July 26, 2014

Washington Budget Report: July 16, 2013

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‘Regular Chaos’ Rather Than ‘Regular Order’ on Budget

The House and Senate appear to be making little effort to work out their differences over spending levels, let alone any broader budget deal that might involve President Obama.

“We no longer have ‘regular order’ so much as we have regular chaos,” Concord Coalition Executive Director Robert L. Bixby says in a recent blog. “A tacit decision seems to have been made to take no action on the budget until a crisis is at hand, which is not likely to occur until the end of the fiscal year on Sept. 30.”

The administration’s release of its Mid-Session Review (MSR) on the budget last week seems unlikely to change that. But it is still useful to review the administration’s updated numbers on its most recent proposals.

The administration now sees the deficit shrinking to $759 billion (4.7 percent of GDP) this year, a substantial improvement from the $973 (6 percent of GDP) deficit projected in the President’s budget in April.

But recent legislative activity deserves little credit for this improvement, and the administration’s projected deficit for the next 10 years has grown to $5.8 trillion, up from $5.3 trillion in April.

“While the overall changes are modest,” Bixby says, “they trend in the wrong direction, particularly towards the end of the 10-year window.”

House Farm Bill Falls Short on Fiscal Reform

The House passed a farm bill last week after its first attempt failed at the end of June. To get more Republican votes, all funding for the food stamp program was removed from the legislation -- funding which made up 80 percent of the original bill’s spending.

Yet this removal did not pave the way for enhanced reforms of the remaining agriculture spending or a more fiscally responsible bill. In fact, relative to the agriculture spending in the Senate’s bill -- which did manage to provide for food assistance to the poor -- the latest House bill spends about $1 billion more on subsidies.

In addition, the House bill removes sunset provisions from many of the crop support programs. This makes it less likely that lawmakers in the future will give waste and program inefficiencies the scrutiny they deserve.

The folly of the latest chapter in farm bill history ought to spur a re-thinking of the entire endeavor. Lawmakers should make fundamental reforms in the nation’s farm support programs while renewing the food stamp program without disruption and avoiding drastic cuts for those in need.

 

GAO Report Highlights Arbitrary Corporate Tax System

Profitable American companies pay an average of only 12.6 percent of their income in taxes, much less than the official 35 percent corporate tax rate, according to a study released this month by the Government Accountability Office (GAO).

Many special provisions in the tax code favor some companies over others. These are sometimes called tax expenditures because they function much like direct government spending, providing benefits for some taxpayers at the expense of others.

With the nation facing severe fiscal challenges in the years ahead, many Americans are asking -- with good reason -- why many profitable corporations are allowed to pay so little.

Largely because of loopholes and other tax breaks, the GAO reports, corporate income taxes have dropped over the past 50 years from about 25 percent of total government revenue to just 9 percent.

In May a Senate subcommittee hearing focused attention on how the tax code allowed Apple to legally avoid paying taxes on billions of dollars in profits. While some lawmakers criticized the company, the real fault lies with Congress for failing to pass more reasonable tax laws.

The new GAO report shows how arbitrary the current system has become, and provides support for efforts to make the tax code simpler, fairer and more efficient.

Senators Max Baucus (D-Mont.) and Orrin Hatch (R-Utah) recently suggested a good reform option: a “zero-based” approach that would remove all tax expenditures and then reinstitute only those that can be justified by specific criteria such as enhancing fairness or economic growth.