September 19, 2014

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Monday, June 10, 2013 - 2:37 PM

Judging by recent media reports, there is a growing belief in Washington that the best way to deal with the deficit is to “declare victory.” 

It won’t work.

The deficit problem is far from being solved and its lengthy shadow will hang over every other issue, including the economy, until a fiscal sustainability plan is in place.

To be sure, the deficit is coming down and that is good news. However, most of the improvement comes from a recovering economy, allowing expiring tax cuts to expire and assuming that improbable cuts in discretionary spending and Medicare provider payments will actually occur.

And even if all these things turn out as planned, the budget is still on an unsustainable track. We’ll need a lot more than a short-term declining deficit to declare victory. We’ll need a plan that doesn’t just bring the deficit down but keeps it down on a sustainable basis.

The core problem is not a cyclical deficit driven by the ups and downs of the economy but an underlying structural deficit caused by a mismatch between future spending promises and current tax law.

The Congressional Budget Office (CBO) estimates that under current law the deficit will bottom out at $378 billion in 2015 before turning higher again, reaching $895 billion by 2023. Meanwhile, as a share of the...

Monday, April 29, 2013 - 9:32 AM

Although Congress has plenty of serious budget work to do, lawmakers in both parties can’t seem to resist frittering away time and confusing the public with various proposals that serve no useful purpose. Last week offered a couple good examples.

House Republicans distracted themselves with a bill that would set priorities for payments on federal obligations if the debt limit were reached. There’s understandable confusion and disagreement over what exactly the bill would do, but the general idea seems to be that the federal government could somehow limit the damage of a default by presenting itself to the world as only a partial deadbeat.

As approved by a party-line vote Wednesday in the House Ways and Means Committee, the legislation would tell the Treasury to continue making payments on principal and interest on U.S. debt obligations – and keep Social Security checks going out, of course.

Becoming a partial deadbeat apparently requires some special accounting rules, and so those were tacked onto the legislation. Alas, the nation’s creditors and global financial markets are under no obligation to embrace lawmakers’ unconventional notions about what might constitute a government default.

In any case, there is really...

Tuesday, April 23, 2013 - 2:49 PM

The new budget plan released recently by Alan Simpson and Erskine Bowles once again demonstrates that it is possible to bring the deficit under control using a mix of spending cuts and revenue increases without harming the near-term economy.

It is not a plan for partisan purists, and that is why it could play a vital role in the coming months as Democrats and Republicans struggle to find a way forward on a budget compromise.

Unlike the original Simpson-Bowles plan, which was presented when the two men co-chaired the bipartisan National Commission on Fiscal Responsibility and Reform, this plan picks up where negotiations broke off last December between President Obama and House Speaker John Boehner.

“The plan we have put forward here is not our ideal plan, it is not the perfect plan, and it is certainly not the only plan,” they wrote. “It is an effort to show both sides that a deal is possible; a deal where neither side compromises their principles but instead relies on principled compromise. Such a deal would invigorate our economy and demonstrate to the public that Washington can solve problems, and leave a better future for our grandchildren.”

Simpson and Bowles acknowledge that some...

Monday, March 25, 2013 - 11:52 AM

President Obama is back home after a diplomatic mission to the Middle East in which he exhorted the Israeli people, particularly young Israelis, to ignore the competing claims of extremists and take the push for peace into their own hands. His speech on this topic at the Jerusalem International Convention Center seems to have hit a responsive chord.

It got me thinking that the President should repackage some of the same themes for a national address as Washington enters a crucial phase in negotiations over a budget deal between Democrats and Republicans. While the policy choices in each situation are not directly comparable, some of the points he made in the Jerusalem speech could resonate in this country as well.

Obama could begin by addressing America’s youth with the same message he had for Israelis.

“Part of the reason I like talking to young people,” he said, “is because no matter how great the challenges are, their idealism, their energy, their ambition always gives me hope. ... I believe that you will shape our future.”

Next, he could remind Americans that even deep differences can be bridged if the ultimate...

Thursday, March 14, 2013 - 5:03 PM

Today the Senate Budget Committee considered the budget resolution that Chairman Patty Murray released yesterday. The blueprint calls for a mix of spending cuts and tax increases to reduce the deficit and lower the debt-to-GDP ratio. Under Murray’s plan, the deficit would fall to $566 billion (2.2 percent of GDP) by 2023. Debt held by the public would slowly but steadily fall from 78.5 percent in 2014 to 70.4 percent by 2023.

These are important goals, but whether the favorable trend shown on paper would continue beyond the 10-year window depends on the specific policies adopted by the relevant congressional committees in implementing the plan. As with any budget resolution, policy details are omitted. Yet the details that are available suggest that the plan avoids the type of reforms that would allow debt levels to continue to decline beyond the budget window -- the time period most crucial when looking at the nation’s real fiscal challenges.

For example, the proposed cuts in discretionary spending outweigh the health care savings by $100 billion. Moreover, total mandatory outlays show no reduction at all over the 10-year period relative to the CBO baseline despite the fact that mandatory programs represent a much larger fiscal challenge than discretionary programs. Murray’s budget thus continues the recent...

