January 2012

CBO Releases January 2012 Outlook

CBO released its new budget and economic outlook, showing slightly higher ten-year deficit and debt projections from 2012-2021 than the last ten-year projections CBO produced this past August. The deficit will shrink from $1.3 trillion last year to $1.1 trillion in 2012, while deficits from 2013-2022 will be $3.1 trillion.  CBO is projecting that debt as a percentage of GDP will rise from 73 percent this year to 75 percent in 2013 before falling to 62 percent in 2022.

Although deficits from 2013-2022 are projected to be lower than the 2012-2021 projections last August, over the comparable period, deficits in the January baseline will be $3.8 trillion. Changes in their economic assumptions mostly drive the slight deterioration from August to January. Shifting the budget window forward (dropping the relatively high 2012 deficit and adding the relatively low 2022 deficit) mostly accounts for 2013-2022 deficits being lower than the 2012-2021 deficits projected in August.

Outlays will fall from 24.1 percent of GDP in 2011 to 23.2 percent in 2012, and they will remain in the 21-22 percent range for the rest of the ten-year window. The trend towards the latter part of the projections ticks up, presumably due to the demographic shift that will result in rapidly growing Medicare and Social Security outlays. As for revenue, it is expected to rise from 15.4 percent of GDP in 2011 to 16.3 percent in 2012 and will reach 21 percent by 2022. Of course, revenue would come in much lower than this if the 2001/2003/2010 tax cuts and AMT patches are extended.

CBO's economic assumptions are worse than in August, forecasting that unemployment will actually rise from an average of 8.8 percent this year to 9.1 percent next year. Also, real GDP growth will fall from a relatively weak 2.2 percent to an even worse 1.0 percent next year. CBO attributes the economic deterioration in 2013 to the immediate tightening of fiscal policy scheduled that now includes the sequester, along with the expiration of the 2001/2003/2010 tax cuts.

However, this "tightening" is the product of a current law baseline, which involves making a variety of policy assumptions that are generally considered to be unrealistic. Because a number of policies are expected to be extended, but are written in law to expire, the current law baseline deficit is trillions less than what a more realistic path would show. Assuming that all the tax cuts are extended, the doc fix is extended, the sequester is turned off, and that troop levels spending will decrease, CRFB is projecting that debt could rise to over 86 percent of GDP in 2022.

The baseline shows that if we can stick to those debt levels, we will be in a lot better fiscal shape. But, as CRFB president Maya MacGuineas said this morning in our press release:

These budget projections show that getting the debt under control is not impossible, but they also represent a path that is both unlikely to occur and far from the best way to govern...While we are highly supportive of actions to reduce the debt, there are smart ways and there are mindless ways to proceed. Let's hope Congress acts to pass a well-thought-out debt deal rather than letting some automatic and blunt changes do their work for them.

Stay tuned for more analysis in the coming days on the CBO outlook.

Federal versus Private Compensation: A Closer Look

CBO has a new report out, comparing federal and private-sector compensation for employees. The report shows that, on average, federal employees are compensated more than private-sector employees with similar educational backgrounds and other characteristics; however, the story is not as simple as it would appear.

Overall, after adjusting for education levels, federal employees received 16 percent more in total compensation (wages and benefits) than private-sector workers from 2005-2010. Looking more closely at the data, though, it would be more accurate to say that the federal government has more "compressed" compensation--that is, it pays workers with less education significantly more, but it pays workers with doctorate degrees significantly less. CBO bears this out, saying that the dispersion of wages from the 10th to the 90th percentile was smaller for the federal workforce than for the private sector.

Also, the report reveals that the lion's share of the difference in average compensation lies in benefits rather than wages. On average, wages are only about two percent higher for federal workers, but benefits are a staggering 48 percent higher. This difference is magnified at lower education levels, with federal workers with a high school diploma or less receiving 72 percent more in benefits than their private-sector counterparts.

Still, this more detailed analysis of CBO's numbers comes with a caveat. Since the data come from 2005-2010, they do not account for the federal pay freeze that has been in effect for 2011 and 2012. That would affect both the relative level of wages (since overall wage inflation has been positive while federal wages have generally stayed flat) and certain benefits like pensions that are in part determined by wage history.

From CBO's analysis we can see that after accounting for education and certain other characteristics, it is employee benefits that truly drive the difference between federal and private compensation. As this Moment of Truth Project report shows, many benefit practices in the federal government are much more generous than are available to private employees. While it is important to have a well-compensated federal workforce that attracts qualified individuals, there is some room for tightening up when it comes to the fringe benefits that they receive.

