August 2011

CBO on the Caps

The caps on discretionary spending were, of course, the concrete centerpiece of last week's budget deal. Considering the importance of the caps, CBO published a blog explaining how they work and what would happen to discretionary spending over the ten-year window.

First, they go into some background on the caps:

Because the Congress sets funding for discretionary programs each year, cutting spending through the regular appropriation process can ensure only short-term savings. An approach to try to ensure longer-term savings that has been used in the past and that is used again in the Budget Control Act of 2011 is to set overall limits on discretionary spending for future years.

Statutory caps on discretionary spending were imposed in 1990, and extended in 1993 and 1997, before expiring in 2002. Many observers agree that as long as a consensus remained to rein in budget deficits, the spending caps helped curb the growth of discretionary spending. Such spending increased at an average rate of only 1.6 percent a year during the 1990s. When budget deficits gave way to surpluses late in the decade, however, the caps were overridden in the appropriation process and later allowed to expire. Since 2001, discretionary spending has increased at an average annual rate of 8.2 percent.

Then, they detail specific information about how these caps would work:

The Budget Control Act of 2011 sets caps on appropriations of new discretionary budget authority that start at $1,043 billion in 2012 and $1,047 billion in 2013, and then grow by about 2 percent per year thereafter, reaching $1,234 billion in 2021. (Discretionary appropriations for 2011 totaled $1,067 billion; some provisions in the 2011 appropriation act affected mandatory spending, and the legislation was credited with $17 billion in reductions of budget authority for mandatory spending.) By 2021, under these caps, discretionary appropriations will be about 9 percent less than CBO’s baseline projections, which reflect an assumption that future appropriations will be the same as those provided for 2011 plus adjustments for inflation.

In addition, they show the discretionary spending path as a percentage of GDP compared to their March baseline. Discretionary spending would decline as a percentage of GDP under any CBO baseline, because it is assumed to grow with inflation which grows more slowly than GDP. However, under the new path, discretionary spending declines more quickly and more sharply, reaching levels comparable to the late 1990's.

Discretionary Spending (Percentage of GDP)

The discretionary caps are a good first step to reining in our budget deficits, but we need to do more on all aspects of the federal budget. Lawmakers need to continue the momentum that has been building for a comprehensive debt-reduction plan and must expand the goal of the special Joint Committee of twelve lawmakers to find more than $1.5 trillion in additional savings. We will need it if we are to succeed at reducing the debt as a share of the economy.

For more information about the discretionary spending caps in the Budget Control Act, check out CBO's full blog post here.

‘Line’ Items: Downturns and Downgrades Edition

Downers – Markets were down last week on fears that the European debt crisis was spreading and that the U.S. recovery was slowing down. These losses added to those from the previous week as lawmakers went to the wire to approve a statutory debt limit increase to avoid a default. Then came word late Friday that Standard & Poor’s had downgraded U.S. credit for the first time ever because of concerns that the country is not adequately addressing its mounting national debt. The recent developments highlight the impact of fiscal policy on the economy. Will Washington now be up for creating a comprehensive fiscal plan that allays creditors’ fears by charting a clear path to reducing the debt, or will it continue to lay low?

S&P Lowers the Boom – In an unprecedented action, credit rating agency Standard & Poor’s has lowered the credit rating of the U.S. from the highest AAA rating to AA+. S&P said the downgrade was due to their opinion that “the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.” S&P Managing Director John Chambers said that “the political gridlock in Washington leads us to conclude that policymakers don't have the ability to put the public finances of the U.S. on a sustainable footing.” He also said that the U.S. needs to stabilize its debt as a share of the economy and have it on a path to further decline to regain the AAA rating. Before the official announcement, the Treasury Department disputed the original numbers that S&P produced on the U.S. debt trajectory, with the firm changing its projections from the national debt reaching 93 percent of GDP to 85 percent in 2021. See the CRFB realistic baseline for our debt projections. In a statement, CRFB President Maya MacGuineas said the downgrade is “a heck of a wakeup call” and reiterated the need for a deficit reduction plan of at least $4 trillion.

