December 2011

Appropriations Update: No Bill Left Behind?

Ever since the three appropriations bills and the temporary continuing resolution (CR) passed Congress last month, lawmakers have refused to consider any other possibility besides passing the remaining bills by December 16, when the CR runs out. But is that changing?

CQ is reporting (subscription required) that Congress may have to use a CR for the Labor-HHS-Education bill and possibly the Interior-Environment and Financial Services bills. The entire conflict would come from Republican policy riders that hit at key Obama policy items, like the Affordable Care Act and the Dodd-Frank financial reform legislation. In fact, some Democrats have indicated that using a CR would be preferable as a way to avoid the riders.

Still, David Rogers at Politico reports that these differences may not necessarily be wide enough to force the use of CRs. He cites Senate Appropriations chairman Daniel Inouye's (D-HI) statement that the policy riders have been narrowed and that there is confidence that the remaining differences can be resolved in the conference. The commitment is there for both parties to get all the bills finished so they don't have to continue the budget fight into next year.

For now, the House and Senate will be meeting through the end of this week to work towards an agreement, using the Military Construction-VA bill that already passed both chambers as a vehicle for the "mostlybus" legislation. For the timing to work out, Congress will need to have a package completed by the beginning of next week so there is ample time to publish it and vote on it. It will soon be clear whether we will have a budget for this year or if some bills will be left behind for a CR.

Another Proposal to Extend the Payroll Tax Cut and Other Policies

Finding a way to extend the payroll tax cut, along with the many other expiring provisions this year, continues to be a dominating issue for Congress as 2011 comes to an end this month. A bipartisan proposal that includes a one-year extension of the tax cut was introduced yesterday by Sen. Susan Collins (R-ME) and Sen. Claire McCaskill (D-MO).

Their proposal (The Bipartisan Jobs Creation Act) includes the payroll tax cut extension among several measures meant to represent a bipartisan compromise on what the Senators call "a commonsense jobs bill".

These measures include:

  • Extending the 2 percent payroll tax holiday for employees
  • Expanding the payroll tax holiday to employers
  • Extending three other expiring tax credits (research and development credit, 100 percent bonus depreciation and 15 year restaurant and retail depreciation)
  • Providing a tax credit to American high-tech small businesses less than five years old
  • Providing an additional $35 billion for infrastructure spending to states
  • Consolidating and reforming federal jobs-training programs

The bill proposes to pay for these measures by enacting a millionaire surtax (two percent on taxpayers with more than $1 million in annual earnings, with an exception for small businesses) and by repealing tax credits offered to major U.S. oil companies. In a joint press release, Sen. McCaskill states:

"There are a lot of folks who think bipartisan compromise in Congress isn’t possible anymore, but I’m not willing to accept that. Here is a prime example of what can be accomplished when Congress stops playing politics, and starts working together—a viable plan to put more Americans back to work, rebuild our crumbling infrastructure, and cut taxes for working Americans."

Given the bitterly partisan atmosphere we've witnessed in Washington recently, seeing lawmakers work together in a bipartisan manner is certainly refreshing, and we applaud Sens. Collins and McCaskill for including measures to pay for any new policies or extensions. The last thing we can afford is making our current fiscal trajectory any more dire.

To read a complete summary of the proposal, click here.

House Budget Committee Releases Budget Reform Points

Today, the House Budget Committee released a budget reform proposal consisting of ten different pieces of legislation. The package intends to address many different aspects of budget reform, such as the budget process itself, budget concepts, and other budget-related items. Below is the full list of provisions as seen in the Budget Committee's press release.

Check back with The Bottom Line soon for analysis of these budget reform ideas.

Spending Control

The Legally Binding Budget Act (Lead sponsor: Rep. Diane Black of Tennessee)

  • Gives the budget the force of law by converting it from a concurrent to a joint resolution, which requires the President’s signature. Upon a presidential veto, the joint resolution automatically reverts to a concurrent resolution.

The Spending Control Act (Lead sponsor: Rep. John Campbell of California)

  • Establishes binding limitations on federal spending and deficits all enforced by a sequester of no more than 4 percent of programs within each category if the program is growing faster than inflation.

