November 26, 2014

Washington Budget Report: Dec. 7, 2010

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Tentative Deal on Tax Cuts Underscores Need for Tax Reform

On Monday President Obama announced a “framework for a bipartisan agreement” on extending the Bush tax cuts for two years, extending unemployment benefits for 13 months, and reducing the Social Security payroll tax for a year.

The Concord Coalition said today that if the expiring tax cuts are extended for two years, that decision should be quickly followed by a major push to reform the tax code.

“If the President and Congress pursue this goal in the upcoming budget cycle," said Concord Executive Director Robert L. Bixby, "it would be good for both short-term economic recovery and long-term deficit reduction, which is exactly what is needed.”

The tentative agreement would increase the deficit by hundreds of billions of dollars in the next two years. Concord has argued that if elected officials extend deficit-financed tax cuts, they should do so only on a temporary basis.

The tentative agreement would extend all of the Bush tax cuts for taxpayers at all income levels for two years. In return for the tax cuts for high earners, Republicans agreed to extend unemployment benefits and other tax cuts favored by Obama.

Workers could also see the 6.2 percent Social Security payroll tax they pay reduced for a year by 2 percentage points. The estate tax would have an exemption of $5 million per person and a maximum rate of 35 percent.

Deficit-Reduction Plan Wins Bipartisan Support on Fiscal Commission

A bipartisan majority on the President's fiscal commission has surprised skeptics and pleased deficit hawks by supporting a credible, comprehensive plan to reduce federal deficits and repair the big entitlement programs.

The plan would cut the deficit to 2.3 percent of GDP by 2015. Over the next decade, the commission said, its recommendations would produce nearly $4 trillion in deficit reduction.

The plan includes sharp cuts in domestic and defense spending, sweeping improvements in the tax system, health care cost containment, budget process reforms and measures to ensure the long-term solvency of Social Security.

Robert L. Bixby, executive director of The Concord Coalition, said the plan "cuts through the partisan rhetoric, makes some of the difficult choices that elected officials have long postponed, and offers fairness by spreading the necessary sacrifices.”

The final report failed to obtain the 14 votes required for official recommendations to Congress. But the 11-member bipartisan majority was larger than many analysts expected and could provide momentum for serious deficit-reduction measures in the months ahead.

Despite Shrill Rhetoric, Some "Rough" Common Ground

Some people on both ends of the political spectrum have criticized the recommendations of the President’s fiscal commission as well as other bipartisan deficit-reduction plans such as the one recently unveiled by the Bipartisan Policy Center's Debt Reduction Task Force. Some of these critics favor other plans.

“With all the screaming coming from both extremes, you'd think the competing visions out there must be so vastly different that there couldn't possibly be such a thing as a truly ‘bipartisan’ way to reduce the deficit,” says Diane Lim Rogers, The Concord Coalition’s chief economist.

But in a blog posting Monday, Rogers points to some “rough” similarities between a number of the competing plans. These include domestic and defense spending cuts, progressive changes in Social Security and Medicare, capping tax preferences such as itemized deductions, and more effective short-term measures to stimulate the economy.

Read more with The Rough Common Ground

Kicking the Budget Can Farther Down the Road

To allow federal agencies to continue operating through Dec. 18, Congress last week approved another continuing resolution. The House approved the measure 239-178 and the Senate gave it unanimous consent.  President Obama signed it into law on Saturday.

A new continuing resolution was necessary because a previous one -- passed prior to the election -- expired on Dec. 3, and Congress unfortunately has still not passed any of the twelve appropriations bills for this fiscal year. The new resolution will fund most agencies at last year's enacted levels.

Also last week, the Senate failed to pass a Coburn amendment that would have imposed a 3-year moratorium on Senate earmarks. And in a letter to Majority Leader Harry Reid, Senate Republicans threatened to block all other legislative matters until the Senate funds the government and extends certain tax cuts.

CBO Releases New Estimates for TARP and Stimulus

The Congressional Budget Office (CBO) now projects that the cost of the Troubled Asset Relief Program (TARP) will be significantly lower than previous estimates. Congress passed TARP in October 2008 to permit the Treasury Department to purchase or insure "troubled assets" that threatened market stability.

CBO estimates TARP will cost $25 billion; the agency's estimates earlier this year put the figure at $66 billion and $109 billion. Factors in the lower estimate include additional repurchases of stock by recipients of TARP funds, lower estimates of assistance for AIG and the auto industry, lower participation in mortgage programs, and the fact that TARP funds can no longer be used for new purposes.

CBO has also updated its estimate of the American Recovery and Investment Act (ARRA), the stimulus bill passed last year. CBO estimates that the bill will cost $814 billion over 10 years, up from the original $787 billion. During the third quarter of 2010, the agency also estimated that the bill raised the GDP, lowered the unemployment rate, and increased the number of full-time jobs.