent, non-profit governmental agency that reports to Congress, but is not controlled by Congress. The Congressional Budget Office reviews the estimated effects of all legislation – saying if the legislation will require the government to borrow money, be budget-neutral, or save money. The CBO report can make or break legislation – and the CBO report on healthcare has put an unusual spotlight on this office. So how does the CBO work, and what does the latest CBO report on health care say?

How does the Congressional Budget Office work?

The CBO was created in 1974 with the passage of the Congressional Budget and Impoundment Control Act. The Speaker of the House of Representatives and President pro tempore of the Senate jointly appoint the director of the CBO for a four-year term. It is the job of the CBO to issue periodic reports about fiscal policy, to provide projections about the current budget, and to analyze the effect proposed legislation would have on the national budget and national debt, as requested by members of Congress.

To this end, the Congressional Budget Office employs an army of accountants and fiscal analysts who study everything from tax debt to private money lenders. The CBO was created to be non-partisan and independent of Congress, so the reports it issues would not be as easily altered by the political maneuvering in Congress.

The CBO stance on health care reform

The Congressional Budget Office does not officially take political stances. Instead, it provides objective financial analysis related to the bills currently in Congress. However, the CBO is allowed to state facts as its reports see them. On the CBO Health wesbsite, the header states:

The federal budget is on an unsustainable path, primarily because of the rising cost of health care and the aging of the U.S. population.

As reported by the Washington Post, the most recent CBO report on heath care – which is due to be officially released later today – indicates that the reconciled Senate health care bill finds that that particular bill would cut the U.S. deficit by $1.3 trillion over 20 years, and would cover 95 percent of U.S. citizens.

Getting more information about the Congressional Budget Office

The CBO is a huge governmental agency that issues a number of reports, estimates, and opinions throughout the year. If you would like to get more information about the CBO, its stance on health care, or see a copy of CBO reports, you can start with the Congressional Budget Office web site. Get a copy of any CBO publication on the publications page. Full cost estimates are also available on the Cost Estimates site. To contact the Congressional Budget Office, you can email them at communications@cbo.gov or call 202-226-2602.

Growing Health care costs

Although Congress is currently working to reform heath care as one of the Obama administration’s initiatives, any changes are predicting to have little effect on costs to individuals for health care next year. PWC Principal Michael Thompson stated that heath care reform will bring changes, but noted that “the intense focus on health care may [only] slow price increases down, but not stop them.”

The Pricewaterhouse.com data also shows that the cost increase of health care per person for benefit plans factors in price changes and utilization charges. A lot of businesses who have to manage the added cost will most likely pass the financial expense to their customers in the form of higher monthly premiums, deductibles and co-pays. Thompson confirmed that “If the underlying costs go up by 9 percent, employees’ costs actually go up by double digits… [this will have a] major, major impact when employers are also freezing or cutting pay.”

Consumers are fearful of unemployment

Almost half of the employers surveyed said that the increase in health insurance would be passed onto their employees. With everyone still trying to sort through the recession’s aftermath, this could be bad news for the average consumer. Experts remind consumers that the 9% estimated increase for 2010 is down from a formerly projected increase of 9.2%. Mainly the decrease can be attributed to people taking advice from experts and using generic substitutions when purchasing their medications. In an effort to find debt relief, many are asking their physicians to substitute for them.

A new Price Waterhouse survey showed that most consumers are fearful of unemployment. This makes them more prone to seek health care, now that they still have it, rather than put it off like they may have done in the past. The survey also cited that health care providers “tend to shift costs to private insurance plans to make up for the revenue drop they see from a rise in the uninsured population.”

Paying bills

Regardless of how it works out, consumers are going to have to be ready to sustain the added cost of health care. Already deductibles, co-pays, medications and out-of-pocket expenses are weighing heavily on consumer’s finances. Vivian Laiterman of Scottsdale, Arizona fell ill a year ago. Although her health care provider paid for her immediate care, there were many other costs. “I had a deductible of $1,500. Once that was reached my insurance took care of the bulk of my care, but not after-care. I had to pay for my weekly physical therapy bill and medications out of pocket.”

Health care in the future

Consumers seeking debt relief may be disappointed when health care costs continue to rise. Many will have to rebuild the cost of added health care into their budgets. No one knows how the new health care plan will play itself out in the economy, but people have to be prepared for an even tighter financial plan.

Image from Flickr.

Congress today passed a bill that extends the homebuyer tax credit, which was set to expire at the end of this month. Homebuyers who initiate their purchase between now and April 2010 will be able to take advantage of a $6,500 deduction in their federal taxes for that year.

Of course, this tax credit isn’t available to all homebuyers. And, of course, there have been some changes to the tax credit that exists through this month. The most noticeable change is the amount, reduced to $6,500 from $8,000. But, hey, if you really need the extra $1,500, you can always apply for a pay day loan. First-time homebuyers are still eligible for a tax credit up to $8,000.