Debt Ceiling Deal: Just Under the Wire and Way Below Expectations – On Tuesday, the last day the Treasury Department said it could stave off a national default without a debt limit increase, the Senate passed and the President signed legislation enacting a deal coupling a debt ceiling increase with deficit reduction. The total amount of deficit savings will depend on the results of a new bipartisan, bicameral Joint Select Committee on Deficit Reduction, which is charged with issuing recommendations to Congress that must be voted on without amendments by the end of the year. The Joint Committee is tasked with identifying $1.5 trillion in deficit reduction through 2021 in addition to the approximately $1 trillion is savings that will be achieved through spending caps over the next ten years. The $2.5 trillion total is far below the $4 trillion in deficit reduction that many economists and groups such as CRFB feel is necessary to put the country on a sustainable fiscal path. If the Joint Committee cannot agree on recommendations or if Congress does not approve of them, then automatic cuts from defense and domestic spending will be triggered. The Joint Committee will face intense scrutiny and pressure from interest groups to protect funding for favored programs and to possibly include policy riders not pertinent to budget policy because the Byrd Rule that normally bars such provisions will not apply to the recommendations produced by the Committee. The choices that congressional leaders soon will make as to who will sit on the Joint Committee (members must be named by August 16) will go a long ways in determining if the Committee will be able to come up with a broad plan with significant deficit reduction.

Appropriations Cannot Stay Below the Radar – The annual appropriations process had largely taken a back seat to the debt ceiling drama on Capitol Hill, with the House passing six of the twelve spending measures funding the federal government and the Senate passing just one. The new fiscal year begins on October 1 and all appropriations bills must be enacted by then or a continuing resolution agreed to in order to maintain government operations. The Senate has been hamstrung in its efforts because it never agreed on a budget resolution that set a top-line spending figure for the Appropriations Committee to work with. The spending caps set forth in the new debt limit deal do provide a guide for the Senate, but the spending limit specified by this year’s cap is below the top-line figure outlined by the budget resolution passed by the House earlier this year, which the House Appropriations Committee has been working from. When the House and Senate return from their current recess after Labor Day, they will have less than a month to complete all appropriations measures and reconcile their differences before the current fiscal year concludes at the end of September. Things are shaping up for potential stopgap measures and budget drama, a recurring theme in recent years as the budget and appropriations process has broken down. See the Peterson-Pew Commission on Budget Reform for some budget process reform ideas.

Congress Reaches New Lows – Congress is back home for its traditional August recess and according to recent polls, constituents won’t have many nice to say to their representatives. Surveys from CNN (84 percent) and the New York Times/CBS (82 percent) show that voter disapproval of Congress is higher than ever recorded before. These results come on the heels of the debt limit brinksmanship that brought the U.S. to the edge of default and the inability of legislators to address gaping federal budget deficits and national debt.

Presidential Campaign Starting Up in Earnest – With Congress away, focus is turning to the nascent 2012 presidential campaign. All the announced Republican candidates will participate in a debate in Iowa on Thursday and many will stay in the state with the first caucuses for the Ames Straw Poll on Saturday. Expect the debt limit deal, the S&P downgrade and ideas for addressing the debt while aiding the sluggish recovery to be high among the topics that the candidates must address.

Democrats Produce BBA Alternative – The debt limit deal also calls for both chambers of Congress to vote on a balanced budget amendment to the Constitution by the end of the year. Last week Senator Mark Udall (D-CO) introduced a version that will be the Senate Democrats’ preferred alternative to the proposal supported by Republicans. Unlike the Republican version, the Udall measure does not set a cap on federal spending as a percentage of GDP, nor does it require a supermajority vote to raise taxes. The Udall BBA does create a ‘lockbox’ protecting Social Security revenues and outlays from the balanced budget requirement and also prohibits Congress from providing income tax breaks to individuals earning over $1 million a year unless the budget is in surplus. See our Fiscal Toolbox that compares various budget process tools like balanced budget amendments.

