June 24, 2017

Washington Budget Report: Sep. 13, 2011

« Back to WBR Issue List

Sign Up to receive the Washington Budget Report »

Obama Pushes Jobs Legislation

President Obama yesterday sent Congress the American Jobs Act, a set of proposals that he says will provide both a short-term boost for the economy and a basis for bipartisan cooperation that could help restore public confidence in Washington.

The President outlined the $447 billion plan in a speech to Congress Thursday and is urging its approval in appearances around the country. It includes $253 billion in tax credits and reductions, notably a 50 percent cut in workers’ payroll taxes next year. The plan would also extend unemployment benefits, help local government retain employees, and fund infrastructure projects.

“The legislation includes specific offsets to close corporate tax loopholes and asks the wealthiest Americans to pay their fair share that more than cover the cost of the jobs measures,” Obama told Congress yesterday. The legislation would also raise the deficit reduction target for the congressional super committee charged with cutting deficits by $1.5 trillion over ten years.

It is commendable that the President identified specific offsets to go with the legislation rather than simply asking the committee to come up with them later. However, these offsets, which would raise taxes for upper-income earners, have been rejected by Congress in the past and face an uphill fight.

“It is not inconsistent to provide effective short-term support for the economic recovery while laying the groundwork for long-term deficit reduction,” Robert L. Bixby, executive director of The Concord Coalition, says in a recent blog post. But when some deficit spending may be necessary, he writes, it is crucial to ensure that the country gets the most “bang for the buck” in supporting a strong recovery.

At the same time, Bixby says, Washington should press forward with structural reforms: “A credible plan to stabilize the debt over the long term will be essential to making short-term measures more effective.”

Super Committee Urged to ‘Go Big’

The new congressional  “super committee” meets today amid growing pressure from various quarters to look for ways to encourage economic growth while aiming well beyond its assigned goal of $1.5 trillion in deficit reduction.

Washington’s debt limit law this summer created the 12-member panel, which is supposed to recommend proposals to Congress by late November. The panel held its first meeting last week, with opening statements in which lawmakers emphasized the importance and urgency of their assignment.

The Concord Coalition has urged the committee to take a comprehensive approach, building on the recommendations from the President’s fiscal commission, the Bipartisan Policy Center’s Debt Reduction Task Force, the Senate’s “Gang of Six” and other bipartisan groups.

Others have also called for the panel to “go big” in its recommendations. Dozens of business executives, budget experts and former government officials, including the co-chairs of the President’s fiscal commission, sounded this theme Monday in a letter to the super committee. Last week The Washington Post reported that more than two dozen senators from both parties met privately to discuss ways to support more aggressive deficit reduction.

At a super committee hearing today, CBO Director Douglas Elmendorf warned that if current policies remain in place in the years ahead, "the aging of the population and the rising cost of health care will boost federal spending, as a share of the economy, well above the amount of revenues that the federal government has collected in the past."

The committee may also be able to draw on testimony about tax reform before the House Budget Committee on Wednesday. Among those appearing before that panel will be Diane Lim Rogers, Concord’s chief economist and a strong advocate of tax reforms that can both raise revenue and encourage economic growth.

The CBO on Monday estimated that the debt limit deal’s automatic “trigger” cuts -- which would take effect if the super committee process fails -- would save $1.1 trillion over 10 years, down from the $1.2 trillion originally envisioned. The reasons: Some savings would be delayed beyond 2021, some cuts would result in more spending elsewhere, and debt service costs would be higher than previously estimated.

A Familiar Story: Budget Process Breakdown

With less than three weeks remaining in the fiscal year, Congress is heading towards another failure to complete the budget process. None of the twelve FY 2012 appropriations bills have been enacted. The House has passed six bills, and the Senate has passed only one. To avoid a government shutdown, Congress will need to pass a continuing resolution before the end of the month.

The breakdown of the budget process has become an annual ritual, though one difference this year is the Budget Control Act (BCA) that increased the debt limit. The BCA established statutory caps on appropriations, including a $1.043 trillion cap for FY 2012. Contentious debates over spending priorities are still possible, though the cap could provide a path toward agreement on an overall number. The BCA could also affect the process if the deficit reduction committee created by the law uses further cuts to appropriations to reach its $1.5 trillion target.

Congress also must soon address emergency spending for hurricanes and other natural disasters. The President has requested a total of $5.1 billion in emergency funding for disaster response needs, including $500 million for the remainder of FY 2011 and $4.6 billion for FY 2012.

Offsets have traditionally not been required for emergency spending, and the BCA permits the spending caps to be adjusted to accommodate an average level of disaster spending. According to Office of Management and Budget, the maximum adjustment permitted for FY 2012 is $11.3 billion. Earlier this year some House Republicans had suggested that, in the current fiscal environment, some offsets should be included. House Appropriations Committee Chairman Harold Rogers said this week that he intends to include disaster funding in the continuing resolution.

Debits & Credits

A Positive Approach: “Everything should be on the table,” says Sen. Rob Portman (R-Ohio), another super committee member. “It's not wise, in my view, to start throwing things off the table.” Portman also says Republicans’ commitment to oppose “net new taxes” should not preclude tax reform, and he has already reached across party lines to Democrats on the committee.

Quittin’ Time Already? No sooner had the new super committee held its first meeting than one of its key members, Senate Republican Whip Jon Kyl of Arizona, was publicly threatening to quit if he didn‘t get his way. Although Republicans have repeatedly ruled out tax increases, Kyl now says he won’t listen to suggestions of any further reductions in military spending plans. The senator previously walked out of bipartisan deficit talks this summer.