Washington Budget Report: Aug. 3, 2010

In This Issue...

Deficit Concerns, Other Priorities Point Towards Tighter Pentagon Budgets
No Sweet Talk on Social Security as Fiscal Commission Weighs Possible Reforms
CBO Offers a Primer on the Perils of Chronic Federal Deficits
A Slower Pace for Appropriations Work This Year

Deficit Concerns, Other Priorities Point Towards Tighter Pentagon Budgets

Even as President Obama was signing legislation for additional war funding last week, a new report was calling for a “substantial and immediate” increase in Pentagon funding to deal with what it called a “significant and growing gap” between the U.S. military and the challenges it faces.

The report, from an independent commission created by Congress, seems at odds with the views of Defense Secretary Robert Gates, who has warned the Pentagon that reforms there are critical simply to retain the current force structure. He points out that the Pentagon’s basic budget has nearly doubled in the last decade.

The Concord Coalition believes that Gates is on the right track. In a new blog posting, Concord Communications Director Steve Winn says that in the short-term, the Pentagon must work hard to find savings and economies where they are possible. In the longer term, military spending will have to be on the table along with everything else as the country figures out how to bring down massive budget deficits.

The controversy over engines for F-35 fighter jets illustrates the reluctance of some members of Congress to cut back on the extravagance of the past. They want two different companies making engines for the F-35. Gates and the White House rightly oppose this as wasteful.

Read more with Deficit Concerns, Other Priorities Point Toward Tighter Pentagon Budgets

No Sweet Talk on Social Security as Fiscal Commission Weighs Possible Reforms

Lollipops became an unexpected point of contention as the President’s fiscal commission turned its attention to Social Security. Barry Anderson, who has been head of budgeting at the Organization for Economic Cooperation and Development, said he passed them out to college students to emphasize that they would be “suckers” to think their scheduled Social Security benefits won’t eventually be changed.

Rep. Jan Schakowsky, an Illinois Democrat on the bipartisan commission, objected to this as a “cynical” move that would create doubts about the availability of future benefits. But as Anderson's response indicated, suggesting that benefits will change is not the same thing as predicting they will disappear entirely. And they will need to change.

Concerned about what the commission might recommend later this year, a coalition called “Strengthen Social Security” on Thursday denounced the idea of trimming benefits. Social Security, the coalition says, is not responsible for the current federal deficit.

That’s true but overlooks a key problem, Concord Executive Director Bob Bixby says. “Social Security is going to grow much more rapidly in the coming two decades and that is going to put a big strain on the budget,” he points out. Concord supports reforms in Social Security and other federal entitlement programs that will make them sustainable for many years to come.

The debate on Social Security will likely pick up momentum when the Social Security Trustees issue their annual report on the program this Thursday.

President's Fiscal Commission

CBO Offers a Primer on the Perils of Chronic Federal Deficits

Almost everyone agrees that massive government debt is bad, but many people are a bit hazy as to why. How could it damage the nation’s economy? Is there a serious risk of a sudden crisis and, if so, what would trigger it?

The Congressional Budget Office (CBO) takes a good shot at explaining some of the basic concerns and possible scenarios in a new report entitled “Federal Debt and the Risk of a Financial Crisis.” While deficits during a recession can help the economy recover, the CBO explains that chronic deficits and continually rising debt can gradually crowd out investments that could help build the country’s productive capacity. Higher government interest payments could also eventually mean higher taxes or spending cuts in important programs.

“Beyond those gradual consequences,” the report says, “a growing level of federal debt would also increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates.”

CBO: Risk of a Fiscal Crisis

A Slower Pace for Appropriations Work This Year

The House passed the first two FY 2011 appropriations bills (Military Construction/Veterans Affairs and Transportation/HUD) before starting its August recess. The full Senate has not yet considered any of the FY 2011 bills. Cliff Isenberg, Concord’s chief budget counsel, notes that the pace of the appropriations process this year is significantly slower than last year.

In addition to sending the defense supplemental appropriations bill to the White House last week, the House passed smaller FY 2010 supplemental spending bills for border security and the Patent and Trademark Office. The Senate also passed the first but has not yet acted on the border security measure.

On his last day as director of the Office of Management and Budget, Peter Orszag said Friday that Jeff Zients would serve as acting director until the Senate acts on the nomination of Jack Lew. Isenberg provides additional information on these and other developments in a new blog posting.

Read more with Budget and Appropriations Update