Key Upcoming Dates

August 10

  • Federal budget for July released by the Treasury Department.

August 11

  • Iowa debate for 2012 Republican presidential candidates.

August 13

  • Ames, Iowa straw poll for 2012 Republican presidential candidates.

August 16

  • The Speaker of the House, House Minority Leader, Senate Majority Leader and Senate Minority Leader each must select three members to serve on the new Joint Select Committee on Deficit Reduction by this date.

September 14

  • Debate at the Ronald Reagan Presidential Library in California for 2012 Republican presidential candidates.

September 16

  • The Joint Committee must hold its first meeting by this date.

October 1

  • New fiscal year begins. Legislation fully funding the federal government, or a stopgap measure with temporary financing of government operations, must be enacted by then.

October 14

  • Congressional committees must submit any recommendations to the new Joint Select Committee on Deficit Reduction by this time.

November 23

  • The Joint Committee is required to vote on a report and legislative language recommending deficit reduction policies by this date.

December 2

  • The Joint Committee report and legislative language must be transmitted to the president and congressional leaders by this date.

December 9

  • Any congressional committee that gets a referral of the Joint Committee bill must report the bill out with any recommendation, but no amendments, by this date.

December 23

  • Congress must vote on the bill recommended by the Joint Committee by this date. No amendments are allowed.

MY VIEW: Maya MacGuineas

In two recent commentaries, written for CNN and CNN Money, CRFB president Maya MacGuineas talks about S&P's recent downgrade of the U.S. credit rating and what it means for Washington going forward. (Click here for CRFB's reaction to the downgrade.)

In her commentary for CNN Money, MacGuineas lays out specifically what Washington must do to get our AAA credit rating back: pick a fiscal goal, put a multi-year plan in place, address the toughest areas of the budget, and enact real spending caps and triggers. She concludes:

If we do all of this, we'll win back the heart of Mr. AAA by the end of the year. I would bet my dwindling retirement account on it. If we don't, we will all pay a very steep price. And assuming we do get him back, we should never let him get away again.

Click here to read the full CNN Money commentary.

 

In her CNN commentary, MacGuineas writes that this unfortunate turn of events should urge Washington to refocus its efforts on "going big" and enacting a comprehensive fiscal reform package that would prevent future downgrades. She writes about the areas of the budget that must be reformed to meaningfully improve our fiscal outlook, like defense, Social Security, health care, and the tax code, and says:

Big deals are hard, but small deals are hard too. Might as well try to do something to solve as many problems as possible and hopefully bring more people to the table in support of going big. It would stave off the next downgrade.

Click here to read the full CNN commentary.

 

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.

S & P Downgrades the United States

Yesterday, the Standard & Poor's rating agency downgraded the United States' long-term bond rating from AAA to AA+.

This downgrade is consistent with earlier warnings from the rating agency that a package closer to $4 trillion would be necessary, combined with the fact that the most recently enacted deficit reduction plan would be insufficient to even stabilize our debt. More fundamentally, S&P has expressed concern that Democrats and Republicans will not be able to agree to sufficient further deficit reduction -- particularly in the areas of revenue and major entitlement reforms. According to S&P

The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics... More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.

This morning, CRFB reacted with a press release. As it reads:

"This is a heck of a wake up call,” said Maya MacGuineas, President of the Committee for a Responsible Federal Budget. “It’s like when your alarm clock goes off too loud, and you can’t find the button to turn it off. We have been ignoring the slew of warnings from the major rating agencies and others from the IMF to the Fed, for way too long while failing to seriously address our debt challenges. Now we have this fiscal scarlet letter until we make the needed reforms to get our debt under control.”

“Between now and December policymakers will either be involved in a serious national discussion over how to bring our debt under control or else another round of theater and brinksmanship,” said MacGuineas. “We still have a real opportunity to enact serious entitlement changes, tax reform, and an economic growth strategy. But if we fail, I fear other ratingagencies will follow suit with S&P, with economically dangerous consequences.