Click here to see the MOT's report on options for reforming the federal retirement system.

'Line' Items: Super Bowl Edition

Super Not So Duper – The word “super” has lost its luster lately. The failure of the Super Committee and the need for a super majority in the Senate to pass virtually anything have contributed to record-low approval ratings for Congress. Meanwhile, Super PACs are pouring unlimited funds into campaigns, resulting in even more negative advertising than usual and rising concerns that the political process is being distorted. We now pin our hopes on an event featuring a bunch of millionaires chasing each other up and down a field interspersed with high-priced commercials to restore the term to glory. But it will take more than Madonna at halftime to maintain our status as a super power. The fiscal decisions we make now will have much more impact on our global standing. Will debt be our Kryptonite?

President Punts in State of the Union – Those looking for a strong commitment from the President for addressing the national debt in last week’s State of the Union address (like us) were sorely disappointed. Instead, he concentrated on issues that will play well in an election year while making passing references to deficit reduction and reforming taxes, Social Security and healthcare. See our reaction here and here. We now look to the President’s FY 2013 budget request on February 13 for specifics on addressing the deficit. Next month the White House is also expected to detail its corporate tax reform ideas.

CBO to Lay Out Playbook – The football season may be ending, but budget season is just beginning. Ahead of the President’s budget, the eyes of budget wonks will be on the Congressional Budget Office on Wednesday as it rolls out its outlook for the economy and prognosticates how our budget will play out. Stay tuned to CRFB for post-game analysis shortly after the release.

Calling Plays on Budget Reform – With budget season gearing up, efforts to reform the budget process are getting lots of attention. The House Budget Committee marked up three budget process reform bills last week: to require CBO to include dynamic scoring of major legislation (HR 3582); to change how CBO calculates its budget baseline to remove the usual assumption that discretionary spending will increase with inflation (HR 3578); and to increase accountability and transparency in the budget by requiring fair value accounting for federal credit programs and including Freddie Mac and Fannie Mae in the budget (HR 3581). The dynamic scoring and baseline reform bills are set for votes on the House floor later this week. Meanwhile, the House Rules Committee approved of a measure to make the budget legally binding (HR 3575) and this week will take up bipartisan legislation to give the president enhanced rescission authority to effectively veto discretionary spending items in legislation passed by Congress. Additionally, a Rules subcommittee held a hearing on biennial budgeting, CRFB President Maya MacGuineas was among those testifying. Check out our resources on budget process reform.

Budget or Fudge It? – While many are asking if Peyton will be back, one of the questions in Washington is: Will Congress agree on a budget this year? The inability to set a budget or agree to appropriations on a timely basis is a key reason the public sees Washington as dysfunctional. Lawmakers aren’t blind to the matter; the House last week passed a nonbinding resolution expressing the importance of a budget resolution and Senate Budget Committee Chair Kent Conrad (D-ND) said his committee will take up a budget resolution this year.

Payroll Tax Conference Committee Kicks Off – The conference committee negotiating a longer-term extension of the two percent payroll tax holiday, Medicare doc fix, and unemployment benefits held its first hearing last week. The session consisted of committee members making statements that set the tone for a contentious month as negotiators hold diverging views on how the extensions should be financed. The next meeting on February 1 should be interesting as the committee starts to talk specifics. CRFB offered its own thoughts last week on what we would like to see from the conference committee.

Debt Ceiling Sidelined … for Now – The statutory debt ceiling was increased Friday, but it’s not hanging up its jersey. Although the Treasury Department is confident that it can prevent hitting the limit again before the election, another increase will likely be needed before the end of the year. Between the debt limit, the 2001/2003/2010 tax cuts expiring at the end of the year, and the sequester that everyone wants to avoid set to hit at the beginning of next year, it’s shaping up to be a December to remember. 

Pentagon Discusses Budget Cuts – Military leaders have been huddling for many months on cuts to the Pentagon budget. The strategy came into sharper focus last week as Defense Secretary Leon Panetta and other leaders offered a preview of what will be in next month’s budget request. Proposed savings include troop reductions and changes to military benefits. The reductions will not be readily accepted by many on Capitol Hill. The face off between defense hawks and budget hawks could make the Pats versus the Giants look tame.

