July 23, 2014

Washington Budget Report: June 12, 2012

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Warnings From Bernanke, Elmendorf

Last week both Doug Elmendorf, director of the Congressional Budget Office (CBO), and Ben Bernanke, chairman of the Federal Reserve, urged Congress to put the country on a more responsible long-term fiscal path without jeopardizing the current economic recovery.

Their separate testimonies on Capitol Hill came shortly after the CBO released its 2012 Long-Term Budget Outlook and amid rising concern in Washington over the “fiscal cliff” at the end of this year,  when certain tax cuts are set to expire and substantial automatic spending cuts are scheduled to start.

Elmendorf reviewed the two very different scenarios depicted in the CBO report.  The first scenario assumes the continuation of current law, including scheduled spending reductions and the expiration of tax cuts at the end of the year. The CBO’s “alternative” scenario – a gloomier one that many analysts consider more realistic – assumes changes in the law to keep certain policies in place and to modify some provisions that might be difficult to maintain.

Bernanke and Elmendorf both emphasized the need for policymakers to start making the necessary tough choices to protect our fiscal future. But they called for elected officials to deal with the approaching fiscal cliff in a way that would protect the economy in the short term as well.

Over the long term, Elmendorf  made clear that the alternative scenario based on continuing current policies is unsustainable: “Under those policies, federal debt would grow rapidly from its already high level, exceeding 90 percent of GDP in 2022. After that, the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels.”

Bernanke expressed similar worries while underscoring the growing pressure on the budget from the aging population and health care costs.  “At best,” he said, “rapidly rising levels of debt will lead to reduced rates of capital formation, slower economic growth, and increased foreign indebtedness. At worst, they will provoke a fiscal crisis that could have severe consequences for the economy.”

The Concord Coalition has long argued that short-term support for the struggling economy and long-term fiscal reforms were not only compatible with each other but could be mutually reinforcing.

Houses Approves Three Appropriations Bills

Before leaving for this week’s recess, the House made significant progress on the Fiscal Year 2013 appropriations bills. Last week the House passed the Energy and Water, Homeland Security and Legislative Branch bills. The three bills would fund the budgets of a wide range of agencies, including the Department of Energy, the Army Corps of Engineers, the Department of Homeland Security, and Congressional offices.

Also last week, House subcommittees completed work on the Agriculture, Financial Services-General Government, and Transportation-HUD bills.  

This week the focus will turn to the Senate, where subcommittees are scheduled to consider the Labor-Health and Human Services and Financial Services  bills.  The defense subcommittee is also scheduled to hold a hearing on the Department of Defense budget request. The full Senate has yet to consider any of the FY 2013 bills.

While individual bills continue to move forward on the House floor and in Senate committees, the two chambers have yet to reach final agreement on a single one of the 12 bills necessary to fund the government for the fiscal year that begins Oct. 1.

Reaching final agreements that can be signed into law by the President will likely prove difficult because the two chambers are working from different budget allocations that govern discretionary spending.

Senate Democrats and President Obama believe that the bills should comply with the discretionary spending cap in the 2011 Budget Control Act, though the House approved an allocation that is $19 billion below the BCA. If all 12 bills are not passed by the end of September, Congress will need to pass a continuing resolution to avoid a government shutdown.

Reaching for Consensus on Reforms

Pointing to warnings from congressional budget experts and the trustees who oversee Medicare and Social Security, The Concord Coalition’s Midwest regional director recently emphasized the importance of simultaneously dealing with immediate economic problems while laying the groundwork for broad fiscal reforms. Sara Imhof made those points at a public deficit-reduction exercise last night in Ann Arbor -- co-hosted by Concord and U.S. Rep. John D. Dingell (D-Mich.) -- and in a guest column Friday in the Detroit Free Press

“Short-term support for today’s struggling economy should be accompanied by plans for comprehensive, long-term fiscal reforms that can be phased in as the economy strengthens,” Sara Imhof said in the column. “Otherwise we will leave our children and future generations with enormous debt, lower living standards and a diminished U.S. role in the world.”

Imhof’s column noted that in April the trustees for the country’s two largest entitlement programs issued their annual report, which underscored the fact that both Social Security and Medicare face growing cash deficits and are on unsustainable paths.

Discussing deficit-reduction exercises such as the one in Ann Arbor, Imhof wrote that Concord had found that Americans across the country can “discuss their different views on federal budget priorities and find consensus on ways to slice trillions of dollars from projected deficits.”

Dingell said after the event: “The budget exercise showed us that tough decisions and trade-offs can be done in a responsible, balanced manner. I am going to take these lessons back to Washington with me as Congress continues to debate a plan to deal with our long-term deficits.”

Read more with How Would You Trim the Federal Deficit?