Will We Have a Lower Deficit This Year Than Last Year?

Budget projections are a rather fickle thing, especially in the midst of great uncertainty about the strength of the economic recovery. By accident, CBO is providing a great demonstration of this fact in trying to get the numbers right for 2011.

In the January baseline, they projected that the deficit would jump from $1.29 trillion last year to $1.48 trillion this year, a new record over the $1.41 trillion shortfall recorded in 2009. It made sense, considering that there had been tax cuts beyond what was contained in the 2010 tax code (i.e. the payroll tax cut and the new estate tax parameters), and the economic outlook had not improved much.

However, they quickly revised their projection down to $1.40 trillion in their March baseline, attributing the $80 billion difference mostly to technical adjustments to other mandatory programs like TARP, loan programs, deposit insurance, and unemployment insurance. Still, the 2011 deficit was projected to be more than $100 billion higher than the 2010 deficit.

But, as CBO's Monthly Budget Review for July shows, even the March baseline may still be overstating this year's shortfall. According to the MBR, the deficit through July for this fiscal year is $1.1 trillion, which is actually $65 billion lower than the deficit through July of last year.

Spending, Revenue, and Deficits Through July (billions)
  2010 2011
Outlays $2,922 $2,996
Revenue $1,753 $1,893
Deficit $1,169 $1,103
     
Full-Year Deficit $1,294 $1,399/$1,210*

*These numbers are CBO projections ($1,399) and CRFB extrapolations ($1,210).

Much of this difference comes from individual income taxes. Revenue from the income tax has jumped almost 25 percent compared to last year, much higher than the 11 percent increase that CBO predicted in their earlier baselines. If that trend holds up, it would increase CBO's revenue count by almost $115 billion.

In fact, if you project forward full year numbers for 2011 based on the growth of spending and revenue from 2010 so far, it becomes apparent that this year's deficit may not only be below 2009's, but also 2010's shortfall. Using that extrapolation, the deficit would be "only" $1.21 trillion in 2011, $85 billion lower than last year. Of course, this number is dependent on those overall budget trends holding up.

Make no mistake -- the deficit for this year will be very large, either the second or third highest deficit in history. But, based on the way it's looking right now, don't be surprised if the final 2011 deficit comes in a bit lower than CBO originally predicted. Then again, it's also a statement on our fiscal policy when a $1.2 trillion deficit is good news.

CBO Releases Social Security Projections

CBO's latest Social Security projections bring no surprises to anyone familiar with the state of the program's finances. CBO projects the program to face a shortfall in the 2030s, with permanent cash flow deficits.

CBO is predicting that the Social Security Trust Fund will be exhausted in 2038 (two years later than the Social Security Administration projects), at which time beneficiaries would face a 19 percent benefit cut (slightly smaller than the cut SSA projects). The 75-year actuarial deficit is pegged at 1.58 percent of taxable payroll under the extended baseline and 2.00 percent under the Alternative Fiscal Scenario; the difference is accounted for by lower revenue from taxation of Social Security benefits due to the tax cuts. In both scenarios, CBO's projection of the shortfall is lower than the SSA projection (2.22 percent of taxable payroll under current law), mostly due to higher revenue under CBO's projections.

Still, even with CBO's slightly rosier outlook, Social Security still faces a huge shortfall. The graph below shows the growing disparity between Social Security revenue and outlays as a percent of GDP, according to CBO's projections.

 

 

Whether you look at CBO or SSA, the message is clear year after year: we need to reform Social Security to make it solvent. Beneficiaries face either a 19 percent cut in 2038 under CBO projections or a 23 percent cut in 2036 under SSA's if we do not act to shore up the system's finances. The only other option would be for us to shovel large amounts of general revenue into the Social Security system to keep it going at full strength. Neither of these scenarios is optimal and the sooner we begin implementing reforms, the slower those reforms can be phased in, allowing retirees to better prepare for changes in the system. With the state of policy as it is, the joint committee may be our last best chance to enact real reform that can be phased in over time. We continue to hope that this committee will exceed its mandate and implement a comprehensive reform plan that addresses the entire budget and puts us on a sound fiscal path.