The Expedited Line-Item Veto and Rescissions Act (Lead sponsors: Chairman Paul Ryan of Wisconsin, Ranking Member Chris Van Hollen of Maryland)

  • Provides for the expedited consideration by Congress of specific requests by the President to reduce discretionary spending in appropriations legislation.

Enhanced Oversight

The Biennial Budgeting and Enhanced Oversight Act (Lead sponsor: Rep. Reid Ribble of Wisconsin)

  • Establishes a biennial budgeting cycle where Congress adopts a budget resolution in the first session of Congress (i.e. odd-numbered year) and considers authorization legislation in the second session, providing greater opportunities for review of government spending.

The Baseline Reform Act (Lead sponsor: Rep. Rob Woodall of Georgia)

  • Reforms the budget “baseline” to remove automatic inflation increases in discretionary accounts, and to require a comparison to the previous year’s spending levels.

The Government Shutdown Prevention Act (Lead sponsor: Rep. James Lankford of Oklahoma)

  • If Congress fails to enact appropriations bills by the beginning of the fiscal year (Sept. 30), provides automatic authority to fund programs at a slightly reduced rate from the previous year’s level.

The Review Every Dollar Act (Lead sponsor: Rep. Jason Chaffetz of Utah)

  • Requires periodic sunset reviews and reauthorization of all federal programs to ensure the programs perform an appropriate role and are operating effectively.

  • Requires all transfers from the general fund to the Highway Trust Fund to be offset or counted as new spending.

  • Removes all direct spending provisions from Pell Grants and moves all funding to the discretionary spending category.

  • Requires any new rule or regulation promulgated by the administration that includes new spending to be explicitly funded by Congress before such regulations take effect.

  • Provides a mechanism through which Members can devote savings from spending bills to deficit reduction.

Full Transparency

The Balancing our Obligations for the Long-Term Act (Lead sponsor: Rep. Mick Mulvaney of South Carolina)

  • Caps total spending over the long-term to reduce the burden of government to no more than 20 percent of the economy by gradually reducing spending.

  • Requires Congress to review long-term budget trends every five years and provides a fast-track legislative process to put federal spending on a sustainable path.

  • Authorizes reconciliation of long-term savings (beyond the current limit of the budget resolution’s typical 10-year window, up to 75 years) in Social Security, Medicare, and Medicaid.

  • Requires CBO long-term estimates beyond the 10-year window.

  • Requires the President’s budget to extend beyond the 10-year window.

  • Strengthens the statutory requirement directing the President to submit legislation to save Medicare if the general fund subsidy to the program exceeds 45 percent of the program’s costs.

  • Requires GAO and OMB to report annually on the federal government’s unfunded obligations.

The Budget and Accounting Transparency Act (Lead sponsor: Rep. Scott Garrett of New Jersey)

  • Reforms the Credit Reform Act to incorporate Fair Value accounting principles.

  • Recognizes the budgetary impact of the GSEs by formally bringing the entities on-budget.

  • Brings the U.S. Postal Service on-budget.

  • Requires a CBO & OMB study on offsetting receipts/collections/revenues.

  • Requires all federal agencies make public the budgetary justification materials prepared in support of their requests for taxpayer dollars.

The Pro-Growth Budgeting Act (Lead sponsor: Rep. Tom Price of Georgia)

  • Requires CBO to provide an assessment of the macroeconomic impact of major legislation.

Eurozone Challenges Should Give Pause to U.S. Lawmakers

Europe's worsening debt crisis--notably Italy's--should serve as a warning to the United States of what can happen to an otherwise steady, solvent economy whose debt is too high. In short, when debt gets so precariously high that interest payments become a very large budget line, debt markets can expand a slight decrease of confidence into a significant increase in interest rates. From there, the crisis can quickly descend into a national failure to refinance expiring bonds, and then possibly into national bankruptcy and default. S&P recently warned of possible downgrades to 15 counties in the eurozone.

