December 22, 2014

Washington Budget Report: October 15, 2013

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Amid Global Concern, Lawmakers Race to Secure a Budget Deal

Spurred by a Thursday deadline to avoid risking a federal default, Senate leaders said yesterday that they were finally making progress towards a bipartisan agreement to raise the federal debt limit and end the government shutdown.

Reports this morning, however, said House leaders will pursue their own plan. At mid-day, though, Speaker John Boehner said there had been "no decisions about what exactly we will do."

Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell offered positive assessments of the work on the Senate plan yesterday. It called for lifting the debt limit through early February and funding the government through mid-January.

The Senate plan would also lead to budget talks that could open the way for more comprehensive, long-term fiscal reforms that are needed to put the federal budget on a more responsible and sustainable path.

The 2-week-old shutdown has wasted taxpayer dollars, caused hardships for millions of Americans and inflicted significant economic damage. A default on some of the government’s financial obligations, however, would be far worse.

The Treasury says that by Thursday it expects to have exhausted its “extraordinary measures” to avoid default, and that a default could occur at any point after that -- perhaps with little warning.

The Concord Coalition continues to urge elected officials to set partisanship aside and work together to quickly raise the debt ceiling, end the shutdown and then focus on approving comprehensive fiscal reforms.

“Obama and the Republican leaders should start by reaching a tacit understanding that neither will insist that the other must publicly back down as the price of a deal,” says Robert L. Bixby, Concord’s executive director, in a recent blog. “What’s needed now is less bombast and more breathing room.”

A useful framework for discussions on broad fiscal reforms, he says, is the plan suggested by Alan Simpson and Erskine Bowles in April: “A Bipartisan Path Forward to Securing America’s Future.”

While hard-liners in both parties may object to the results of such discussions, Bixby warns, “trying to satisfy the hard-liners will make any agreement impossible.”

The administration, business leaders, the International Monetary Fund, mainstream economists and other national governments all warn that a U.S. default could have catastrophic financial and economic consequences in this country and around the world.

A report released Monday by the Peter G. Peterson Foundation estimates that persistent uncertainty over fiscal policy since late 2009 has lowered U.S. economic growth by 0.3 percentage points a year. The report says that even a brief, technical default by the U.S. government would trigger a recession through the end of 2014, costing 2.5 million jobs.

The Debt Limit: A Case of Mistaken Identity

The federal debt limit is actually a case of mistaken identity, according to Concord Coalition Executive Director Robert L. Bixby.

“While you would think that a ‘debt limit’ would exert control over the nation’s fiscal policies, it does not,” he says in a recent interview. “It only limits the government’s ability to pay bills it has already incurred. But the tax and spending decisions that require more borrowing have already been made.”

In the interview, with Paul Owens of the Orlando Sentinel on various questions about the debt limit, Bixby also notes that no one in either party has even suggested a budget plan that could prevent further borrowing in the immediate future. That is what makes it imperative for Congress to raise the debt limit.

There is good reason for public skepticism about lawmakers who insist on certain conditions to raise the debt limit. Bixby points out that many of the members of Congress who resist raising the limit have approved the fiscal policies that make such an increase necessary.

In addition, he says, “the problem with using a potential default to make partisan demands is the implicit assumption that your opponent won’t be as irresponsible as you.”

President Nominates Janet Yellen to Lead the Fed

President Obama announced last week that he would nominate Federal Reserve Vice Chair Janet Yellen to succeed Ben Bernanke as Fed chairman.

If confirmed by the Senate, Dr. Yellen is widely expected to continue the policies supported by Bernanke; she is generally thought to favor continued low interest rates to help bolster the economic recovery. She would be the first woman to lead the central bank.

“While we have made progress, we have further to go,” Yellen said last week. “The mandate of the Federal Reserve is to serve all the American people, and too many Americans still can’t find a job and worry how they’ll pay their bills and provide for their families. The Federal Reserve can help if it does its job effectively.”

Yellen previously served as president of the Federal Reserve Bank of San Francisco and chair of President Clinton's Council of Economic Advisors.

Concord Honors Five With Economic Patriot Award

The Concord Coalition honored five individuals last week with the 2013 Paul E. Tsongas Economic Patriot Award: Former Federal Reserve Vice Chair Dr. Alice Rivlin; former senators Sam Nunn, Pete Domenici and Bill Brock, and the late Rev. Bill Gray, who served as chairman of the House Budget Committee.

Robert L. Bixby, Concord’s executive director, praised the recipients of this year’s award for showing a “profound dedication to making a better America for today and for future generations.” He said, “Although they come from different experiences and different political philosophies, each of our honorees tonight is a great American, and highly deserving of our recognition.”

Bixby also noted that all five honorees had been involved last year in the Strengthening of American project, a joint effort by Concord and a number of other organizations that included a series of high-profile forums on the nation’s fiscal challenges and their potential impact on everything from economic growth to national security.

Rivlin, Nunn, Domenici and Brock accepted the award at Concord’s annual dinner in Washington. Justin Gray, Rev. Bill Gray’s son, accepted on his father’s behalf.

Worried Budget Experts Call for Compromise

With the Washington Post's Lori Montgomery, this year's Economic Patriots and Robert Bixby discuss the need for a grand bargain

Worried and frustrated by Washington’s latest fiscal fights, a panel of experts on the federal budget last week faulted elected officials in both parties for irresponsibility, inflexibility and, in some cases, lack of common sense.

The situation led former senator Sam Nunn (D-Ga.) to quote Will Rogers on congressional philosophy: “If stupidity got us into this mess, then why can’t stupidity get us out?”

Concord Coalition Executive Director Robert L. Bixby had a suggestion for some lawmakers: “If you are trying the strategy of pandering, pandering, pandering, and you are at 5 percent in the polls, why not try something else – coming together and legislating?”

The panel discussion took place at Concord’s annual Economic Patriots Dinner on Thursday in Washington. Also participating were former Federal Reserve vice chair Dr. Alice Rivlin, former senator Pete Domenici (R-N.M.), and former senator Bill Brock III (R-Tenn.). Washington Post reporter Lori Montgomery served as moderator.

Domenici spoke of “difficult times for a great nation” and lamented today’s excessive partisanship. Rivlin criticized both Congress and the President for “a failure of leadership” – a view shared by other panel members.

Brock said he was also deeply worried about the low level of respect that Americans now have not only for Congress but for other institutions in our society.

Much of the evening’s discussion, however, focused on possible areas of political agreement.

Panel members emphasized the need to make entitlement programs sustainable, overhaul the inefficient tax code, encourage personal savings and promote economic growth in the years ahead.

The budget experts also advised voters to steer clear of politicians who scorn the idea of compromise. Nunn encouraged the public to support candidates “who say they are going to Washington to work with the other party and to solve problems.”