Key Upcoming Dates (all times ET)

January 31, 2012

  • Congressional Budget Office (CBO) releases its 2012 Budget and Economic Outlook at 10 am.
  • Senate Banking Committee hearing on "Holding the CFPB Accountable: Review of First Semi-Annual Report" at 10 am.
  • Senate Finance Committee hearing on "Extenders and Tax Reform: Seeking Long-Term Solutions" at 10 am.
  • House Rules Committee marks up HR 3521 - the Expedited Legislative Veto and Rescissions Act - at 5 pm.
  • Florida Primary.

February 1, 2012

  • Congressional conference committee on extending the payroll tax holiday, Medicare doc fix, and unemployment benefits meets at 10 am.
  • House Budget Committee hearing on CBO Outlook with CBO Director Douglas Elmendorf at 10 am.
  • Senate Budget Committee hearing on "Outlook for the Eurozone" at 10 am.
  • House Rules Committee meets to formulate a rule for floor consideration of the Pro-Growth Budgeting Act and Baseline Reform Act at 3 pm.

February 2, 2012

  • House Budget Committee hearing on the US economy with Federal Reserve Chair Ben Bernanke at 10 am.
  • Senate Budget Committee hearing on the CBO Outlook with CBO Director Douglas Elmendorf at 10 am.
  • House Education and Labor Committee hearing on "Examining the Challenges Facing PBGC and Defined Benefit Pension Plans" at 10 am.

February 3, 2012

  • Dept. of Labor's Bureau of Labor Statistics releases January 2012 employment data.

February 4, 2012

  • Nevada Caucus.

February 7, 2012

  • GOP presidential contests in Colorado, Minnesota and Missouri.

February 13, 2012

  • The President will submit his FY 2013 budget request to Congress.

February 17, 2012

  • Dept. of Labor's Bureau of Labor Statistics releases January 2012 Consumer Price Index (CPI) data.

February 22, 2012

  • Arizona GOP debate sponsored by CNN at 8 pm.

February 28, 2012

  • GOP presidential contests in Arizona and Michigan.

February 29, 2012

  • The temporary payroll tax cut, unemployment insurance, and doc fix extensions will expire.
  • US Dept. of Commerce's Bureau of Economic Analysis releases its second estimate of 2011 fourth quarter GDP.

March 3, 2012

  • Washington Caucus

March 5, 2012

  • Reagan Library GOP debate sponsored by NBC (time TBD)

March 6, 2012

  • Super Tuesday - presidential contests in Alaska, Georgia, Idaho, Massachusetts, North Dakota, Ohio, Oklahoma, Tennessee, Vermont and Virginia.

March 6-10, 2012

  • Wyoming Caucus

March 9, 2012

  • Dept. of Labor's Bureau of Labor Statistics releases February 2012 employment data.

March 10, 2012

  • Presidential contests in Kansas and the Virgin Islands

March 13, 2012

  • Presidential contests in Alabama, Mississippi, and Hawaii

March 16, 2012

  • Dept. of Labor's Bureau of Labor Statistics releases February 2012 Consumer Price Index (CPI) data.

March 17, 2012

  • Missouri Caucus

March 18, 2012

  • Puerto Rico primary

March 19, 2012

  • Oregon GOP Debate sponsored by PBS at 9 pm. 

An Update on TARP

The report by the Inspector General of TARP drew some attention for showing that some of its programs would not end until 2017. That in itself is no surprise; in fact, some programs do not have specific end dates and could go on longer than that. Still, the report is useful to see where we are on TARP.

The SIGTARP report lists four TARP programs with specific end dates: the Term Asset-Backed Loan Facility (2015); the Public-Private Investment Program (2017); and two housing programs, the Home Affordable Modification Program and the Hardest Hit Fund (2017).

These programs, however, are small change compared to the programs that are open-ended, allowing Treasury to sell its holdings at its own discretion. Among these is the "original" TARP program, the Capital Purchase Program. Almost all of the larger banks have repaid Treasury, but as of the end of last year, 371 banks were still in the program. With dividend rates on Treasury preferred stock set to rise from five to nine percent at the end of this year, we may see a flood of repayments around that time. Additionally, there is the Community Development Capital Initiative, the more generous and much smaller cousin of CPP. No repayments have currently been made yet in that program, and dividend rates will not rise to nine percent until 2018.

