August 22, 2014

Washington Budget Report: Feb. 15, 2011

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New Budget Falls Short on Tax and Entitlement Reforms

On Monday President Obama unveiled a proposed budget for Fiscal 2012 that failed to aggressively follow up on the recommendations of his bipartisan fiscal commission for sweeping tax and entitlement reforms.

The President’s budget does make some tough choices on domestic and defense appropriations, and appropriately suggests offsets for some additional spending and tax cuts. But far more needs to be done to rein in projected deficits for the next 10 years.

Even if the budget achieves its promised savings, it would lock in a debt-to-GDP ratio that is roughly twice the average over the last 50 years. Interest payments on the federal debt would begin to exceed Medicare costs as early as 2018.

Elected officials in both parties continue to over-focus on proposed cuts in non-security discretionary spending, which only accounts for about an eighth of the federal budget.

This is particularly disappointing after a bipartisan majority on the President’s commission made it clear that the country’s fiscal challenges call for a far more comprehensive approach. The longer we procrastinate, the more difficult and painful the changes will be.

House Struggles With Cuts

Today the House was expected to begin debating a continuing resolution (CR) to fund federal agencies for the remainder of the fiscal year.  Most federal agencies are currently being funded at 2010 levels under a CR that expires March 4.

The new CR proposed by House Republicans includes $1.029 trillion in regular discretionary spending -- about $100 billion below the President's request for Fiscal Year 2011 and $61 billion below the 2010 level.  Some Republicans argued that an earlier version did not comply with a pledge to cut $100 billion during the first year.

Increased scrutiny of appropriations is a positive development.  However, the bill's large cuts from 2010 levels for several programs still only save the equivalent of four percent of this year's projected $1.5 trillion deficit.  This is the problem with a deficit-reduction strategy that relies primarily on discretionary spending. To achieve a sustainable fiscal policy, revenues and mandatory spending must also be on the table.

Bernanke Urges Action

Testifying before the House Budget Committee, Federal Reserve Chairman Ben Bernanke said last week that addressing the “powerful underlying trends” responsible for large projected deficits would bring both short-term and long-term benefits.

He pointed to the plans put forth by the President’s fiscal commission and other groups as a good place to start. Bernanke said tax reform could help foster a more productive economy that would help with deficit reduction, but cautioned that the nation “cannot reasonably expect to grow its way out of our fiscal imbalances.”

In other testimony, Congressional Budget Office Director Douglas Elmendorf told the committee that “a return to sustainable budget conditions will require significant changes in tax and spending policies.”

Office of Management and Budget Director Jacob Lew was scheduled to testify today before both the House and Senate Budget Committees.

Sunset Bill Could Fight Inefficiency

Representatives Jim Cooper (D-TN), Aaron Schock (R-IL), Mike Quigley (D-IL) and Joe Walsh (R-IL) have introduced legislation (H.R. 606) creating a sunset commission to help eliminate duplicative, unnecessary or inefficient federal programs.

The bipartisan commission would provide Congress with recommendations for programs that should be abolished and legislation to implement the changes.  Congress would be required to either reauthorize the programs or permit their elimination.

Congress needs to take a serious look at all federal programs and eliminate those that are no longer necessary or affordable in the context of a $14 trillion national debt.  Creating a commission such as the one in the Cooper/Schock bill would be a fiscally responsible step that could eliminate waste, reduce spending and help restore public trust in government.  Without this trust, the public is likely to remain skeptical that tax increases or reforms in popular spending programs are necessary for broader deficit reduction.

Fiscal Solutions Tour Visits Texas

Residents of Austin and San Antonio heard about ways to put the country on a more responsible fiscal path – and why it was crucial to start doing so soon – as The Concord Coalition’s Fiscal Solutions Tour visited Texas last week.

Robert L. Bixby, Concord’s executive director, pointed to the growing pressures on the federal  budget  from an aging population and rising health care costs. “We talk about the long-term challenges but the long term is really right in our face,” he said.

David M. Walker, CEO of the Comeback American Initiative, called for sweeping reforms in Social Security, health care, the tax system and how government agencies work:  “This is not ‘nip and tuck.’ This is major surgery.”

Alice Rivlin, a senior fellow at Brookings, said she found her work last year on two bipartisan fiscal panels “rather heartening” because “there are opportunities for reform all over” and both groups were able to reach agreement in many  areas involving both spending and revenue.