July 30, 2014

Washington Budget Report: Mar. 15, 2011

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GOP Faces Budget Dilemma

The same deficit fundamentals that have stymied Democratic lawmakers and President Obama now confront House Republicans. Their new chairman of the Budget Committee, Paul Ryan, faces a difficult job in producing a budget resolution that dramatically improves the deficit picture while satisfying other House GOP goals, notably tax-cut extensions.

The job is even more difficult because of the sluggish economy, higher federal interest payments and the growth of entitlement programs as the population ages and health care inflation continues. Nevertheless, expectations are high after a fall campaign in which Republicans promised speedy deficit reduction without focusing much on the details.

A proposed budget for the next fiscal year that uses honest numbers and reflects Republicans’ current policy preferences will show large continuing deficits. A budget that shows greater progress on deficit reduction will require an openness to changes that Republicans have been reluctant to put in play, such as defense cuts and revenue increases.

Hypothetical budget scenarios illustrate how hard it is to substantially cut the deficit using a narrow set of policy options. Unless the options are expanded, it is difficult to see how the Republicans can produce better deficit results than the administration's proposals.

Ideally, the Republicans will acknowledge the unpleasant realities and present a serious, specific fiscal plan. A good place to start would be the recommendations of the fiscal commissions established by the President and the Bipartisan Policy Center. They both put everything on the table.

Critical Ingredients: Public Engagement and Bipartisanship

Six senators and the co-chairs of President Obama’s fiscal commission have put a spotlight on the country's big fiscal challenges – a welcome contrast to the tussles in Congress over domestic spending programs that make up only a slice of the budget.

Erskine Bowles, White House chief of staff in the Clinton administration, and Alan Simpson, a former Republican senator from Wyoming, headed the commission. A bipartisan majority of the panel issued sweeping recommendations late last year.

Bowles and Simpson have announced the “Moment of Truth Project” to promote public awareness of the country’s fiscal problems and, as Bowles put it, “continue to bang away at all our elected leaders to produce a solution.”

Meanwhile, a bipartisan group of senators have become more vocal about their efforts to put together legislation to follow up on the commission’s work. They are Democrats Mark Warner (VA), Richard Durbin (IL) and Kent Conrad (ND), and Republicans Saxby Chambliss (GA), Tom Coburn (OK) and Mike Crapo (ID).

Members of this group spoke at the unveiling of the Bowles/Simpson project last week. Chambliss and Warner also spoke to 200 business leaders in Richmond, Va.

Such bipartisanship, public engagement and education are critical to dealing with the nation's fiscal challenges.

Many Options for Deficit Reduction

The Congressional Budget Office (CBO) has released a useful report presenting more than 100 spending and revenue options for deficit reduction.

Of the 38 options discussed for discretionary spending, about a third involve defense. With mandatory programs, the CBO said, policymakers could “modify the automatic indexation of benefits, the populations entitled to benefits, or the federal government’s share of spending for certain programs.”

Revenue options include increasing tax rates, expanding tax bases and implementing new taxes on income, consumption or other activities. The CBO, however, did not recommend specific policies.

This Friday CBO plans to release its preliminary analysis of the President’s proposed budget for the next fiscal year.

Let's Try to Wrap It Up

Appropriations remain on the agenda this week as Congress considers yet another short-term continuing resolution (CR).  A new CR is necessary to prevent a government shutdown when the current one expires this Friday.

After the Senate last week rejected both a full-year funding resolution passed by the House and an alternative proposed by Senate Democrats, the House Appropriations Committee unveiled a new short-term measure. The proposal would fund agencies through April 8 and includes an additional $6 billion in cuts drawn from earmarks, and from savings proposals in the President's budget and the House-passed CR.

Both the House and Senate are expected to act on the new proposal this week.  If enacted, this would be the sixth CR for this fiscal year and will provide Congress with three more weeks to agree on 2011 appropriations. Policymakers should use this time to finally complete the 2011 process and end the irresponsible use of short-term resolutions to parcel out funding weeks at a time.