For more in-depth information on their projections, the Excel sheet with all of CBO's data is here. In contrast, if you want a short version of the report, click here.

OMB Director Jack Lew on the Defense Cuts in the Debt Deal

The main savings feature that the debt deal (the Budget Control Act) contained--outside of the joint committee--is the discretionary spending caps. With that in mind, OMB director Jack Lew took to the OMBlog today to explain the distribution of those cuts between defense and non-defense spending (or security and non-security spending if you'd prefer).

Although the Budget Control Act only includes specific security and non-security spending caps for two years, projecting those caps to grow at the same rate over the remaining eight years of the budget window can give you ten year savings. So, how much would we save on the security/defense side?

The agreement just signed into law would achieve slightly more security savings than the President first proposed in April. Under baseline estimates, it would cut approximately $420 billion over 10 years. Assuming roughly proportional cuts, we project that of that $420 billion, $350 billion would be from the budget category of defense, and approximately $330 billion of that would be specifically from the Department of Defense. In sum, this agreement would be consistent with the President’s goal for security and Department of Defense savings as laid out in his fiscal framework in April.  

Compared to the President's FY 2012 budget, the projected caps would save about $600 billion in security spending or $500 billion in defense spending, according to Lew. Of course, these numbers come with the disclaimer that none of these savings are set in stone, since after 2013, they will be determined annually by future lawmakers.

That isn't the end of the story, however. If the joint committee fails or comes up with less than $1.2 trillion in savings, then defense will have to make up half the difference. Defense Secretary Leon Panetta already has warned against the across-the-board cuts contained in the trigger, so it is no surprise that Lew came to the same conclusion. 

Make no mistake: the sequester is not meant to be policy. Rather, it is meant to be an unpalatable option that all parties want to avoid. The Administration views these cuts in that way, and we imagine that both parties in Congress would as well.

We agree, but we also feel that there may be more room to smartly cut defense spending. The Sustainable Defense Task Force found close to $1 trilllion in defense savings last year and the Fiscal Commission cut about $900 billion in security savings in its plan. A closer look at defense spending, along with much needed changes to entitlements and the tax code, should be a part of a big deficit reduction plan, one that goes beyond the joint committee's mandate for savings.

CRFB Board Members Offer Thoughts on Debt Deal

The debt deal signed into law by President Obama on Tuesday has provoked all kinds of reactions from the media, the public, and lawmakers (click here for CRFB's reaction). Given the importance of the deal and the fact that CRFB's board is full of leading budget experts, it's no surprise that many of our board members have been called on to express their views about the deal and what lies ahead. While our "My View" blog series documents publications and other work from members of our board, so many have offered valuable insight that we thought it deserved a separate blog.

While every member of our board offers a different perspective, the consensus among CRFB board members seems to be that though the debt deal made some progress in the right direction, its not nearly enough to significantly improve our fiscal outlook and the truly difficult decisions still lie ahead.

Former fiscal commission co-chair Alan Simpson called the deal a “timid baby step” in a CNN op-ed on Wednesday, and urged the members of the special committee tasked with finding an additional $1.5 trillion in deficit reduction by November to address the problem in a comprehensive and bipartisan matter. He continued:

If the members of this committee are serious, they will look at the work of the Fiscal Commission that Erskine Bowles and I co-chaired, and they will look at the work of the brave souls in the Senate Gang of Six. They need to look at all parts of the budget and leave no sacred cows out on the range. If they leave out Medicare, Social Security solvency, Medicaid, defense and spending in the tax code -- the biggest drivers of the debt -- it won't fix one damn thing.

Alice Rivlin echoed these sentiments, calling for a bipartisan and comprehensive "grand bargain" on future deficit reduction in an op-ed for The Hill co-authored with former Sen. Pete Domenici. The authors laid out three elements they say are essential in putting the U.S. back on a sustainable fiscal path: slowing the future growth of Medicare and Medicaid and ensuring the solvency of Social Security, comprehensively reforming the tax code, and capping discretionary spending.

