October 23, 2014

Washington Budget Report: Jan. 2, 2013

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Fiscal Cliff Deal Is Another Political Punt

After months of debate and negotiation, Congress on Tuesday approved legislation to avoid the most immediate consequences of the “fiscal cliff” but that falls far short of the more comprehensive reforms that many advocates of fiscal responsibility had hoped to see.

Concord Coalition Executive Director Robert L. Bixby called it another “political punt” that “leaves much more to be done.” The plan, he said, “requires no hard choices and solves no difficult problems.”

Erskine Bowles and Alan Simpson, co-chairs of a national fiscal commission and co-founders of the Campaign to Fix the Debt, issued a statement last night calling the budget deal “truly a missed opportunity to do something big to reduce our long-term fiscal problems.”

Many economists and others had warned that going over the fiscal cliff --  a scheduled combination of expiring tax cuts and poorly designed “automatic” spending reductions – could have thrown the country into another recession.

Vice President Joe Biden and Senate Republican leader Mitch McConnell took the lead in negotiating the final plan, which focused largely on tax policies while postponing the scheduled spending cuts for two months. It makes the Bush-era tax cuts permanent for most Americans and allows the scheduled increase to take place for those with the highest incomes. In addition, a temporary reduction in the payroll tax that supports Social Security is being allowed to expire.

The Congressional Budget Office estimated that relative to what had been current law -- which included assumptions such as the expiration of the 2001/2003 tax cuts and the triggering of the automatic spending cuts -- the legislation will increase deficits by almost $4 trillion over ten years.

But Jeff Zients, deputy director of the Office of Management and Budget, argued that it is more relevant to compare the legislation to what had been “current policy,” which assumed that Congress would extend the tax cuts and other expiring provisions. Using a current policy baseline, Zients estimates that the legislation will reduce deficits by $737 billion over ten years.

In a blog post yesterday, Bixby pointed out various shortcomings in the deal: “There is no entitlement reform, no tax reform and no framework or process for addressing these critical needs in 2013. Meanwhile, the indiscriminate and disproportionate discretionary spending cuts mandated by last year’s Budget Control Act are postponed, creating a new cliff.”

Bixby also notes that the deal fails to increase the statutory debt limit, so “it still looms as the next self-imposed crisis to remind everyone of how dysfunctional the legislative process has become on Capitol Hill.” The government officially hit its debt ceiling Monday although the Treasury can use what it calls “extraordinary measures” to avoid default for at least a few weeks.

Bixby urges the President and the new Congress to make it their first order of business to negotiate “a sustainable framework for spending, taxes, deficits and debt.” He also calls for a “reasonable debt limit increase to give the process time to work without a crisis of confidence over the government’s willingness to pay its bills.”

Americans Understand Need for Shared Sacrifice

When faced with the numbers, most Americans are willing to take on the shared sacrifice necessary to eventually stabilize the federal debt, according to Paul Hansen, western states regional director for The Concord Coalition.

“The protracted debate in Washington on whether we need more revenue or less spending is lost on most of us,” he writes in a recent op-ed. “We know we need both.”

Hansen points out that federal revenue as a percentage of the gross domestic product is well below the post-World War II average, while current federal spending is well above the historical average.

So significant changes in the tax code, the big federal entitlement programs and the health care system are essential. While a faster-growing economy would help, that alone would not be sufficient to solve the problem.

Hansen’s guest column, printed in the Billings Gazette and several other newspapers, notes that the U.S. Conference of Mayors and two associations of state legislators have issued “compelling resolutions” that urge federal officials to put the country on a better long-term course.

Political Courage and Bipartisanship Remain Essential

As they continue wrestling with the nation’s fiscal and economic challenges, elected officials in Washington would do well to keep the example of the late Warren Rudman in mind.

The New Hampshire Republican, who served two terms in the U.S. Senate, did not mince words  about the federal government’s budget problems, as recalled in a recent Pioneer Press (Minnesota) op-ed by former U.S. Rep. Tim Penny and  Sara Imhof, Midwest regional director for The Concord Coalition.

Rudman repeatedly sounded the alarm on the country’s long-term budget problems while he was in the Senate and for many years after that as one of Concord’s founding co-chairman. He complained that both parties were afraid to speak the truth to the public and he urged Congress to shift its focus away from special interests and concentrate instead on promoting economic growth and building a better future for the next generation.

With the national debt well above $16 trillion – roughly the size of the country’s gross domestic product – courageous political leadership has never been needed more, say Imhof and Penny, who is currently president and CEO of the Southern Minnesota Initiative Foundation as well as a member of Concord’s board of directors.

“After the November elections, neither party has the power or credibility to simply push through its own agenda,” they write. “Bipartisan compromise is the only option -- and the only way to reflect the wishes of a closely divided electorate.”