May 26, 2017

Washington Budget Report Aug. 14, 2012

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Budget Debates Should Focus on Substance

Mitt Romney’s selection of House Budget Chairman Paul Ryan as his running mate put a spotlight on differences between the two parties over federal budget priorities and how best to put the budget on a more responsible and sustainable course.

Since Romney announced his choice on Saturday, Republicans have cheered Ryan’s willingness to put forth bold budget proposals while Democrats contend those proposals will create vulnerabilities for the GOP.

The Concord Coalition encourages both parties to pursue serious and substantial debate this year over the difficult fiscal and economic challenges facing the country – the kind of debate that can help the American public understand the magnitude of those challenges and the importance of dealing with them in a timely fashion.

Candidates in both parties should resist the temptations to offer simplistic solutions, make unrealistic promises and pander to their audiences by suggesting that someone else can make all the necessary sacrifices.

Ideally, both the Republican and Democratic tickets should provide the public with credible and specific proposals to deal both with our short-term economic problems and the longer-term threat of runaway federal debt – and voters should weigh those proposals carefully.

Critical Reform: Broadening the Tax Base

Cutting back on special tax breaks and broadening the tax base could help reduce federal borrowing, boost the economy and simplify the tax system. So it is important that this fundamental principle of tax reform not be discredited simply because of political disagreements over the way in which Mitt Romney has approached it.

“Both the President’s fiscal commission (Bowles-Simpson) and the Bipartisan Policy Center’s task force (Domenici-Rivlin) showed that we can broaden the tax base, lower tax rates, and raise revenue — and yet still maintain or improve the progressivity of the overall tax system,” says Diane Lim Rogers, The Concord Coalition’s chief economist.

The political rhetoric over the Republican presidential candidate’s tax plan heated up recently after the Tax Policy Center (TPC) released an analysis of it.

Romney’s proposed tax cuts are skewed heavily towards upper-income households, and he also opposes increasing the taxation of capital income. Given that, Rogers explains, the TPC analysis shows that paying for his proposed tax cuts through other base-broadening efforts would mean higher net tax burdens for most Americans.

“The Romney proposal will strike many as a bad idea, but it should not be taken as a blanket indictment of any kind of tax reform proposal that tries to pay for low (or even lower) marginal tax rates by broadening the tax base,” Rogers writes. The plan, she notes, “could be modified fairly easily to come up with a revenue-neutral but much more progressive tax reform package.”

She also faults the President’s campaign, however, for criticizing the Romney plan in a way that could promote doubts about the wisdom of broadening the tax base or the general principle of offsetting tax cuts.

Inaction on ‘Fiscal Cliff’ Threatens Immediate Harm

There is growing concern about how congressional procrastination on key budget decisions could already be harming the economy. The concern stems from widespread public uncertainty over what elected officials will do, if anything, about the “fiscal cliff” – a combination of sharp “automatic” spending cuts and the scheduled expiration of tax cuts at year’s end.

The Wall Street Journal recently reported on a survey it conducted of 47 economists, noting their worries about the growing economic cost of congressional inaction. Without some legislative changes, many warn, the combined economic effects of the fiscal cliff could substantially cut U.S. growth next year.

“The general expectation in Washington is that elected officials will not take action on the fiscal cliff until after the elections, despite encouragement throughout much of this year from The Concord Coalition and many other analysts and groups to work out a bipartisan action plan as soon as possible,” Concord Communications Director Steve Winn writes in a recent blog post.

“Ideally,” he adds, “this would have been done months ago in the context of comprehensive fiscal reforms to finally put the federal budget on a responsible and sustainable long-term path.”

Both Parties Worry Over ‘Automatic’ Cuts

President Obama signed legislation last week requiring the administration to report within 30 days on how it plans to implement “automatic” spending cuts that are required next year because a congressional “super committee” failed to agree on a deficit-reduction plan.

These cuts – also known as a “sequester”  – will total approximately $109 billion and are scheduled to begin in January. They are unusual because the executive branch rather than Congress will direct them, and lawmakers in both parties have been eager to hear the administration’s specific implementation plans.

“Sequesters have been part of the budget process for decades,” says Joshua Gordon, policy director for The Concord Coalition, in a recent blog post. “Were this sequester to go into effect, however, it would be among the few that have ever actually taken place in this country’s history, and would certainly have the greatest budgetary effect.” Mark Luciano, a Concord intern, assisted with the article.

The sequester was initially intended as a ‘Sword of Damocles’ over the super committee, which was created by the August 2011 agreement to raise the federal debt limit. The sequester “was not actually designed to take effect; it was designed to be so unpalatable that the Democrats and Republicans on the committee would feel forced to agree on 10-year that would reduce projected deficits by $1.2 trillion,” Gordon explains.

“Few in either party think such indiscriminate cuts make sense from a policy standpoint,” he adds. “Democrats and the President are also concerned about the impact of immediate spending cuts on a fragile economy, while Republicans prefer to replace defense cuts with deeper cuts to domestic programs.”