Italy’s fiscal situation is not like Greece’s, and this fact should give pause to U.S. lawmakers. In early 2011, Italy’s fiscal situation looked quite stable -- except for starting the year with public debt at 118 percent of GDP. Debt at that level has already been shown to be associated with slower economic growth by economists Carmen Reinhart and Ken Rogoff. GDP was forecast to grow at a meager one-half to one percent (real), but the national budget was expected to produce a primary surplus of 0.8 percent. As late as August, interest on Italy’s debt was forecast to cost a whopping 4.8 percent of GDP, leaving the net annual deficit at 4.0 percent--not good, but much less than 8.5 percent for the U.S. in FY 2011. In the first months of 2011, interest rates on Italian debt were stable at about 4.8 percent, while annual inflation was forecast at 2.2 percent. Today, by contrast, Italian-debt interest rates over 7 percent are pushing Italy toward default and a possible exit from the euro, catastrophic consequences for the Italian economy, terrible consequences for many European banks and economies, and very bad consequences for the world economy.

The timing of such a reckoning cannot be predicted. Obviously the U.S. is not Italy, and our economy arguably has more fiscal room to maneuver given the overall size of our economy and that the dollar is the world's reserve currency. However, our fiscal situation is nonetheless grave. Today’s U.S. national debt is 68 percent of GDP, forecast to increase to about 81 percent by 2021 and higher after that. In 2011, interest on the debt cost 1.5 percent of GDP at historically low rates (in part due to troubles in the euro zone). By 2018, however, interest on the debt is forecast to cost 3 percent of GDP and to rise steadily from there.

It’s also important to remember that Italy’s crisis of market confidence falls on a country that had a fiscal plan under average historical interest rates to muddle through some of the challenges. Some of the other Euro countries in trouble, however, did not have such a plan, or at least not one adequate for a major shock like the current recession. Ireland is struggling to put such a plan in place; Greek political forces are not yet resolved enough in favor of such a plan to reverse their crisis; and Spanish and Portuguese political actors have not yet determined a path toward fiscal sustainability. On this last element, U.S. lawmakers have too much in common with some European counterparts, and they need to agree on and pass a big, comprehensive plan for fiscal sustainability in this country.

The higher the national debt, the less wiggle-room for constant financing and refinancing of the debt, and the greater the vulnerability to a tipping-point and crisis of confidence--whose timing cannot be predicted. In Herbert Stein’s famous words, “If something cannot go on forever, it will stop.” The growth of U.S. national debt cannot go on forever at current rates, and it will stop. It’s up to lawmakers to stop it earlier and less painfully now, in order to avoid an abrupt, involuntary, and very painful halt later on. It's always better to act in advance.

Spotlight on the States: Internet Sales Tax

Breaking from traditional posts in our Spotlight on the States series, this blog focuses not on one state's budget, but on an issue that directly affects nearly every state's budget: the collection of sales tax from internet sources. For the past ten years, internet sales have skyrocketed as more and more shoppers take their shopping to the web. In a widely acknowledged tax loophole, online vendors are not required to charge sales tax on internet purchases since their stores are often located in a different than the customer.

Brick-and-mortar retailers like Wal-Mart claim that the availability of tax-free purchases over the internet unfairly incentivizes consumers to choose internet retailers for otherwise substitutable goods. However, major internet retailers, such as eBay and Amazon, rely on this positive incentive to overcome the bias many consumers have in favor of long-established brick-and-mortar retailers. Major online retailers, which have no specific state affiliation, also argue that a regulation forcing them to comply with every state tax code in which they receive orders will create a huge burden on their business.

At issue is the fact that an internet retailer with a location in one state can sell an item to a person located in another state, yet neither state receives the sales tax revenue. A 1992 Supreme Court decision, Quill Corp. v. North Dakota, ruled that retailers are exempt from having to collect sales taxes in states where they don't have a physical presence. However, since the issue falls under the definition of interstate commerce, the Supreme Court also said that Congress has the ability to allow states to collect these taxes. 

The increased budgetary pressures on states in the past few years has pushed the sales tax issue into the spotlight as a means of reducing budget deficits. Three different versions of an internet sales tax bill have now made their way into Congress: The Main Street Fairness Act, The Bipartisan Marketplace Equity Act, and The Marketplace Fairness Act. These proposals would give states the ability to force online retailers to collect taxes or the ability to alter their tax systems with respect to online retailers.

