June 26, 2017

Washington Budget Report: Aug. 30, 2011

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Projections Show Possible Path to Lower Deficits

New projections from the Congressional Budget Office show a potential path to significantly reduce federal deficits over the next decade. But it would require elected officials to either stick to current law or find ways to offset any deviation from it -- whether that deviation would involve extending tax cuts, enacting new ones or increasing spending.

“These numbers show that if Congress simply went home, the budget would look a lot better over the next 10 years,” said Robert L. Bixby, executive director of The Concord Coalition. “Between the new budget caps, the expiring tax cuts and the triggered spending cuts now in place, the current-law baseline matches the debt stabilization levels of the numerous recent bipartisan fiscal policy proposals, at least in the near term.”

The CBO’s current-law projections show deficits dropping as a share of the economy but still adding $3.5 trillion to the federal debt between next year and 2021. The budget office said there was “especially great” uncertainty in its latest economic forecast, however. It also warned that legislative proposals to extend certain policies could produce “much larger deficits and much greater debt.”

Based on CBO’s new estimates, Concord revised its “plausible” baseline, an alternative scenario with reasonable assumptions about changes that elected officials could make to current law. This scenario presents a troubling picture, with deficits totaling $10.4 trillion over the next decade.

As for the longer term, CBO’s numbers again show that substantial changes in the federal budget will be needed to meet the challenges of an aging population and rising health care costs.

Super Committee Should “Get Right To It”

Although the new congressional  super committee has not yet met, its co-chairs say panel members are busy “reviewing the deficit reduction work that many others have engaged in over the past several years.”

The committee’s leaders, Sen. Patty Murray (D-Wash.) and Rep. Jeb Hensarling (R-Tex.), issued a statement last week that also struck a welcome bipartisan note, saying that they were “working together to ensure that the committee we help build is given every opportunity to succeed.”

The Concord Coalition and other advocates of fiscal reform have encouraged the committee to give strong consideration to the comprehensive proposals developed by the President’s commission, the Bipartisan Policy Center’s Debt Reduction Task Force, the Senate’s “Gang of Six” and other bipartisan groups.

News reports today said Mark Prater, currently on the Senate Finance Committee staff, had been named staff director of the super committee.

The super committee is charged with finding most of the deficit reduction that was promised in Washington’s recent debt limit agreement. In blog posts on The American Square, Joe Antos, a scholar at the American Enterprise Institute, and Robert L. Bixby, Concord’s executive director, discussed the high hurdles facing the panel. 

“The political and philosophical divide between Democrats and Republicans is as great as it has ever been,” Antos writes. “ The left demands protection for the big social programs, and the right will not consider tax increases. We are already in the midst of presidential election season, which further inhibits attempts at compromise.”

Bixby hopes the super committee “will recognize the need for compromise and get right to it, rather than pass up this opportunity and wait for a crisis.” He encourages the panel to aim for a “grand bargain” that would exceed their assigned target of $1.5 trillion in deficit reduction. To do that, however, Bixby said the committee would “need to look at the two areas that have been the major stumbling block so far: health care and taxes.”

In a Christian Science Monitor op-ed yesterday, Concord Chief Economist Diane Lim Rogers suggested that the super panel could become “superheroes” in part by focusing on ways to stimulate the economy without raising the deficit. This would be possible, she said, by “steering funds away from spending and tax cuts that offer low ‘bang for the buck’ economic stimulus and toward higher ‘bang’ policies.”

Bernanke Pans Debt Limit Debate

In blunt but appropriate language, Federal Reserve Chairmen Ben Bernanke used a high-profile speech late last week to criticize Washington’s handling of the recent debt limit controversy and to call for a better process for making fiscal decisions.

Speaking  at an annual policy conference in Jackson Hole, Wyoming, Bernanke also reiterated a message that The Concord Coalition and other independent fiscal analysts have long stressed: Substantial, long-term deficit reduction plans can be compatible with short-term efforts to bolster the economic recovery.

“The negotiations that took place over the summer disrupted financial markets and probably the economy as well,” Bernanke said. He cautioned that similar episodes in the future could “seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses.”

On the importance of fiscal reform and at least stabilizing federal debt, Bernanke again warned that “without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage.”

The Fed chairman called for tax and spending policies that “increase incentives to work and to save, encourage investments in the skills of our workforce, stimulate private capital formation, promote research and development, and provide necessary public infrastructure.”

While we cannot expect economic growth to cure the government’s fiscal problems, he said, “a more productive economy will ease the trade-offs that we face.”

Citizens Should Make Their Voices Heard

While elected officials have an obligation to encourage public engagement on the nation’s fiscal challenges, their constituents should work to ensure that members of Congress -- particularly those on the new super committee -- take their views into account.

“Let your voice be heard and demand that members of the super committee engage the American people in a dialogue about the tough choices America faces,” writes Stefan Byrd-Krueger, The Concord Coalition’s youth outreach coordinator, in a recent blog post. “The issues at stake -- from social insurance to national security, domestic investments and tax reform -- have profound consequences for our nation.”

He suggests several ways in which citizens can become more involved in budget debates, including the use of social media and contacts with individual members of the super committee to ask them to “put all options on the table.”