Of course, there is also Treasury's large investment in AIG, where it currently owns 77 percent of the shares. Treasury had 93 percent of AIG common stock at the beginning of 2011 and sold off shares bit by bit throughout the year. However, CBO's most recent estimate of TARP revised its subsidy cost projection of the program upward due to lower projected valuation of AIG stock. This may force Treasury to delay its sale of AIG stock beyond what it otherwise would.

Area Subsidy Cost Estimate  Total Amount Disbursed

June 2009 March 2010 March 2011 December 2011
Capital Purchase Program $24 -$2 -$16 -$17 $205
Citigroup and Bank of America $7 -$5 -$7 -$8 $40
Community Development Capital Initiative N/A $0 $0 $0 $1
Assistance to AIG $35 $36 $14 $25 $68
Subtotal, Financial Institutions $66 $29 -$9 $1 $313
           
Auto Company Assistance $40 $34 $14 $20 $80
Investment Partnerships $2 $2 $1 $0 $18
Mortgage Programs $50 $22 $13 $13 $3
           
Total $158 $87 $19 $34 $414

 

Finally, there is the auto industry aspect of TARP. Treasury currently owns 32 percent of GM shares and 74 percent of Ally Financial (formerly GMAC). Treasury ended its assistance to Chrysler and sold off about half of its shares of GM in late 2010, but little has happened since then. This assistance is another category whose estimated cost jumped in CBO's December estimate. Like with AIG, Treasury may hold off longer than they anticipatedon selling further shares until stock prices are at a level they are comfortable with.

To sum up, although the net cost estimates of TARP have generally been declining, Treasury still has a ways to go in winding down its financial sector, housing, and auto industry commitments. Be sure to check Stimulus.org for up-to-date estimates and developments on TARP.

Panetta Presents New Defense Budget

Yesterday, Secretary of Defense Leon Panetta fleshed out the widely-anticipated FY 2013 defense budget. The budget showed to some extent how the Obama Administration plans on meeting the defense reductions that are necessary because of the discretionary spending caps in the Budget Control Act.

While Panetta's briefing was not as detailed as next month's budget, it included more details than we had heard in previous speeches and laid down the topline defense numbers the Administration will propose over the next five years.

The new defense budget will seek to save $259 billion over five years and $487 billion over ten years relative to last year's President's budget (it is difficult to compare to CBO numbers since OMB and CBO define "defense" differently). It will result in the first nominal cut to defense spending (from 2012 to 2013) since the wars in Iraq and Afghanistan began, and it will limit spending roughly to inflation thereafter.

Defense Spending in the New Budget (Billions of Budget Authority)
  2012 2013 2014 2015 2016 2017 2013-2017
FY 2012 Budget $553 $571 $587 $598 $611 $622 $2,987
FY 2013 Budget $531 $525 $534 $546 $556 $567 $2,728
Savings from FY 2012 Budget $22 $46 $53 $52 $55 $55 $259

 

Secretary Panetta emphasized the fact that a shift in priorities was necessary with the coming budget reductions. The new budget will emphasize presence in the Middle East and the Asia-Pacific region, with the withdrawal of two of four brigades from Europe. Overall, the Army will shrink from 562,000 troops to 490,000 -- 30,000 more than originally planned -- and the Marines will shrink from 202,000 to 182,000.

A number of scheduled procurements would be either delayed or eliminated and many vehicles would be retired. The Navy would see a number of lower priority ships retired or eliminated; procurement of the F-35 Joint Strike Fighter would be slowed; the airlift fleet would be significantly cut down; and the Army Ground Combat Vehicle would be delayed.

Panetta stated that they had identified $60 billion in additional savings over five years through efficiencies. Steps to save $60 billion include reducing the cost of contracting purchases through competition, using information technology better, streamlining staff and contracting, and using the BRAC base closure process more aggressively.

The budget also includes a number of changes to military benefits. Panetta proposed to limit pay raises to private sector wage inflation in 2013 and 2014 and below that in 2015; in recent years, Congress has approved pay raises beyond even what the Pentagon has recommended. Panetta also mentioned introducing a fee for TRICARE-for-Life, the Medigap-like plan for military retirees, and increasing fees, copays, and deductibles for TRICARE for non-elderly, non-disabled military retirees. In addition, he recommended creating a commission to examine military retirement benefits, although the budget would not make any changes itself to military pensions.

