July 22, 2014

Washington Budget Report: Sep. 27, 2011

« Back to WBR Issue List

Sign Up to receive the Washington Budget Report »


Government Shutdown Averted (Again)

A government shutdown was avoided last night when Senate leaders reached agreement on a continuing resolution (CR) to fund the government through Nov. 18 at the $1.043 trillion level included in the debt limit law.

Due to a dispute over offsets for disaster relief, Congress had struggled to agree on a CR to avoid a government shutdown when the fiscal year ends Friday. Democrats opposed including offsets because they have traditionally not been required for emergency funding. Some Republicans argued that in the current fiscal environment, offsets should be included for FY 2011 funding.

The House had passed a continuing resolution last week to fund the government through Nov. 18 at the $1.043 trillion level. It included $3.65 billion for disaster funding--$1 billion for FY 2011 and $2.65 billion for FY 2012. To offset the FY 2011 funding, the House rescinded funds from Department of Energy loan guarantee programs--cuts Democrats opposed.

Senate leaders reached an agreement after the Federal Emergency Management Agency (FEMA) released new estimates projecting that disaster relief funding would remain available through the end of FY 2011. Under the agreement, $2.65 billion will be provided for disaster relief in FY 2012 while the FY 2011 funding and offsets were removed.

Last night, the Senate approved the agreement and a one-week CR to allow time for the longer agreement to be enacted. The House is expected to approve the one-week CR by unanimous consent this week and consider the longer agreement next week.

Super Committee Focuses on Tax Reform

Members of the new congressional committee on deficit reduction are showing considerable interest in the idea of revamping the tax code. At a public hearing last Thursday, however, lawmakers on the panel expressed differing views over what changes should be made and what to do with the resulting revenue.

The panel also discussed tax issues in a private meeting yesterday and was continuing its work today.

The president’s fiscal commission, the Bipartisan Policy Center’s Debt Reduction Task Force, and other bipartisan groups have recommended reforming the tax code by reducing or eliminating many of the breaks – also known as “tax expenditures” -- that favor some taxpayers and businesses over others. The Concord Coalition favors such reforms as well, noting that they would allow for both lower tax rates and significant deficit reduction.

In last week’s hearing, Sen. Max Baucus (D-Mont.),  a member of the new super committee and chairman of the Senate Finance Committee, indicated support for overhauling the tax code but warned that the changes could result in “big dislocations” and hurt some industries.

Rep. Jeb Hensarling (R-Tex.), co-chairman of the super committee, said tax reform could “result in both revenue from economic growth for the federal government and more jobs for the American people.”

Also last week, the Committee for a Responsible Federal Budget hosted a three-panel program  featuring lawmakers and budget experts who encouraged the super committee to “go big” by aiming for a deficit-reduction plan large enough to stabilize the federal debt as a share of the U.S. economy.

The super committee is seeking suggestions through its website, which is accessible below.

'Class Warfare' or Just Math?

The tax proposals in President Obama’s latest deficit-reduction plan have led to partisan charges and counter-charges of “class warfare.” Journalist have focused heavily on his proposed “Buffett Rule,” which Obama says would ensure that people like Omaha billionaire Warren Buffett would not be taxed at lower rates than people with lower incomes.

Alice Rivlin, a senior fellow at the Brookings Institution, and Robert L. Bixby, executive director of The Concord Coalition, offer their analyses of these issues on The American Square website.

Rivlin expresses concern that “average incomes have stagnated while incomes of the very well-healed have sky-rocketed” in recent years.  She considers the Buffett Rule “largely symbolic” and believes a better approach “would be to blow up the tax code and start over, getting rid of almost all special provisions . . .  and taxing all income at the same rate.”

In commenting on Rivlin’s blog post, Bixby agrees that substantial changes in the tax system should be made. He writes that given the concentration of wealth at the top of the income scale, the tax advantages many of the wealthy enjoy and the country’s fiscal problems, “Obama’s call for the wealthy to pay more in taxes should not be dismissed as mere ‘class warfare.’ "

But Bixby also thinks too much attention has been devoted to the Buffett Rule, a focus that “undermines Obama’s call for shared sacrifice because in the end we’ll have to do more than just raises taxes on Warren Buffett and his peers.”

A Dynamic Debate

Last week the House Ways and Means Committee held a hearing on “dynamic scoring,” a controversial alternative method for estimating how tax legislation will affect government revenue over the long term.

Dynamic scoring adjusts revenue estimates to account for the effects that some people believe certain tax policies will have on the size of the economy. But Diane Lim Rogers, chief economist for The Concord Coalition, warns that it is no magic solution for the nation’s fiscal difficulties.

This is a “déjà vu moment” for tax policy experts, she says in a blog post today. The dynamic scoring issue, she writes, “comes up whenever politicians want to claim that tax cuts don’t cost that much and are fiscally responsible.”

If a tax cut is deficit-financed, she explains, its effect on long-term economic growth will be relatively small. That’s because the negative impact of the deficit financing is only partially offset by higher private savings.

The debate over dynamic scoring involves long-term growth estimates and differs from the debate over short-term tax cuts designed to stimulate demand in a recessionary economy.

Experts Decry the Broken Budget Process

Former CBO directors Rudolph Penner and Alice Rivlin were among the budget experts who testified in front of the House Budget Committee last week about the country’s broken budget process and offered their suggestions.

Penner emphasized that Congress should get serious about fiscal responsibility. He endorsed such reforms as focusing on a target for stabilizing the debt-to-GDP ratio and using a baseline that assumed all temporary tax measures would be renewed.

“There is no doubt,” Rivlin told the committee, “that the budget process is broken.” She pointed to the reliance on the new super committee instead of the normal budget process as evidence that the current system is dysfunctional. Rivlin recommended that the budget process be completely revamped, including a shift to biennial budgeting.

Phil Gramm, former chairman of the Senate Committee on Banking, Housing and Urban Affairs, urged the committee to consider zero-based budgeting. Jim Nussle, former chairman of the House Budget Committee, echoed Penner’s sentiments about abiding by the current process before thinking of ways to change it.

Philip Joyce, professor of management, finance and leadership at the University of Maryland agreed that Congress would be well-served to simply follow the rules in place, but added that changes such as biennial budgeting and establishing joint budget solutions might help.

The Concord Coalition has long called on Congress to abide by the budget process rules and consider reforms to substantially improve the process.