  • The Main Street Fairness Act, introduced this summer by Sen. Dick Durbin (D-IL) and Rep. John Conyers (D-MI), would give states the authority to mandate that online retailers collect taxes. It would also require that states first agree to simplify their sales tax codes by signing on to the Streamlined Sales and Use Tax Agreement, which would standardize product definitions and filing requirements (except for small businesses), among other things.
  • The Bipartisan Marketplace Equity Act (MEA), introduced in mid-October by Reps. Steve Womack (R-AR) and Jackie Speier (D-CA), would also enforce tax collection from internet retailers and require states to simplify their codes. It includes a similar exemption for small businesses that make $1 million or less in online sales or a $100,000 or less in a particular state. 
  • The Marketplace Fairness Act, introduced by Sens. Lamar Alexander (R-TN), Dick Durbin (D-IL) and Mike Enzi (R-WY), would not require states to alter their tax codes; it would instead allow states to choose how to re-work their tax systems to make it easier for online retailers. They also include an exemption for small businesses with annual sales of less than $500,000. This bill has been endorsed by Amazon. 

The scope of the issue is in fact much wider than many may expect; a report by the National Conference of State Legislatures estimated that states would serve to gain $23.3 billion in 2012 alone with the collection of internet sales taxes. Given the size of some states' budget deficits, this revenue could go a long way towards closing fiscal gaps.

‘Line’ Items: Bowl Edition

Bowled Over – The all-knowing BCS computers have chosen LSU and Alabama to contend for the college football championship. Both teams are familiar foes and perennial contenders. The same can be said of the budget battles that will cap the year. Yearly appropriations, the doc fix, and the AMT patch continue their dominance at the top of the political agenda, along with the payroll tax holiday, which has emerged as a powerhouse in recent years. The myriad of other bowl games have also been set, offering a cornucopia of opportunities sponsored by various food products for other teams to take the stage. Likewise, tax extenders and expanded unemployment benefits will also have their moments. Will we ever see a shake-up in the standings? Will the top dogs ever be toppled or will we continue to see them year-after-year? There’s no Boise State or TCU this year.

No Escape from Payroll Tax Holiday – While there is growing agreement that the payroll tax holiday will be extended for another year, there remains a great deal of debate over if/how it will be paid for. The Senate blocked Democratic and Republican proposals last week to extend and pay for the tax cut holiday. On Monday, Senate Majority Leader Harry Reid (D-NV) unveiled a new version of legislation that would extend the payroll tax cut for one year and increase it, reducing the employee portion of the tax from the current 4.2 percent of wages to 3.1 percent. It does not include provisions recommended by President Obama to apply the tax cut to some employers. The temporary tax cut would be paid for by leveling a surcharge of just under 2 percent on incomes above $1 million that would expire after ten years. Other offsets in the package include a means test to prohibit millionaires from collecting federal benefits such as Social Security and unemployment insurance and reductions in non-health care mandatory spending that had been previously considered. The payroll tax cut in the bill is estimated to cost $180 billion over ten years. The new Senate version does not include a doc fix or an extension of expanded unemployment benefits, though they are still expected to move separately. The House is expected to move its own version this week.

Appropriators Seeing with Rose Colored Glasses – Appropriators are very optimistic that they can wrap up work on the nine remaining FY 2012 spending bills before Christmas. Appropriators say they are close to agreement on most of the package of approximately $900 billion in spending, with the Labor-HHS-Education portion and potential policy riders the last big sticking points.

Physicians Want Some Sugar – Doctors will get the patch of the Medicare Sustained Growth Rate (SGR), otherwise known as the doc fix, which will prevent a 30 percent cut in reimbursement rates to physicians who tend to patients on Medicare. The question is, will the fix be for one year or two. The betting money is on one year, which will cost about $22 billion.

Orange You Glad We Didn’t Say “Super Committee” – In a rare moment of bipartisanship that was lacking in the Super Committee, House Budget Committee Chairman Paul Ryan (R-WI) and Ranking Member Chris Van Hollen (D-MD) last week introduced legislation that would give enhanced rescission power to the President. The bill is designed to effectively provide a line-item veto to the White House that can pass Constitutional muster. It would allow the President to identify specific items in appropriations bills to be removed and Congress would have to quickly vote on those rescissions without changes. The bill is very similar to bipartisan legislation in the Senate.

