June 23, 2017

Washington Budget Report: June 7, 2010

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Efforts to Reduce Structural Deficits Must Mean More Than Rigging the Scorecard

Public concern about the nation’s rising debt burden is beginning to have an impact on the legislative agenda.That much was evident as the House passed a scaled back “extenders” bill on May 28 by a slim margin. Originally estimated to have a gross cost of $192 billion and a net deficit increase of $134 billion, the final bill carried a gross cost of $114 billion and a net deficit increase of $54 billion.

But much of this cost reduction was accomplished by timing shifts rather than changes in policy. For example, shortening the extension period of certain unemployment benefits “saved” about $8 billion and sunsetting an increase in the Medicare physician reimbursement rate (the “doc fix”) after 19 months “saved” almost $40 billion.

As the extenders bill now moves to the Senate, much of the debate will be about provisions that the House dropped and the offsets it retained. There are legitimate, and conflicting, concerns with each. From a fiscal standpoint, however, it will be important to keep an eye not so much on the official score but on the cost of maintaining the policies that Congress votes to extend. Concern about deficits must mean more than simply rigging the scorecard.

Economic Recovery and Other Uncertainties Are No Excuse For Failure to Plan a More Responsible Fiscal Course

There’s debate over whether the President’s fiscal commission should focus on total federal debt or just the part of the debt that is held by private investors and foreign countries.  Either figure, however, is high by historical standards.

No one can say for sure how much more the government can borrow without seriously jeopardizing the country’s economic future. But this uncertainty shouldn’t be an excuse for inaction, as some analysts seem to suggest.  An analogy might be speeding down a narrow, winding country road at 80 miles an hour. Since nothing catastrophic has happened yet, can we push it up to 90? To 100? It’s hard to say for sure because we don’t know what’s around the next bend. But at some point soon, easing up on the accelerator would be a wise thing to do.

Reasonable people can differ on how quickly the government should start reducing deficits while the economy is still shaky. But Washington should at least start developing a credible plan to deal with the basic structural problems in the federal budget that are projected to produce massive deficits even in good economic times.

Some See Value-Added Tax, Common in Other Developed Countries, as Potential Help for U.S. Budget Problems

As concern about long-term federal deficits and debt mounts, some policy experts in Washington have been discussing the possibility of a value-added tax (VAT). Some envision it as a replacement for current taxes while others favor it as an add-on to raise additional revenue.

A value-added tax is similar to other consumption taxes such as the retail sales tax but is collected at each step in the production process. Americans are well acquainted with the sales tax because it is often used at the state and local level. But among developed countries, the United States is unusual for not using a value-added tax.

Although Congress is not actively considering a VAT and The Concord Coalition has not taken a position on it, Concord maintains that all policy options should remain on the table.

As Memorial Day Recess Ends, Congress to Continue Work on Spending and Tax Legislation

Before leaving Washington for the Memorial Day recess, the House passed a scaled back version of a bill extending several tax and spending provisions while the Senate passed a supplemental appropriations bill, though neither bill cleared both chambers. This has set the stage for further action and negotiations between the House and Senate as Congress works to send the bills to the President. For more information on these and other issues, see the update we posted last week on The Tabulation, Concord's blog.