August 21, 2014

Washington Budget Report: July 19, 2010

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Jack Lew Will Face Very Different Circumstances the Second Time Around as Budget Director

If confirmed by the Senate, as expected, Jacob “Jack” Lew will begin a second stint as director of the Office of Management and Budget. He served as President Clinton’s OMB director from 1998 to 2001 – the only four years of budget surpluses since the 1960s. President Obama last week nominated Lew to replace Peter Orszag, who recently announced he was leaving the administration.

But Concord Policy Director Joshua Gordon points out in a new blog post that the budget picture has changed considerably since Lew’s first term in the job. The budget environment is more partisan and the country is experiencing the largest deficits since World War II.

When Lew presented the Clinton administration’s final budget in early 2000, the major fiscal policy debate was what to do with the surplus. That budget projected a surplus of $395 billion for 2010. The current projection is a deficit close to $1.4 trillion. We have also racked up $5.6 trillion in deficits since then.

The CBO estimates that nearly 70 percent of the changes since 2000 can be attributed to legislation. So the toughest choices facing Lew are likely to be whether to continue the policies that have had the largest negative impact on the favorable budget outlook he helped create years ago. The 2001 and 2003 tax cuts are scheduled to expire in five months, and the level of discretionary spending is one of the main barriers to agreement on budget plans in Congress.

In addition, the President’s fiscal commission will issue a report Dec. 1. Gordon says that incorporating some of the commission’s proposals into the administration’s next budget and arguing for them on Capitol Hill may be Lew’s most important mission in Round Two at OMB.

Read more with Round Two for Jack Lew

Two Distinct Fiscal Problems Require Two Different Remedies

At a time of considerable uncertainty and risk, the United States faces two distinct problems that require different remedies. The economy remains shaky in the near-term, and fiscal policy remains unsustainable in the long-term. As Concord Executive Director Bob Bixby explained in a guest column yesterday in The Boston Globe, however, we can treat both problems at once if we set aside rigid ideological straitjackets and are willing to compromise.

Policies such as extended unemployment benefits and further temporary aid to state and local governments may still be appropriate to support the near-term recovery, he says. Washington can hold down the size of deficits in the next few years and build public trust by making every effort to identify savings from unnecessary programs.

Even with a robust recovery, however, the pre-existing mismatch between future benefit promises and taxation levels would remain. So we should develop a credible plan to bring our long-term structural deficits under control and, as soon as economic conditions allow, begin phasing in the necessary spending cuts and tax increases.

IMF Prescribes Difficult Medicine for the United States

The International Monetary Fund is warning Americans that they should be considering both tough spending cuts and tax increases to deal with their country's budget problems in the next few years and beyond.

The IMF suggests getting rid of some tax deductions, and seems particularly dubious about the interest deduction – not exactly encouraging news for Americans who are already struggling to pay their mortgage bills.

In a new blog post, Concord Communications Director Steve Winn reviews some of the IMF’s other ideas and agrees with its call for the U.S., after 2015, to “put public debt firmly on a downward path” so that it will have the capacity to deal with future emergencies.

Better Public Engagement Efforts Are Crucial to Fiscal Reform

Political leaders who hope to mount a serious attack on the nation’s long-term fiscal problems must find better ways to engage the American public in that effort. The President’s fiscal commission must keep that in mind as it develops recommendations for Congress and the administration to consider later this year, according to Concord Executive Director Bob Bixby and Steven A. Rosell, president of Viewpoint Learning.

In an op-ed article in the San Jose Mercury News, Bixby and Rosell say their organizations’ experience with in-depth discussion programs in California and elsewhere suggests that once people of different ages and backgrounds understand the difficult choices facing the country, they are willing to compromise and work together to find solutions.

“Americans are not afraid to face hard choices," Bixby and Rosell write. "What they want is a say in their own future and the confidence that leaders are listening.”

Appropriations Work Moves Forward as Administration Reports on Deficit

The House Appropriations Committee continued last week to make progress on bills for the coming fiscal year. On the other side of the Capitol, the Senate Appropriations Committee held its first markups of the Fiscal Year 2011 budget process. Both committees have more work scheduled this week.

The Treasury reports that this year’s deficit to date is over $1 trillion -- only $82 billion less than the deficit that was reported at this time last year. The administration's current estimate of the deficit for the full fiscal year is $1.6 trillion. The Office of Management and Budget is scheduled to formally update its deficit projections this Friday.

Former Fed Chairman Alan Greenspan, citing deficit worries, says the Bush tax cuts he endorsed years ago should be allowed to expire. Cliff Isenberg, Concord’s chief budget counsel, provides updates on these and other issues, together with links to background information, in a new blog posting.