No Fiesta in Europe – European leaders continue to grapple with the debt crisis that threatens to engulf the continent, and the rest of the world, in a financial debacle. As a part of the effort, leaders are considering tighter fiscal rules for members of the European Union to help guard against such a crisis from occurring again. French President Nicholas Sarkozy and German Chancellor Angela Merkel called on EU members to agree to a new treaty that will increase oversight of member countries’ budgets and penalties for violating spending rules. Meanwhile, S&P placed those two countries and 13 others in the eurozone on a negative credit watch Monday, warning of possible downgrades. The European example underscores the painful choices that are required when budget problems are ignored.

Cotton Swabs Instead of Bandages – Senators Claire McCaskill (D-MO) and Pat Toomey (R-PA) last week introduced legislation that would make the temporary ban on earmarks permanent. While earmarks represent a small part of the budget, getting rid of them is a step in the right direction for fiscal responsibility. But much more needs to be done.

Taking Liberty with BBA – The Senate is required by the Budget Control Act to vote on a balanced budget amendment by the end of the year, but the chamber will go further and vote on two different versions of a Constitutional amendment. One version is sponsored by Sen. Mark Udall (D-CO) and would exempt Social security from balanced budget requirements and prohibit tax cuts for the wealthy when the budget isn’t in surplus. The other version is supported by all Republicans in the Senate; it would cap federal spending at 18 percent of GDP and require a 2/3 majority vote to raise taxes. Neither version is expected to get the 2/3 majority needed to pass. The House already rejected its BBA.

Key Upcoming Dates (all times ET)

December 10

  • GOP presidential debate in Des Moines, IA sponsored by ABC News at 9 pm.

December 15

  • GOP presidential debate in Sioux City, IA sponsored by Fox News at 9 pm.

December 16

  • Continuing resolution (CR) currently funding federal government operations expires.

December 19

  • GOP presidential debate in Johnston, IA sponsored by PBS NewsHour, Google and YouTube at 4 pm.

December 31

  • Both houses of Congress must vote on a balanced budget amendment to the U.S. Constitution, as required by the Budget Control Act.

January 3, 2012

  • Iowa Caucuses.

January 10, 2012

  • New Hampshire Primary.

January 21, 2012

  • South Carolina Primary.

January 31, 2012

  • Florida Primary.

Senate Working to Extend Payroll Tax Cut

Today, Senate Majority Leader Harry Reid (D-NV) unveiled another proposal for how to both extend and expand the payroll tax cuts and pay for them, building on the two proposals last week from Senate Republicans and Senate Democrats who both called for paying for any payroll tax cuts, albeit with different offsets. Both of those proposals were voted down in the Senate, so Reid's latest bill is an attempt at compromise. CRFB is very encouraged that offers to extend or even expand on the current payroll tax cuts have been at least fully offset. Let's take a look at each offer.

  • The First Democratic Offer: The Middle Class Tax Cut Act sponsored by Senator Bob Casey (D-PA) would have cut the payroll tax from its current 4.2 percent (normally at 6.2 percent for employers and employees alike) to 3.1 percent for employees. Compared to the current payroll tax cut, this piece would increase the average American's income by about $500. Additionally, the plan cuts employer's contribution to Social Security from 6.2 percent to nothing for the first $12.5 million in new taxable payroll in the fourth quarter of this year and the first $50 million of added payroll in 2012. Lastly, the bill cuts employer contributions to Social Security to 3.1 percent for the first $5 million of current wages paid. The Democratic offer offsets its $248 billion cost with a 3.25 percent surtax on millionaires, which is specifically designed to be deficit neutral.
  • The Republican Counter-Offer: Sponsored by Senator Dean Heller (R-NV), the initial Republican proposal would have extended the current two percentage point cut for one year, while more than the $120 billion price tag. The bill's offsets would come by eliminating millionaires' eligibility for unemployment insurance and food stamps, while also raising their Medicare premiums. The bulk of the offsets come from lowering the discretionary spending caps from the BCA, which the legislation would make more manageable by reducing the size of the federal workforce and extending the current federal pay freeze by an additional three years. The proposal contains net deficit savings of $111 billion over ten years (excluding interest).
  • Democratic Counter-Counter Offer: Today, Senate Democrats have released an altered version of the Democratic proposal, which drops the employer provisions but keeps their original employee-side tax cut at a cost of about $185 billion over ten years. The millionaires' surtax is still present, but at a lower rate of 1.9 percent instead of 3.25, given the lower costs of the overall proposal, and is set to expire after ten years. The plan would also adopt the Republican proposal to cut off unemployment benefits and food stamps for millionaires. The proposal would also increase fees that Fannie Mae and Freddie Mac charge mortgage lenders for their guarantee which would save $38 billion over ten years.