Reductions that some people were anticipating did not occur. In a somewhat surprising move, the Administration did not choose to reduce the size of the nuclear warhead stock -- despite previous indications that it might do so -- and it kept all three legs of the nuclear triad (bombers, submarine missiles, and land missiles). The Navy's aircraft carrier fleet stayed at 11, although it was rumored to be cut in the lead-up to the speech. One would look to these areas, in addition to further procurement cuts, as places the Administration could go if it had to abide by the lower post-trigger defense caps.

P.S. See Fred Kaplan's piece in Slate on the case for going further with defense cuts.

House Budget Committee Advances Process Reform Proposals

As we mentioned in our press release earlier this week, the House Budget Committee has been working on legislation to reform the current budget process. Three legislative proposals were advanced by the Committee on Tuesday, in addition to another on the budget resolution that will be brought up soon.

They are:

The Pro-Growth Budgeting Act (H.R. 3582)

H.R. 3582 would require CBO to evaluate the macroeconomic effects of major legislation, also known as dynamic scoring. The dynamic scoring method would not replace the traditional scoring method that CBO uses (which incorporates behavioral but not macroeconomic effects), but would be incorporated as a supplement to existing estimates. Dynamic scores would show the impact of legislation on macroeconomic variables like GDP and unemployment and estimate how those effects would impact the budget.

The Baseline Reform Act (H.R. 3578)

H.R. 3578, as its name indicates, would change the way CBO constructs its baseline. First, it would require CBO to calculate an alternative baseline that assumes the extension of current tax policy, along with its traditional current law baseline. Second, it would change CBO's normal assumption that discretionary spending will grow with inflation and would instead have it frozen throughout the ten-year window.

The Budget and Accounting Transparency Act (H.R. 3581)

H.R. 3581 contains changes that are intended to better account for costs in the federal budget. It would use "fair value" accounting for federal credit programs, which is supposed to better represent the cost of market risk that the government is taking on. In addition, the legislation would explicitly bring the impact of Fannie Mae and Freddie Mac on-budget. CBO has accounted for Fannie/Freddie costs since 2008, when the government essentially took them over, but this bill would force CBO to account for their costs regardless of the future relationship between the government and the GSEs.

The Legally Binding Budget Act (H.R. 3575)

H.R. 3575 would make the budget resolution a joint one (instead of a concurrent one), meaning that it would require the President's signature and would thus be legally binding (a concurrent resolution is not). More importantly, the bill would prevent any appropriations bills or other "budget-related legislation" from being passed before the joint resolution is passed.

* * *

As CRFB president Maya MacGuineas stated in her testimony on biennial budgeting earlier this week, "our budget process is just not working". While process reforms can never be a substitute for making difficult policy decisions to control debt, a more efficient budget process could certainly make it easier to get our country's finances in order. We are glad to see Members of Congress taking a good hard look at our budget process.

A Gimmick on the Rise

Update: The American College of Physicians has also called for eliminating the SGR and the sequester and partially paying for them with war savings. To their credit, though, they propose a number of other scoreable savings options like having uniform cost-sharing for Parts A and B of Medicare, allowing Medicare to negotiate drug prices, accelerating the health insurance excise tax or limiting the health exclusion, and enacting tort reform. Also, they would require CMS to reform the payment system after five years to align payments with value.

You know those budget gimmicks we talked about in our paper yesterday on what the Conference Committee should do with the extenders? Number one on the list of gimmicks we warned about was using savings from the drawdown of the two wars to "pay for" new priorities. This is a flagrant budget gimmick since it tries to take credit for a policy that is already in place.

Lo and behold, more lawmakers seem to be willing to use war savings to pay for a permanent SGR fix.

If allowed to happen, the SGR would cut Medicare physician payments by 27 percent starting in March and possibly by more in future years if Medicare spending exceeds specified targets. The cost of averting these cuts and freezing payments for ten years is nearly $300 billion, so Congress has usually preferred to go with shorter-term extensions. Still, they have generally been good about paying for doc fixes, having done so either fully or in part for 2006, 2008, 2009, 2010, last year, and the first two months of this year

Cost of Various SGR Replacements (billions)
Option 2012-2021 Cost
0% Annual Update (Pay Freeze) $294
1% Annual Update $338
Update with Medicare Economic Index $354
2% Annual Update $385

Note: Costs adjusted to reflect the $4 billion extension that was already passed.

