April 18, 2014

Washington Budget Report: September 3, 2013

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Deficit Drops But Fiscal Challenges Remain

Fiscal Year 2013 is drawing to a close with a projected federal deficit of a little over $640 billion, marking the end of a four-year string of trillion-dollar-plus deficits.

While that change is good news, our fiscal worries aren’t over. Although the deficit is going down, the federal debt is still going up. And short-term economic factors, not systemic reforms, are largely responsible for this year’s lower deficit.

The big long-term pressures on the federal budget -- demographics and health care costs -- remain. The government’s interest costs are expected to rise sharply in the coming decade as well. 

And even in the short run, budgetary crises loom. As noted in a recent blog post by Steve Winn, communications director for The Concord Coalition, Congress has yet to pass a single appropriations bill for the fiscal year that starts Oct. 1, and some lawmakers are irresponsibly threatening to push the country into default later this year over partisan disagreements. 

“Washington has yet to grasp the importance of long-term fiscal reform,” Winn writes. “Elected officials still seem to be waiting for a crisis, which is a good way to get one.”

Time Running Short for Action on Debt Limit

Treasury Secretary Jack Lew has warned lawmakers that the government could hit its debt ceiling in mid-October, earlier than many analysts had predicted.

Congress has no choice but to eventually raise the debt limit so the government can pay its bills and avoid default. Pending congressional action, the Treasury has relied on “extraordinary measures” to avoid default since May 19.

One factor that has helped delay a crisis: Fannie Mae and Freddie Mac are paying higher dividends to the government than many had expected. The government-controlled mortgage giants have been buoyed by Federal Reserve purchases of mortgage-backed securities.

In addition, changes last year to an agreement between the government and the two companies has boosted their payments to the Treasury Department.

The Treasury has so far received $146 billion in dividend payments from Fannie and Freddie, which received $188 billion in bailout funds during the financial crisis. Last month, however, President Obama declared support for phasing out Fannie and Freddie to avoid future government bailouts.

Citizens Are Willing to Make Hard Budget Choices

Americans have had plenty of warnings about the need to deal with the nation’s fiscal challenges. And judging from how ordinary people respond to The Concord Coalition’s deficit-reduction exercises around the country, they expect more from Washington than unrealistic budget plans and partisan stalemates.

Participants in the exercises “are willing to make the hard choices themselves when given the opportunity,” Concord’s Sara Imhof writes in a recent guest column in the Duluth News Tribune.

She notes, for example, that many people favor comprehensive tax reform, which would end many tax breaks, and they are willing to make changes in the Social Security program such as raising the earnings cap on its payroll tax and using a different index to make cost-of-living adjustments in benefits.

Imhof, who is Concord’s Midwest regional director, will facilitate two more “Principles and Priorities” exercises tomorrow in Duluth and Brainerd, Minnesota. Concord is hosting them with U.S. Rep. Rick Nolan.

Entitlement Reforms Should Not Be Delayed

Social Security and Medicare are important, popular programs on which millions of Americans depend. But both require significant reforms to enable them to deal with rising health costs and aging baby boomers -- and still be able to serve future retirees well.

Unfortunately, the AARP -- an organization that millions of older Americans rely on for retirement-related information -- continues to suggest that Social Security’s financial difficulties are in the distant future and that the system has no effect on the federal deficit.

Neither claim is correct, as Concord Coalition Communications Director Steve Winn pointed out in a letter published Friday in The Kansas City Star. He calls on AARP to join nonpartisan reform advocates in pursuing changes that can put entitlement programs on a sustainable track.

Read more with Social Security and AARP