More changes to homebuyer tax credit 2010

You may have noticed that I wrote “homebuyers who initiate their purchase” earlier. Anyone who has purchased a home knows that it doesn’t happen overnight, so the bill stipulates that the buyer must sign a sales contract by April 30 and close the sale by June 30 to get the credit.

This year, only people who had not owned a home for three years were eligible to receive the credit.  Now, people who have owned their current home for at least five years can be eligible for the tax credit if they buy a new home. Also, the maximum income you can earn and still be eligible has been reduced to $125,000 for individuals and $225,000 for couples.

Exemptions from homebuyer tax credit

So, to review, people who have owned a home less than five years, people who make too much money and anyone who doesn’t sign a sales contract within the allotted time frame are not eligible for the credit.

Furthermore, the credit only applies to purchases of a primary residence. The cap on the home’s price is $800,000.

On a side note, the same bill that extends the homebuyer tax credit to 2010 also extends unemployment benefits so that people can collect them for an additional 13 weeks.

Image from Flickr.

The ridiculously high national unemployment rate (9.8 percent) has convinced Congress to consider a bill that would allow people to collect unemployment for an additional 13 weeks. However, an unemployment extension of three months might not be long enough for many people.

CNN Money reports that the job market will get better — in a year or so. Actually, the forecast says it won’t be until summer of 2012 that employment is back up to normal rates. Though people are starting to apply for auto loans again and spend a little more, the unemployment situation is not getting any better, and in many places it is actually getting worse.

How do they know?

The recession is crawling to an end as reports show the economy actually grew last quarter. Still, it’ll be a long time before there are enough jobs to go around. CNN explains:

Jobs are what are known as a trailing or lagging indicator, meaning that they change in response to other economic events, rather than predicting changes the way a leading indicator, such as the stock market, does. That’s because even after a recession has ended, employers are slow to add staff until they’re sure that demand has returned.

The article from CNN also points out that the last two recessions we’ve had were followed by a “jobless recover,” and this one probably will be, too.

When is unemployment extension vote?

Though the unemployment extension legislation has already passed the House, there is not a vote scheduled for the Senate yet, which is bad news for people whose benefits will be running out soon.

The length of time a person can collect unemployment is different in different states, but anyone who is on unemployment right now most likely will not be able to continue collecting their checks until the summer of 2012, even if Congress does pass the unemployment extension.

Millions of Americans who can't find work could benefit from the unemploment extension vote.

The unemployment extension vote that took place Tuesday cleared the way for the unemployment extension bill to make its way through Congress. The House has passed the bill, which would allow unemployed workers to collect benefits for an additional 13 weeks beyond what is already allotted.

Originally, the bill specified that only states that have unemployment rates of 8.5 percent or higher would receive the benefits, but that provision has been amended. Because some states with lower overall unemployment rates have areas with very high unemployment, the bill was amended to include all states. Another unemployment extension vote must take place before the benefits will be extended.

Unemployment extension vote sorely needed

The nation’s unemployment rate is hovering uncomfortably near 10 percent, at 9.8 percent, and several million Americans are scheduled to stop receiving unemployment benefits before the end of the year. People who aren’t getting payday cash rely heavily on unemployment benefits.

The bill would provide emergency unemployment compensation for people who are actively seeking work but unable to find it. If the Senate passes the bill when it holds the unemployment extension vote, job seekers would have another three months to try to find jobs while still collecting unemployment insurance.

Why unemployment extension is needed

Out-of-work citizens who are collecting unemployment must actively seek work. In the state I live in, people are require to apply for three jobs per week in order to be eligible for unemployment. Though the jobs the insured applies for do not have to be in the person’s field, people aren’t required to accept job offers unless the pay and position match their previous job.

People in many different fields are having a very tough time finding work during this recession. Many people often think that someone who is collecting unemployment should take whatever job he or she can get, but the reality is that sometimes people can make a lot more from unemployment than they’d make working at Starbucks. Extending unemployment benefits would allow people more time to find a suitable job in the right field of work. This could prevent people from having to uproot their families and move for a job or accept positions below their skill levels.

As anyone who has tried to find a job during this recession knows, the unemployment extension vote could greatly help or hurt millions of Americans.

Drama in the unemployment extension vote

So far, there have been some near scuffles involving the unemployment extension vote. Congress held a cloture vote Tuesday, which is simply a vote agreeing that they should proceed to have a vote on the bill. This was necessary because some members were unable to reach an agreement regarding amendments to the bill.

Sen. Harry Ried at one point threatened to hold a vote at midnight this morning. That would have been the soonest time Congress could legally vote on the bill, as it was 30 hours after the cloture vote. He didn’t follow through with holding the unemployment extension vote at midnight, but the bill passed in House anyway.