May 28, 2017

Washington Budget Report: Dec. 18, 2012

« Back to WBR Issue List

Sign Up to receive the Washington Budget Report »

Old Views on Tax Expenditures Complicate Budget Talks

The pace of budget negotiations between President Obama and House Speaker John Boehner has picked up in recent days, with the two meeting again on Monday at the White House.

With the latest exchange of offers, Obama and Boehner seem to have moved closer to a deal that would reduce the deficit by about $2 trillion over the next decade. But the political maneuvering continues.

Concord Coalition Executive Director Robert L. Bixby says that bridging the gap between the two parties might be easier if they would move beyond old habits by acknowledging that some policies traditionally defined as “tax increases” are really “spending cuts.”

“The current tax code is riddled with ‘tax expenditures’ -- exemptions, deductions, credits, exclusions and preferential rates that function much like entitlement spending,” Bixby points out in a blog post today.

A strong case can be made for cutting back or eliminating many of these tax expenditures because they  “complicate the tax code, distort economic choices and drain needed revenues,” Bixby writes. “Moreover, because tax expenditures tend to benefit upper-income households more than middle- or lower-income households, reforms can result in a more progressive system, or at least one that is as progressive as the current system.”

The largest tax expenditures include the exclusion from income of employer-provided health insurance ($164 billion a year), the home mortgage interest deduction ($100 billion), the Earned Income Tax Credit ($58 billion), charitable contribution deductions ($52 billion) and the Child Credit ($52 billion).

“To be clear, changing the definition of what constitutes a spending cut versus a tax increase would not bridge all the policy differences or produce all of the deficit reduction needed to put the budget on a sustainable path,” Bixby said. Changing that definition, however, would be “a more useful way of assessing the true impact of various policies.”

In recent days there have been more warnings from Federal Reserve Chairman Ben Bernanke, business executives and others that the economy could suffer substantial damage if elected officials fail to avoid the fiscal cliff in a responsible way.

Final Report on Strengthening of America’s Fall Forums

The federal debt is a “ticking time bomb” that puts the U.S. economy at risk, jeopardizes our standard of living and threatens national security, according to a new report by Strengthening of America – Our Children’s Future.

Strengthening of America is a bipartisan initiative launched earlier this year to focus more public attention on the fiscal, economic and security challenges facing the country -- and on possible solutions that elected officials should be considering.

“Ultimately, this is a moral issue,” says the report, which was released Friday. “We inherited a country with a sound balance sheet that underpinned a growing economy in which children could look forward to being better off than their parents. Unless we act now, we will pass along to our children and grandchildren a nation weighed down by unmanageable debt.”

Former Senators Sam Nunn (D-Ga.), Pete Domenici (R-N.M.), Warren Rudman (R-N.H.) and Evan Bayh (D-Ind.) convened a bipartisan group of former senators and representatives for four public forums that featured prominent experts on various aspects of the country’s fiscal difficulties.

The Concord Coalition is among the eight organizations that have been involved in the Strengthening of America project. Nunn is a co-chair of Concord, as was Rudman up until his death last month.

The final report on the Strengthening of America forums discusses five broad principles that emerged from them:

1. The U.S. debt is a ticking time bomb for our economy.
2. The debt is the “most significant threat to our national security.”
3. The United States “cannot have economic growth without fiscal stability or fiscal stability without economic growth.”
4. Putting the debt on a sustainable path will require “reductions in the projected cost of entitlement programs, cuts in discretionary spending, and higher revenues.”
5. Solutions are possible if our nation’s leaders are willing to compromise.

While the year-end fiscal cliff should be avoided, the report says, “it is the long-term debt burden this country faces that threatens our existence as a global power.”

Budget Warnings of 1992 Proved To Be Prescient

In September 1992, three concerned public figures launched The Concord Coalition in front of a national debt clock in New York City. Sen. Warren Rudman, R-N.H., former Sen. Paul Tsongas, D-Mass., and former U.S. Secretary of Commerce Peter G. Peterson were all deeply worried about the size and trajectory of the federal debt.

In an op-ed Saturday in the Des Moines Register, Sara Imhof, Concord’s Midwest field director, writes: “We can see now how justified the concerns expressed in that 1992 press conference were: The $4 trillion debt has become a $16 trillion debt. It is rising rapidly and is expected to continue doing so, with a tax system riddled with costly subsidies and the big federal entitlement programs straining to meet the demands of an aging population.”

She recalls that Rudman, who died last month at age 82, spoke eloquently at the 1992 press conference about the need to move beyond special-interest agendas and to focus on “economic growth and a future for the kids of this country.”

Looking back on his two terms in the Senate, Rudman said that in Washington “there is a great fear of doing what has to be done,” and he called for greater public engagement to support elected officials who wanted to do the right thing.

The country faces even greater fiscal danger now. “That’s why public pressure on Washington to change course is even more important than ever,” Imhof says.

College Students Fear Inaction in Washington

The stakes in Washington’s current budget battles are particularly high for college students and other young Americans, according to a Concord Coalition chapter on the Madison campus of the University of Wisconsin.

The Congressional Budget Office and other experts have warned that the economy could suffer substantial damage if elected officials do not act soon to avoid the fiscal cliff. Growth would slow and many businesses would likely reduce hiring or lay off employees.

“How can the government explain this to young people already struggling to find a job?” asks Ben Harris, a student at the University of Wisconsin-Madison, in a recent op-ed in the Milwaukee Journal Sentinel. “Even more important: How can the government explain this to young people who just buried themselves in student debt to improve their chances of obtaining a job?”

Harris founded the Concord chapter on the Madison campus along with fellow students Alex Zukauskas, Peng Yin, Bekah Ludwig, Katie Maike and Meagan Brasier.

“Even beyond the fiscal cliff,” Harris writes, “the current generation of young Americans may be financially crippled by America's accumulating debt and deficits. They will have a lasting impact on my generation because as our nation's massive outstanding debt comes due, we will be the ones footing the bill.”

Murray To Lead Senate Budget Committee

In the Senate last week, the Democratic Steering Committee selected Senator Patty Murray (D-Wash.) to lead the Budget Committee during the 113th Congress. Murray will replace Senator Kent Conrad (D-N.D.), who is retiring at the end of this Congress and who delivered his farewell speech on the Senate floor last week.   

The Steering Committee also chose newly elected Senators Tammy Baldwin (D-Wisc.), Tim Kaine (D-Va.), and Angus King (I-Maine) to join the Budget Committee.

Senators Tom Udall (D-N.M.), Jeanne Shaheen (D-N.H.) and Jeff Merkley (D-Ore.) were selected to joint the Appropriations Committee while Senators Sherrod Brown (D-Ohio) and Michael Bennet (D-Colo.) were chosen to join the Finance Committee.

The committee assignments are expected to be formally approved by the full Democratic caucus when the 113th Congress convenes in January.