Friday, March 1, 2013 - 11:19 AM

Back in August of 2011, with the nation’s debt bumping up against its statutory limit and an election year looming, President Obama and Congress made a deal.

They would empower a special committee (the “super committee”) to reach a long-term budget deal worth $1.2 trillion to $1.5 trillion in deficit reduction and give that deal a fast-track path to enactment. All options for cutting spending or raising revenues would be on the table.

To provide an incentive, other than simply doing the right thing, they agreed that if the super committee failed, or if Congress rejected its plan, a fallback mechanism known as “sequestration” would initiate spending cuts worth $1.2 trillion from non-exempt programs over 10 years. Half of the cuts would come from defense spending and the other half from domestic programs. The idea was not to craft rational policy but to install a back-up so arbitrary that no one would want it to go into effect.

The deal provided a grace period throughout 2013 during which a more comprehensive plan could be reached, if the super committee failed.

Here we are, 18 months later, still awaiting a “grand bargain.” The committee failed to produce a plan, nothing has been done to replace the 2011 deal, and the sequester...

Tuesday, February 26, 2013 - 10:22 AM

In his State of the Union Address President Obama declared: “Our government shouldn’t make promises we cannot keep, but we must keep the promises we’ve already made.”

It was good applause line, but it glossed over a key point: The promises we’ve already made are the ones we cannot keep.

It is widely accepted that current fiscal policy is unsustainable. By definition, that means something has to change. Yet, if we decide that all promises must be kept, we can’t change anything without “breaking a promise.”

The dilemma for policymakers in Washington is that for years they have made unfunded promises and there is no politically convenient way to reverse this.

The first thing to do is just face up to it.

That’s why a bipartisan group of former members of Congress included this warning among their findings from their Strengthening of America forum series last fall: “We cannot put our debt on a sustainable path without reductions in the projected cost of entitlement programs, cuts in discretionary spending and higher revenues.”

Strictly speaking, any of those things could be characterized as breaking a promise.

It could be argued, for example, that...

Monday, February 11, 2013 - 10:24 AM

By David M. Walker

Over the past 20 years The Concord Coalition has worked to build an impressive grassroots network. Given our nation’s poor financial condition and fiscal outlook, it is more important than ever to inspire action within that grassroots network. The next three months are critical in regards to addressing our nation’s huge and mounting fiscal challenge.

There are many fiscal issues that need to be resolved in the next 100 days, and the action, or lack of action, taken will largely determine whether a fiscal “Grand Bargain” is going to be reached in 2013. While the debt ceiling was extended until May 19, the sequester (across the board defense and other spending cuts) will take place on March 1, unless there is congressional action. Presently, it does not appear that Congress will reach a deal to avert the sequester, but even if it did, there are other key deadlines ahead. The continuing resolution that is funding all government agencies expires on March 27, and that’s not even on Congress’ radar at the moment. A joint budget resolution is supposed to be achieved by April 15, and the debt ceiling issue will come up again after that.

These issues must be dealt with, and we must quit moving from one...

Monday, January 7, 2013 - 12:00 PM

On his way out the door, retiring Senate Budget Committee Chairman Kent Conrad (D-N.D.) had a lot to say. It was a final reminder -- he called it a challenge -- from one of the Senate’s foremost deficit hawks of why deficits matter and why much more must be done to do bring them under control.

Conrad voted for the fiscal cliff deal in the early hours of Jan. 1, but he explained that he did so only because going over the cliff would risk a recession and higher unemployment. Moreover, 2 million people already out of work would have lost unemployment benefits.

And yet, Conrad said, “I hate this agreement. I hate it with every fiber of my being because this is not the grand bargain I had hoped and worked for and believe is so necessary to the future of the country.”

While Conrad and many others, including The Concord Coalition, had pushed for a deal that would start the nation down the road to a more sustainable fiscal future, the end result was “not, by any standard, a deficit reduction plan,” he said. “As necessary as it is, no...

Tuesday, January 1, 2013 - 3:46 AM

Once again we have a political punt.

With no time left on the clock, Senate Democrats and Republicans have approved a deal to avoid the most immediate consequences of the so-called “fiscal cliff.” The defining feature of the deal, however, is that it leaves much more to be done.

The deal -- which the House must still vote on -- requires no hard choices and solves no difficult problems.  

There is no entitlement reform, no tax reform and no framework or process for addressing these critical needs in 2013. Meanwhile, the indiscriminate and disproportionate discretionary spending cuts mandated by last year’s Budget Control Act are postponed, creating a new cliff.

And with no increase in the statutory debt limit, it still looms as the next self-imposed crisis to remind everyone of how dysfunctional the legislative process has become on Capitol Hill.

So we have a deal, but not a grand bargain. The best that can be said for it is that it smoothes out a portion of the cliff. That will benefit the economy in the very near term, but aside from some relatively minor tax increases on the highest of income earners, the net result of the fiscal cliff deal is to preserve an unsustainable status quo. 

The unfinished business has not gone away. It has simply been handed off to the new...