May 25, 2017

Washington Budget Report: Dec. 6, 2011

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Payroll Tax Debate Includes Muddled Economic Rhetoric

Senate Democrats have released a revised plan to extend and expand a temporary cut in the Social Security payroll tax after competing proposals on the issue from the two parties both failed in the Senate last week.

The Democrats want to cut the tax to 3.1 percent of employees’ taxable wages, down from 4.2 percent this year and only half of the regular 6.2 percent rate. Social Security benefits would not be affected but the loss of this income to the Social Security system would increase its reliance on general government revenues.

To help pay for the tax cut, legislation introduced by Sen. Bob Casey of Pennsylvania would raise taxes on households with incomes over $1 million but on a temporary rather than a permanent basis.

Some Republicans quickly denounced the new proposal, objecting to Democratic descriptions of it as a “compromise.” Meanwhile, President Obama and other Democrats criticized the Republicans on the issue.

GOP congressional leaders said they were working on a new proposal to extend the payroll tax cut, although some Republican lawmakers are resisting the idea. House Speaker John Boehner said the House Republican Conference would discuss the issue further at a meeting later this week.

The payroll tax break is likely to be eventually tied to the continuation of unemployment benefits and the prevention of cuts in Medicare payments to physicians.

Diane Lim Rogers, chief economist for The Concord Coalition,  says the payroll tax debate illustrates how policymakers often mean different things when talking about proposals that “help” or “expand” the economy.

 “I often hear the words ‘stimulus’ and ‘growth’ used interchangeably, but when economists use them, we typically are making a distinction between different economic goals that apply to different circumstances,” Rogers writes in a new blog posting.

In the payroll tax debate, she says, “we are hearing arguments from both sides that muddle the distinctions between short-term, demand-side stimulus and longer-term supply-side growth.” The Concord Coalition has emphasized that the government could bolster the economy in the short run while still being fiscally responsible about the longer term.

Read more with Debating the Payroll Tax Cut: The Difference Between Stimulus and Growth

Looking Back on Bipartisan Commission’s Report

Last December a bipartisan majority of President Obama’s National Commission on Fiscal Responsibility and Reform surprised skeptics with a comprehensive plan that called for shared sacrifices to reduce projected deficits over the coming decade by $4 trillion.
Unfortunately, elected officials have failed to effectively follow up on the commission’s “Moment of Truth” report – or other sensible recommendations from bipartisan organizations, including a $4 trillion plan developed by the Bipartisan Policy Center’s Debt Reduction Task Force.
“A year ago the president’s commission showed that thoughtful Democrats and Republicans could reach across party lines to agree on a balanced approach to fiscal sustainability,” said Robert L. Bixby, executive director of The Concord Coalition. “They put everything on the table and showed what the necessary trade-offs would be in a meaningful solution.”
“Their report,” he added, “presented a tremendous opportunity for the nation, and it is deeply disappointing that the President and the congressional leadership have repeatedly failed to  take advantage of it. They need to do better next year. Fortunately the commission's framework will still be there to guide them.”
The commission co-chairs – Erskine Bowles and former Sen. Alan Simpson -- and six other members of the bipartisan panel said in a statement last week that while its plan was not perfect, it “remains the best framework for an overall balanced plan.”

The commission members added: “We strongly support the work of Members of Congress in both parties to develop legislation that would put into effect the policies outlined in The Moment of Truth plan and urge the House and Senate to act on a comprehensive fiscal plan based on the recommendations in our report and other bipartisan deficit reduction proposals.”

The Moment of Truth Project notes that if the fiscal commission’s recommendations had been enacted a year ago, the country now would be enjoyed a broad range of benefits. These would have included being on a path to stabilizing the debt by 2014, avoiding a credit-rating downgrade, and ensuring the long-term health of the economy as well as lasting solvency for Social Security.

Former Lawmakers Help Students Make Budget Choices

In The Concord Coalition’s newly revised budget exercise, Principles and Priorities, students and other participants break into groups of five to seven to decide on a variety of policy options being discussed in Washington. One goal is to provide a sense of what it is like to be in Congress, discussing and debating issues with other lawmakers.

At two recent events, graduate and undergraduate students had the advantage of actually having former members of Congress in their groups –and found it often changed their perspectives on the country’s fiscal challenges.

At the University of Arizona and George Washington University’s Graduate School of Political Management, the U.S. Association of Former Members of Congress helped students understand the political and economic trade-offs in attempting to reduce the deficit.

One exercise was sponsored last month by the National Institute for Civil Discourse at the University of Arizona in Tucson. The George Washington University program was held last Saturday.

Almost half of the Arizona students said it changed their views on the nation’s fiscal challenges. Some said they would have more empathy for the other side in political debates, become better informed or focus on helping others become more knowledgeable about budget issues.

At both schools, the students generally agreed that government spending and revenue should both be on the table. Most of the groups found more than $1.2 trillion in deficit reduction over 10 years – a relatively modest goal that eluded the congressional “super committee” last month.

During their wrap-up sessions, the students emphasized that making group decisions was more difficult than simply making individual decisions on the budget. The need for cooperation by our current leaders, they said, is paramount in finding long-term solutions.