Using war savings to pay for a permanent doc fix would be an absolute reversal of a consensus that has emerged in the past five or so years about at least partially offsetting annual doc fixes. Not offsetting the doc fix for a year-long extension would be bad enough, but this would not only worsen the deficit, it would also remove barriers that would force Congress to revisit alternate ways of reimbursement in Medicare to better promote quality over quantity of care. It would also remove regular speed-bumps that would remind lawmakers about the need for more comprehensive health care reforms. Simply turning off the SGR would be problematic for our deficit and for health care spending overall.

It is clear that in the era of pay-fors, Congress is still looking for the easy way out. False offsets from war spending can easily attract the attention of lawmakers (just look at the President's plan to use war savings for infrastructure spending in the State of the Union), but they must avoid doing so because it could put the country in a deeper fiscal hole.

CRFB Calls For Fiscal Responsibility From the Conference Committee

With Congress back in session this week, there is a renewed focus on several provisions that lawmakers extended for two-months in December and which are set to expire again at the end of February. As we commented on at the time, lawmakers extended the payroll tax cut, expanded unemployment insurance benefits, the doc fix, and various health care provisions for two months at a total cost of about $33 billion. But with a new conference committee meeting to discuss possible extensions to these policies, CRFB has renewed its call for dealing with expiring provisions in a fiscally responsible way in a new paper.

CRFB argues that, ideally, lawmakers would address any extensions of expiring provisions within the context of a comprehensive budget plan.

The fiscal impacts of these expiring measures are no small cookies. An extension for the remainder of 2012 would cost $155 billion and $475 billion for a full ten-year extension. When you throw in year-long extensions of other provisions that Congress hasn't touched yet but can enact retroactively -- like the AMT patch and the tax extenders-- the cost grows to about $385 billion. Extending all these provisions for ten years would cost nearly $2.3 trillion.

The following graph from the paper shows the debt impact of a few recent plans to extend some of these expiring provisions. Luckily, they all included offsets.

 


 Note: Estimates of proposals adjusted to begin in March 2012. "President's Plan" refers to the American Jobs Act.

While we hope Congress address these issues within a large deficit reduction package, at the very least, though, the extenders should be fully paid for over ten years with permanent offsets so that any extensions help to reudce long-term debt. The offsets should be real and not rely on any budget gimmicks like using war savings or unspecified cuts.

We discuss these issues, and several other DOs and DON'TS in the paper. Click here to read the full paper. 

Recapping the State of the Union

President Obama gave his annual State of the Union address Tuesday night. The election-year speech contained a laundry list of proposals aimed to create jobs and promote economic growth. As is all-too-often the case in the midst of campaigns, the ideas put forth where aimed to appeal to certain constituencies with little discussion of their budgetary impact or if limited resources could be used more prudently.

The President offered new tax incentives or benefits for a variety of groups like domestic manufacturers, clean energy companies, and college students. In addition, he promised to use half of the already-enacted savings from the drawdown of the two wars to pay for infrastructure spending, with the rest going towards deficit reduction. While investing in infrastructure is critical for long-term growth prospects, it should be done with real offsets, not budget gimmicks. Counting the war "savings" towards infrastructure and deficit reduction amounts to taking credit for policies that are already in effect, as we explain here (p. 6). There are genuine ways to offset the costs of infrastructure improvements over the longer-term.

As we noted in our statement immediately after the address, President Obama spent very little time talking about plans for reducing the deficit, simply giving a nod to his negotiations with Speaker John Boehner (R-OH) this summer and his willingness to work to overhaul health programs and Social Security. However, the White House fact sheet for the speech does mention the need for Congress to work together to fashion a balanced $4 trillion deficit reduction plan. During the speech, he mentioned that "we’ve already agreed to more than $2 trillion in cuts and savings" -- referring to the mostly discretionary spending cuts mandated in the Budget Control Act and the $1.2 trillion in sequestration that is due to begin next year. He also rightly recognized that "we need to do more, and that means making choices." Especially in light of congressional attempts to roll back or alter the trigger, which to his credit the President has promised not to support, it is imperative to put together a comprehensive "Go Big" plan that lays out at least $4 trillion in savings.

The President got somewhat more specific in discussing revenue proposals to reduce the deficit. He proposed to make millionaires pay a minimum tax rate of 30 percent and make multinational companies also pay a minimum percentage of their income. The exact mechanisms of these floors are largely unknown, but he would eliminate many itemized deductions for millionaires as a way to accomplish the first goal. Other changes that he has proposed in the past to upper-income taxes and foreign taxation would likely also contribute to these goals, in addition to whatever new or modified minimum tax he would put in place.