CRFB estimates that all three payroll tax cut proposals would fully pay for themselves and reduce the debt by 2022. It is important to note that the first Democratic offer and the Republican offer would continue to reduce the debt thereafter, whereas the latest proposal would repeal the millionaire surtax after 10 years.

Note: CRFB estimates, extrapolation of primary and interest savings after 2021. Update: Second Democratic Offer Updated with CBO Data.

As we noted recently on our blog, any payroll tax cut provisions to help bolster the economy need to be paid for. It is encouraging that all of these proposals take this step, and we hope that the two sides find a compromise instead of dropping the offsets altogether.

But an even more fiscally responsible approach would be to have a payroll tax cut extension become part of a larger job creation and deficit reduction package that puts debt on a stable path. A package of savings in the $3-4 trillion range would go a long way towards not only putting debt on a declining path but also restoring confidence in our ability to deal with our long-term problems. A bigger package could also help resolve issues that would still remain if Reid's bill were enacted, including the expiring AMT patch, extended unemployment insurance, and many other expiring provisions. At the very least, those policies must also be dealt with in a fiscally responsible way.

‘Go Big’ Goes On

There has been lots of attention recently on the ‘Go Big’ campaign and what comes next. The latest comes from a National Journal article that begins, “The ‘go big’ proponents just won’t quit.”

Persistence is a needed attribute for those seeking solutions to the fiscal challenge facing the country as they go against the grain in the extremely ingrained culture of Washington. It goes against the basic instincts of elected officials to support policies that could cause pain for their constituents. It goes against contemporary political orthodoxy to cross the aisle and collaborate with the other party. Yet that is what Go Big supporters are doing. And against the conventional wisdom, their ranks are growing.

So far, 45 senators have joined with 100 members of the House of Representatives. These are savvy politicians, who fully understand the political risks they are taking, yet they recognize the greater risks to the economy and America’s standing if they do not act. That was one of the messages at a recent press conference featuring many of these lawmakers. They understand that the inability of Washington to address the problems facing the country in a substantive way is a major reason why public confidence in government is at an all-time low. They also realize that the fiscal challenge is a defining issue of our time that demands the type of leadership that transcends political allegiance.

In addition to legislators are a legion of economists, business leaders, budget experts, former policymakers and others who fear that we are following the disastrous path of Europe and must change course. Budget policy is not the most exciting issue, but those who understand the numbers can get pretty animated about the need for action. As former U.S. Comptroller General David Walker says, the mounting national debt is a “tremendous threat to the future of the United States, its position in the world, our standard of living at home, and, potentially, our domestic tranquility.” [See many more videos here.]

The National Journal article concludes by raising the key question: Will it take a crisis to prompt action? Go Big supporters believe that we can muster the political will to act now and preempt a crisis. It is not naiveté, but a conviction that the same spirit and determination that has allowed America to lead the way so many times before can be mustered yet again.

The failure of the Super Committee to produce any deficit reduction recommendations means that the issue is not going away. The growing support among lawmakers and many others for a comprehensive, multi-year plan that puts the United States on a sustainable fiscal course means that the Go Big movement will also continue.

First Anniversary of the Fiscal Commission's Final Report, The Moment of Truth

Today marks the first anniversary of the release of The Moment of Truth, the final report of the National Commission on Fiscal Responsibility and Reform, better known as the Fiscal Commission. The report's recommendations covered all areas of the budget -- including entitlements, defense, the tax code, and Social Security -- with a total of $4 trillion in deficit reduction over the next ten years. While it didn't receive the necessary supermajority to bring the plan to a vote, it did get approval by a bipartisan majority of Commission members: five Democrats, five Republicans, and one Independent.

