June 25, 2017

Washington Budget Report: Nov. 2, 2010

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Bipartisan Panels' Recommendations Could Provide an Antidote for Ill-advised Campaign Rhetoric

Although today’s election will change the political landscape in Washington, unpleasant fiscal realities will remain: Rapidly rising medical costs, a Social Security system headed for insolvency, a deeply flawed tax system and federal debt that is on an unsustainable track.

Will the political winners be up to these challenges? Robert L. Bixby, executive director of The Concord Coalition, considers the fall campaign inauspicious.

“Few candidates have had anything useful to say about realistic fiscal solutions,” he says in a new blog post. “ To the contrary, many new members of Congress will have been elected on pledges to foreswear the very things that will be needed: spending cuts in popular entitlement programs and defense, tax increases and, most of all, compromise.”

But reports scheduled for release within the next few weeks by two bipartisan commissions could at least provide some options for elected officials who are serious about fiscal reform. Bixby is a member of one of these panels – the Bipartisan Policy Center’s Debt Reduction Task Force – and he says the plan it will release on Nov. 17 “will show at least one way out of the fiscal morass.”

The President’s National Commission on Fiscal Responsibility and Reform is supposed to issue its report Dec. 1. While that group faces a steep requirement of 14 out of 18 votes to issue recommendations, Bixby says any proposal that emerges with bipartisan support deserves consideration by Congress.

“At a minimum,” he writes, “these reports will provide options for those willing to take seriously the voters’ mandate to ‘do something’ about the nation’s perilous fiscal path. The campaign is ending. The problems remain. What’s needed now is a dose of political will.”

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Taxpayers Aren't Done Bailing Out Fannie and Freddie

The Federal Housing Finance Agency (FHFA) recently released projections showing that Fannie Mae and Freddie Mac could require between $73 billion and $215 billion in additional help from the U.S. Treasury through 2013.

The FHFA oversees Fannie Mae and Freddie Mac, which were chartered by Congress to provide liquidity, stability, and affordability to the secondary market for residential mortgages. They purchase loans and package them as mortgage-backed securities that are then sold to investors with a guarantee that the mortgages will be paid. During the 2008 financial crisis, the federal government took control of both entities and continues to operate them with federal funds.

To date, the government bailout of Fannie and Freddie has required $148 billion. Under three different scenarios, the new report projects that total funding requirements would range between $221 billion and $363 billion through 2013. The assumptions used for housing prices in these scenarios range from a strong near-term recovery to a deeper second recession in the housing market.

Fairness Among Generations Seen as Crucial Element in U.S. Fiscal Solutions

Intergenerational fairness was in the spotlight recently as The Concord Coalition’s Fiscal Solutions Tour arrived at the University of Pennsylvania in Philadelphia. In two programs on Oct. 22, tour speakers encouraged college students as well as older Americans to become informed and engaged in efforts to put the country on a better financial track.

The speakers as well as some audience members noted that the nation’s fiscal problems could have a profound impact on the lives of today’s young people – from the taxes they will pay throughout their working lives to their prospects for a comfortable retirement.

Despite the difficulty of the challenges ahead, the speakers gave ample reason for hope. “There are a lot of options available on the spending side of the budget,” said Eugene Steuerle, a senior fellow at the Urban Institute. “There are a lot of options available on the tax side of the budget.”

William Novelli, a Georgetown University professor, sounded similar themes on Social Security in particular, laying out a number of benefit and tax options that could help put the program on sounder footing. Novelli, a former CEO of AARP, stressed the importance of Social Security as  part of the country’s vital social safety net.

Robert L. Bixby, Concord’s executive director, noted that the aging of the U.S. population would put more and more pressure on the federal budget. For the first time since 1983, he pointed out, Social Security is taking in less money than it is paying out as more baby boomers leave the work force and start drawing benefits. Medicare, he added, already requires large amounts of general tax revenue.

Douglas Holtz-Eakin, president of The American Action Forum, emphasized the need to slow the growth of health care spending, noting that it had consistently outstripped income growth on a per capita basis for decades. Continuing that trend in the coming decades, he said, would be “a recipe for financial disaster.” The American health care system, he said, should be better coordinated and more focused on the well being of patients.

David M. Walker, founder and CEO of the Comeback America Initiative, expressed concern that U.S. politics is currently “dominated by the wings – the far left and the far right.” He said that ordinary citizens in the political mainstream – “We the People” -- should take an active role in pressing public officials to take action before poor fiscal policies lead to a severe financial crisis.

With support from The Peter G. Peterson Foundation, the Fiscal Solutions Tour has visited five cities around the country this fall to stimulate public discussion of possible answers to the growing national debt and related problems. The tour’s next stop will be Nov. 12 in Chicago.