President Obama ended his speech with a passionate call for cooperation, noting that if we work together "there is no challenge too great; no mission too hard."

In the official Republican response to the speech, Gov. Mitch Daniels's (R-IN) also implored lawmakers to work together, saying that "2012 must be the year we prove the doubters wrong." In his remarks he specifically and forcefully identified the national debt as a major factor in our economic woes and the need to address it as critical to our future -- "No nation, no entity, large or small, public or private, can thrive, or survive intact, with debts as huge as ours." While we have a "short grace period" as the world's reserve currency, he said, time was running out on our ability to reduce the debt before we face the same problems as Europe. He called for action immediately to address the issue, specifically by cutting entitlement spending (although he didn't get specific).

Daniels did seem to agree with Obama on the need to scale back tax expenditures for upper-income earners, but he also called for it in the context of comprehensive tax reform that would also lower marginal rates and be more conducive to economic growth. We hope that this general agreement on the need for tax changes can lead to fundamental tax reform that broadens the base and eliminates tax expenditures. The Bowles-Simpson tax reform proposal represents a sound approach.

Traditionally, an election year is a difficult time to accomplish major policy changes. Politicians are wary of discussing painful choices or promoting policies that will displease voters. Yet, delaying action on our rapidly decaying fiscal outlook would be the height of irresponsibility.

We believe that this election offers a prime opportunity to have a constructive debate on our fiscal challenges and how to address them. Our US Budget Watch project has offered fiscal principles to guide this debate. Principles include offering specific policies, not attacking an opponent's plan without offering an alternative, refraining from budget gimmicks; and being open to bipartisan compromise. We hope that the President and those who seek to succeed him follow these principles; the state of our fiscal future depends on it. 

Update: Here is CRFB's Senior Policy Director Marc Goldwein talking about the State of the Union speech.

 

State of the Union Bingo Returns!

President Obama's State of the Union address next Tuesday is now only a couple days away. In anticipation of the President's speech, we at CRFB have decided to bring back our awesome State of the Union fiscal bingo game, DEBT-O!

Play with your friends and keep track of budget-related words and terms used by the President. Needless to say, we hope our country's fiscal problems are a main focus of his speech.

See below for a sample DEBT-O board, and click here for a printable PDF of ten boards.


 

Be sure to check The Bottom Line after the State of the Union for analysis and follow us on Twitter (@BudgetHawks) as we live tweet during the speech. Most importantly, have fun and enjoy DEBT-O!

Maya MacGuineas Testifies on Biennial Budgeting

Today, CRFB president Maya MacGuineas testified to the House Rules subcommittee on Legislative and Budget Process on HR 114, a biennial budgeting proposal, which would have the budget and appropriations determined on two-year cycles instead of annually. HR 114, the Biennial Budgeting and Appropriations Act, is not part of the package of process reform bills that the House is marking up this week.

MacGuineas expressed support for biennial budgeting, saying that it gives more time for Congressional oversight of the entire budget at a time when cutting out wasteful or unnecessary spending is essential. Switching to biennial budgeting would also give lawmakers more time to use performance data to better evaluate whether programs are doing their intended function and how to fix them. MacGuineas noted some possible drawbacks, such as the fear that there would be an increase in supplemental appropriations and agency heads may be less responsive to Congress. Overall, the two-year cycle would give lawmakers time to evaluate the nation's spending priorities and allocate resources accordingly.

However, MacGuineas also said that using multiyear budgeting, where lawmakers lay out spending and revenue years in advance would be the preferable option. Considering the fiscal outlook, using a multiyear budget would be more effective at forcing members of Congress to look at the longer-term impact of the budget and making them act on it.

Ideally, though, Congress would pass a fiscal plan and would use a multiyear budget process to enforce it and keep it on track.

MacGuineas concluded by saying that fixing the budget process could help inspire confidence in Congress' ability to get things done, but it is no substitute for enacting tough spending and revenue decisions that are necessary to bring down our debt. 

To see the full testimony, click here.

CRFB Live Tweeting State of the Union

President Obama will be addressing the nation at 9 pm ET tonight for the annual State of the Union address, and CRFB will be active as well, live-tweeting throughout the event (@BudgetHawks). We will also chime in on any statements related to the budget that the President makes, so tune in for a view of the State of the Union from a fiscal perspective.

Be sure to check CRFB.org after the address for our statement reacting to President Obama's speech.