NPR’s All Things Considered hosted CRFB president Maya MacGuineas, who talked about the "trigger" in the debt deal that would enact across-the-board spending cuts in the event that the special committee fails to find or agree on sufficient deficit reduction. She spoke about triggers used in past legislation, lessons we could learn from those experiences and how the trigger in today’s debt deal compares. (See here for more on triggers and other budget enforcement mechanisms.)

Maya also spoke with MSNBC's Andrea Mitchell this week, where she was joined by board member David Walker. Both said that the debt deal fails to address the areas of our budget that need reform the most, such as entitlement spending and revenue. Mr. Walker did say that he was "cautiously optimistic" that the special committee would be able to come up with $1.2 to $1.5 trillion in deficit reduction, though he doubted the committee would be able to make the tough choices regarding entitlement and tax reform.

David Stockman expressed a slightly pessimistic view of the deal and our fiscal outlook Tuesday on CNN. He said that the deal simply kicks the can down the road and that our fiscal situation is "very grim." He concluded that "we're heading down a very bad path if this continues." Let's hope the special committee proves all the skeptics wrong and is willing to make the difficult political choices necessary to avert a fiscal crisis.

New York Times' David Leonhardt on The Colbert Report

Last night on The Colbert Report, David Leonhardt of The New York Times talked about the debt deal recently signed into law and why it's not enough to restore our nation's fiscal health or save our credit rating.

Host Stephen Colbert also had some interesting comments about the deal -- we particularly enjoyed his observation that "we made the hard choice to make the hard cuts later".

 

Click here for the video or watch below.


The Colbert Report Mon - Thurs 11:30pm / 10:30c
Saving America's Credit Rating - David Leonhardt
www.colbertnation.com
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Options for Limiting Tax Expenditures

Update: Howard Gleckman of Tax Policy Center has blogged on their paper over at TaxVox.

With the chaos of the debt ceiling now over, it's time to take a calm, relaxed look at some of the policies that the "special committee" or other future deficit-reduction efforts can use. Today, we will look at a new paper from the Tax Policy Center that examines a few options for limiting tax expenditures for high-income earners.

The three policies that TPC uses in their analysis are the Obama Administration's proposed limitation on itemized deductions, a new "effective minimum tax", and a percentage of income limitation on tax expenditures. All of these policies would raise significant amounts of revenue relative to either a current law (tax cuts expired) or current policy (tax cuts extended) baseline. Additionaly, the impact of these policies would be almost completely confined to the top quintile of taxpayers--and especially the top five percent.

The first policy is one that President Obama has proposed in each of his three budget proposals: limiting itemized deductions to 28 percent. Since taxpayers in the two brackets would face rates of either 33 percent and 35 percent (current policy) or 36 percent and 39.6 percent (current law), they would have the value of their deductions reduced by the difference between those rates and 28 percent. While the Administration's intent was to use this to raise taxes only on people making over $250,000, people making over roughly $215,000 would be affected under current law or current policy.

The second policy would create a new effective minimum tax whose purpose, like the similarly named Alternative Minimum Tax (AMT), would be to ensure that taxpayers pay at least a certain percentage of their income in taxes. These percentages would be 27 and 21 percent under current law and current policy, respectively. The new minimum tax would exempt people making under $250,000 (a much higher exemption than the AMT) and would phase in gradually for income between $250,000 and $500,000. As a side note, TPC made the rates 27 and 21 percent so that the minimum tax would raise a similar amount of revenue to the itemized deduction limitation.

The final policy TPC looked at is a two percent of income limitation on tax expenditures, a variant on an earlier proposal by CRFB President Maya MacGuineas, former CEA chair Martin Feldstein, and NBER economist Daniel Feenberg. The difference is that this limitation would only apply to people making over $250,000, phasing in gradually for income above that amount. Although this proposal would affect fewer taxpayers, it would hit people at the top more than the other policies and would raise more than twice as much revenue relative to current law.