To honor the anniversary of the report's release, co-chair Erskine Bowles, co-chair Alan Simpson, Alice Rivlin, Dave Cote, Andy Stern, Ann Fudge, former Sen. Judd Gregg and former Rep. John Spratt released a statement urging Congress to stop delaying action on implementation of a comprehensive fiscal plan. They continued:

We can no longer wait. The inability of the Select Committee to find common ground on deficit reduction of only $1.2 trillion over ten years underscores that a piece-meal approach to our deficit crisis will not work. Big problems require big solutions, and our national debt crisis is a very big problem. It is time for political leaders in both parties to pull together not apart, and make the tough decisions necessary to bring our debt under control and put our nation on a fiscally sustainable course.

The plan laid out in The Moment of Truth is not perfect, nor do any of us agree with every provision included in the report. But it remains the best framework for an overall balanced plan. And as the growing calls from members of both parties to revive the Fiscal Commission’s proposal underscore, it offers the best hope for moving forward in a broad, bipartisan manner.

Calls from lawmakers for a plan along the lines of the Fiscal Commission's report are indeed encouraging, as it represents a bipartisan, comprehensive solution to our mounting debt that would significantly improve our nation's fiscal outlook. If the Fiscal Commission's recommendations had been adopted at the time of their release, our fiscal situation would be a lot more stable and our future would be a lot more promising.

Regardless of how many votes the final report received,  there's no doubt that it has done an amazing job in moving the fiscal debate forward. It continues to be referred to as the most credible bipartisan fiscal plan by people and organizations of both political parties. It's not perfect, but it is the product of a group of people who put political differences aside in order to reach a compromise for the sake of the country. We could certainly stand to see more of that in Washington these days. As the statement from the Fiscal Commission members above concludes, "It’s time to act, be bold, be smart, and go big."

(Photo by Jonathan Ernst/Reuters)

Today's Fiscal Debate: The Good and the Bad

In the wake of the Super Committee being unable to recommend a package of savings, many other lawmakers have been stepping in to fill the void on debt reduction efforts, the trigger, and what to do about expiring provisions at the end of December. The reactions have been diverse, with some productive and some disturbing reactions.

Framing these discussions has been the trigger and a sizable list of expiring provisions. Unless a balanced budget amendment is passed by the end of the year (and we know the chances there), automatic cuts will hit both defense and non-defense parts of the budget starting in 2013.

First, the good. The Gang of Six has now been joined by two other senators: Senator Bennet (D-CO) and Senator Johanns (R-NE). They seem to be reviving their efforts for a big, bipartisan fiscal plan after efforts for a grand compromise fell short in the debt ceiling debate and within the Super Committee. Also, many lawmakers have called for a vote on the Fiscal Commission plan (see, for example, here and here), which could be another form of pressure on congressional leadership to try to take another crack at a deficit reduction plan. The outpouring of support among lawmakers for a Go Big approach despite the Super Committee failure is encouraging.

Of course, there have also been talks of going backwards on deficit reduction. The call for undoing parts of the trigger have been deeply discouraging. A number of lawmakers in both chambers of Congress have talked about doing this. But here's a better idea than dismantling the trigger: if you're concerned about the trigger's automatic defense or domestic spending cuts, enact a fiscal plan! As we talked about last week and even before that, the entire purpose of the trigger is to be unpleasant so that lawmakers come together to make a deal. Budgeting is all about priorities, and fortunately a big solution for debt reduction could set the country on the correct course and could be sufficient in size and scope for lawmakers to be justified in turning off the blunt approach to savings that the trigger takes.

Even more discouraging than simply dismantling or turning off the trigger would be doing so in exchange for adding to the deficit now. There have been growing calls (see here and here) from both sides of the aisle to dismantle parts of the trigger in exchange for extending various spending and/or tax policies that are set to expire at the end of this year. Not only would this worsen deficits and debt now, but it would weaken one of the central pressures on lawmakers to actually come to a bipartisan agreement on debt reduction.

The sequester must stay in place to do its job: force lawmakers to make a deal. Some lawmakers, such as the Gang of Eight and others pushing for a Go Big solution to the debt, are using the sequester as a motivator, while others are simply looking to avoid the difficult decisions. Leadership requires making the tough calls, and which path we follow will greatly determine how our budget looks in the coming years.