October 23, 2014

Washington Budget Report: May 13, 2014

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Highway Trust Fund On the Road to Insolvency

The Highway Trust Fund is projected to run a $164 billion shortfall over the next 10 years unless lawmakers take action, according to the Congressional Budget Office (CBO).

The trust fund consists of two accounts: one for highway work, which receives most of the funding, and another account that pays for mass transit projects.

Previously, when spending in the trust fund was projected to outpace its revenue, Congress simply filled the gap with money from the Treasury’s General Fund. This defeats the whole purpose of having a dedicated trust fund.

Lawmakers need to come up with a better solution -- quickly.

In testimony to the Senate Finance Committee, CBO’s Assistant Director for Microeconomics Joseph Kile recently said the highway account would have to delay some payments beginning later this summer to maintain a positive balance. In Fiscal 2015, which begins in October, CBO warns that the entire trust fund would be unable to meet all of its obligations.

The trust fund faces declining revenue from the motor fuels tax, its dedicated funding source. The tax has not been increased since 1993, while stronger fuel economy standards and changing driving habits have cut into revenue.

Yesterday the Senate Environment and Public Works Committee unveiled legislation to re-authorize highway and transit programs for several years. Lawmakers, however, have yet to specify how they plan to fix the trust fund’s projected shortfalls.

Ignoring PAYGO, Lawmakers Move to Renew Tax Breaks

The House voted 274-131 earlier this month to make the Research and Development Tax Credit permanent without offsetting the cost. The vote was the first to renew one of the expired tax provisions known as “extenders.”

Making this tax credit permanent without offsets would add $156 billion to the deficit in the first decade alone, and would cost even more after that. This violates the pay-as-you-go standard that The Concord Coalition has long supported.

The White House has threatened to veto the bill unless the cost is offset by reducing or eliminating other tax expenditures.

Several lawmakers said they supported this particular tax credit but voted against the bill because it would add to the deficit. Sixty-two Democrats joined House Republicans in voting for the measure, while one Republican voted against it.

The Senate will debate waiving pay-as-you-go rules this week to pass its version of extenders legislation, which does not offset its $85 billion price tag. 

Instead of taking this piecemeal approach to tax expenditures and adding to our nation’s fiscal challenges, Congress should be taking a broader view of the tax code and using the expiration of the extenders as an opportunity to pursue comprehensive tax reform.

Yellen Calls for Long-Term Fiscal Sustainability

Janet Yellen, who took over as Federal Reserve chair in February, continues to call for a smooth transition to more sustainable fiscal policies on Capitol Hill.

In testimony to two congressional committees last week, she said that “having a long-run sustainable fiscal policy, a debt-to-GDP path, that can be maintained over time does require changes, but it doesn't require changes that would come into effect so quickly that it would impede the recovery.”

Yellen reiterated views she has expressed in past congressional appearances, calling for lawmakers to enact short-term policies to aid the economic recovery while also pursuing longer-term reforms to put the budget on a sustainable path. Her immediate predecessor as Fed chair, Ben Bernanke, repeatedly offered Congress similar advice.

Yellen also said officials, while crafting fiscal policy in the coming years, would have to consider the government’s rising interest payments as the economy improves and federal debt increases.

‘Federal Budget Challenge’ Lets Citizens Tackle Deficit

Congress may have lost interest this year in dealing with the nation’s long-term fiscal challenges, but an updated online game gives average citizens the chance to put together their own federal deficit-reduction plans.

The Federal Budget Challenge lets players weigh some of the many options that are available to elected officials. These include proposals that would affect health care costs, taxes, defense spending, entitlement programs and other domestic programs such as education and transportation.

The new version includes the most up-to-date options presented by the Congressional Budget Office.

The nonpartisan organizations Next Ten and The Concord Coalition created the Federal Budget Challenge. It is based on Concord’s “Principles and Priorities” exercise, which has been used in hundreds of classrooms and public programs across the country, including some hosted by members of Congress from both parties. The game platform was provided by Next Ten.