The table below sums up the revenue impact of all three policies under both baselines.

Revenue Impact of Limiting Tax Expenditures (billions)
Policy Current Law (2012-2021) Current Policy (2012-2021)
28 Percent Limitation $288 $164
Effective Minimum Tax $258 $169
Two Percent Limitation $592 $520

 

We have also reproduced TPC's current policy distributional analysis below. As you can see, the two percent of AGI limitation on tax expenditures is the most progressive, followed by the minimum tax and then the 28 percent limitation.

Percent Change in Income Under Each Policy
Income Group 28 Percent Limitation Effective Minimum Tax Two Percent Limitation
Lowest Quintile 0.0% 0.0% 0.0%
Second Quintile 0.0% 0.0% 0.0%
Middle Quintile 0.0% 0.0% 0.0%
Fourth Quintile 0.0% 0.0% 0.0%
80-90 Percent 0.0% 0.0% 0.0%
90-95 Percent -0.1% 0.0% 0.0%
95-99 Percent -0.4% -0.2% -0.6%
Top 1 Percent -0.6% -1.8% -2.6%
Top 0.1 Percent -0.8% -2.4% -3.2%

 

As a matter of preference, we would prefer to see a comprehensive tax reform approach that raises revenue. However, if doing so proves to be too difficult politically, these across-the-board tax expenditure cuts are another way to go. The limitations reduce the distortions that tax expenditures cause and make the tax code more progressive, while raising the revenue we need to reduce our deficits and debt.

PS: Click here to read our Let's Get Specific paper on tax expenditures.

MY VIEW: Erskine Bowles and Alan Simpson

In an op-ed in today's New York Times, CRFB board members and former fiscal commission co-chairs Erskine Bowles and Sen. Alan Simpson offered their take on the debt-ceiling deal that was enacted into law yesterday.

While Bowles and Simpson are pleased that the nation did not default and that the plan offers some deficit reduction, they note that it is merely a step forward, not a solution. They write that the U.S. needs at least $4 trillion in deficit reduction this decade in order to avoid a fiscal crisis and that the "big ticket" items--such as Medicare, Medicaid, Social Security and tax reform--must also be addressed. They continue:

To do all this, the new committee must be bipartisan and bold. It must resist the temptation to simply recommend the bare minimum necessary to avert the next crisis instead of truly dealing with our long-term fiscal problem. The leaders of Congress must appoint members who will come to the committee with a willingness to reach a principled compromise that puts national interests ahead of partisan ones.

We were co-chairmen of a similar bipartisan group on debt reduction last year, and titled our final report “The Moment of Truth.” Of all our prescriptions, the most pertinent today is the one alluded to in the title: we must act now. If our government cannot address these terribly tough issues at a time when the public’s attention is fully on them, when will we ever be able to?

The committee must begin its work immediately. We can reform our budget gradually without disrupting a very fragile economic recovery, but reform it we must.

Click here to read the full commentary.

 

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.

MY VIEW: Maya MacGuineas

In her latest CNN commentary, CRFB president Maya MacGuineas stresses that Washington must do better than the debt deal recently approved by Congress. She writes that the deal saves only about half of what is needed and momentum that was building toward a "grand bargain" was sqandered by lawmakers' unwillingness to compromise and make difficult political choices.

She concludes by saying that her hopes now lie with the 12-member "special committee" that will be tasked with finding further deficit-reduction by November of this year, writing:

I am still holding out hope that the new special committee will exceed expectations and exceed its mandate. If these 12 members really steep themselves in the risks of inaction, or doing too little, and run through the options for coming up with the needed $4 trillion to $5 trillion, perhaps they will break out of their taking-things-off-the-table mentality, and starting putting things back on.

...Granted partisanship, the upcoming election and outside interest groups may all work against this. But we can avoid fixing the real problems for only so long, so maybe, just maybe, we can make this deal real.

 

Click here to read the full commentary.

 

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.