July 28, 2014

Washington Budget Report: May 10, 2010

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Growing Misuse of "Emergency" Designation Weakens Budget Discipline and Increases Deficit Spending

Over the next few weeks, we will hear a lot about "emergency spending" as Congress turns to a major supplemental spending bill that will likely include funding for the war effort and other priorities. Supplemental appropriations bills provide funding in addition to what was previously enacted through the regular appropriations process.

If Congress designates supplemental spending as emergency spending, it is exempt from budget allocations and a number of other budget enforcement provisions. Most supplemental spending has been designated as emergency spending, and the two terms are often used interchangeably.

Emergency spending is routine but often controversial. Over the last ten years, supplemental appropriations have been largely designated as emergency spending and have increased significantly. According to the Congressional Budget Office, net supplemental spending totaled $99 billion in the 1980s and $86 billion in the 1990s. In contrast, between 2000 and 2009, supplemental appropriations often exceeded $100 billion a year.

These increases have occurred, in part, because Congress has used emergency appropriations for costly priorities such as the Hurricane Katrina relief effort, military operations in Iraq and Afghanistan, and the 2009 stimulus bill. In addition, supplemental appropriations bills have routinely attracted extraneous items.

It is worth noting that the budgets President Obama has proposed over the last two years have more accurately reflected anticipated emergency spending. The budgets for FY 2010 and FY 2011 included funding for Iraq and Afghanistan and estimates for spending that could be needed for natural disasters.

The Concord Coalition urges that emergency spending be used only for legitimate emergencies, not as a budget gimmick. Extraneous items should be considered through the regular appropriations process.

The Bipartisan Fiscal Commission: What Defines Success?

The President’s bipartisan fiscal commission faces a high hurdle. It must find consensus among 14 of its 18 members to send a package of recommendations to Congress for an up-or-down vote in December.

The difficulty of achieving such consensus in Washington’s highly partisan environment has already led to speculation that the commission’s effort is doomed to fail.

Last week the President’s budget director, Peter Orszag, pushed back against this notion, telling an audience at the Committee for a Responsible Federal Budget’s annual dinner: “People who are selling the commission short…are going to wind up regretting having done so.”

According to a report in the Fiscal Times, Orszag also raised the possibility that even if agreement among 14 commission members cannot be found, “something is going to come out of this commission, and it will exert pressure on the political system.”

Orszag specifically referred to the possibility of a report by the commission co-chairs, Erskine Bowles and Alan Simpson, or by a simple majority of the commission. Neither of these would require 14 votes.

Coming from the President’s budget director, these remarks are significant because they may signal the administration’s intention to include recommendations from a sub-group of the commission in its Fiscal Year 2012 budget. While a full report, with 14 members on board, would be the only way to ensure congressional consideration this year, the President could still give life to any good ideas that emerge from the commission’s work by pushing for them in his next budget. This may provide an alternative path to “success.”

The Concord Coalition urges the commission to work in good faith, without preconditions, to achieve a package of recommendations that would meaningfully improve our nation’s fiscal outlook. However, if the formal definition of success cannot be achieved, Concord believes that the alternative path would be a good Plan B.

Oil Spill Highlights Misguided Tax Policies That Promote Economic Inefficiency

The BP oil spill reveals the risks associated with oil production, risks that translate into large social costs that are not priced into the oil market. Diane Lim Rogers, Concord’s chief economist, notes that this is a classic case of what economists call a “negative externality,” where the social costs of producing and consuming a good exceed the private costs paid through market prices.

In such a case, intentionally distorting market prices through a tax can offset the negative externality and improve economic efficiency. But the U.S. gasoline tax is far too low by international standards, and we generally aren't in the practice of taxing environmentally harmful activities.

In fact, Rogers points out, we’re in the habit of subsidizing the oil and gas industry via tax preferences. That increases the deficit, and worsens the economic inefficiencies (and environmental damage) associated with fossil fuels. Now, with the BP disaster, we should be trying to correct those mistakes. Rogers argues that the government should implement a climate change policy that would raise fossil fuel prices (that all of us pay) and raise revenue to reduce deficits.

Another Rare April Deficit Underscores the Challenges Facing the Country

The federal government ran an estimated budget deficit last month of $85 billion, marking the second year in a row that there has been an April deficit. The government usually runs large surpluses in April as income taxes pour into the Treasury just ahead of the tax filing deadline.

The new estimate from the Congressional Budget Office (CBO) serves as a reminder of the economic and fiscal challenges facing the country as it struggles to recover from severe recession. Last year’s April deficit was the first since 1983.

On the positive side, however, CBO said there were indications that tax revenues could soon rise. Income withholding and payroll taxes revenue were greater in March and April than they were last year, presumably in part because wages and salaries were starting to recover.

Last month’s estimated deficit of $85 billion was $64 billion more than the April 2009 deficit. After adjustments for the timing of certain payments, however, last month’s number was only $39 billion more than in 2009.

"Outlays and revenues alike are lower than they were last year at this time, by 3 percent and 4 percent, respectively," the CBO reports. "At the end of the spring tax-filing season, receipts of individual incomes taxes were less than CBO anticipated, but receipts of corporate taxes were greater."

The agency said it continued to expect that both revenues and outlays would be higher at the end of this fiscal year than in the previous year.

For the first seven months of Fiscal 2010, the CBO says, the government went further into the red by about $800 billion, the same amount as this time last year.