Harvard Law School professor Howell Jackson has an interesting idea in a Reuters op-ed: if fiscal issues are going to be extremely important in the coming years, why not create a process that would encourage Presidential candidates to come up with a fiscal plan?

Jackson's idea is this: have Congress give fast-track authority to whoever wins the election to consider a fiscal plan immediately after Inauguration Day. The plan in consideration must meet certain fiscal benchmarks and be provided by the August before the election to be eligible for the authority. To some extent, this sounds like the Super Committee authority that Sen. Joe Lieberman (I-CT) proposed extending to any bipartisan fiscal plan that members of Congress produced.

In addition, Jackson proposes making CBO responsible for scoring candidates' fiscal plans since no formal authority currently exists in that realm (although US Budget Watch, a project of CRFB, will be releasing scores of the candidates' plans soon). This would ensure that the public had reliable numbers, rather than relying on claims by the campaigns themselves, and it would ensure that campaigns got specific enough about their proposals, since CBO would need specifics to be able to score them.

Jackson argues that the allure of having expedited consideration of a fiscal plan in Congress would impel the candidates to produce a plan, despite the traditional misgivings they have about getting specific. It would also elevate the fiscal debate to a much more visible stage and produce more honest discussion.

Overall, Jackson's proposal is a very interesting way of forcing candidates to truly engage in the fiscal debate that they need to be having. 

The McKinsey Global Institute recently released a report assessing the efforts of the world’s ten largest mature economies (United States, Japan, Germany, France, United Kingdom, Italy, Canada, Spain, Australia, and South Korea) in deleveraging (essentially, reducing debt) in the aftermath of the great recession. While the analysis looks at both private and public sector debt, including all levels of  government (federal, state and local), there are some important lessons for those who are concerned with this country’s federal debt burden.

The report looks at the successful recoveries of Sweden and Finland during the 1990s for markers of success in those countries' deleveraging efforts and a return to strong economic growth. From that review, McKinsey identified six benchmarks associated with success:

• The financial sector is stabilized and lending is rising
• Structural reforms unleash private-sector growth
• Credible medium-term public deficit reduction plans are in place
• Exports are growing
• Private investment has resumed
• The housing market is stabilized and residential construction revives.

First, the good news. According to the analysis, out of the ten countries, the U.S. is most closely following the path of the two Nordic countries. At least in the private sector, the deleveraging process appears well underway, which is a necessary step to get the economy back to normal.

The bad news is that we don’t currently have a concrete medium to long-term deficit reduction plan in place, which is one of the keys to a successful recovery, and a path we have advocated repeatedly. McKinsey warns:

In contrast with the United Kingdom and Spain, the United States has not yet adopted a credible long-term deficit reduction plan. Its failed attempt to do so has had a very tangible result: the first credit rating downgrade of US Treasury debt ever, from AAA to AA+, in August 2011. While the US economy gained momentum in the second half of 2011, the lack of a credible long-term plan to bring down the deficit and head off the effects of rising costs of entitlement programs such as Medicare continue to hang over the US economy—affecting business and consumer confidence in the near term and raising questions about the sustainability of growth over the medium term.

As we have argued, we should put in place a plan now that begins to address our mounting debt over the medium and long term. This is a necessary step towards economic recovery, as the McKinsey report finds in its comparison. It is ideal to implement such a plan in a phased-in manner so that the still fragile recovery isn’t weakened, but implementing such a plan is a must do.

Over the course of this week, we have been discussing CBO's recent Budget and Economic Outlook. On Tuesday, we summarized the report and released a paper that walked through the details. On Wednesday, we explained our  Realistic Baseline and showed how it differs from CBO's current law baseline. Yesterday, we dug deeper into the economic effects of continuing current law, explaining that when it comes to deficit reduction, both timing and composition matter. Today, we're going to dig even deeper into the report.

A little-known appendix in CBO's outlooks shows the ten-year health of the major trust funds in the federal government, most notably for the Social Security program. Though the report does not project out 75 years like the Social Security Trustees report, the report shows some trouble on the ten-year horizon.

The overall Social Security spending and revenue (including general revenue to make up for the payroll tax cut) paths are shown below. As you can see, the program has been in cash-flow deficit since 2010 and will be for the foreseeable future, with the gap widening later in the projection window. By 2022, in fact, Social Security will run a deficit of nearly $170 billion -- or nearly 0.7 percent of GDP.

Aside from the cash-flow problems of the program as a whole, the Social Security Disability Insurance has a trust fund problem. It is, and has been, in deficit (even including interest) for a few years now and is projected to be exhausted in 2016 -- a year earlier than the Trustees anticipated last year. After that, according to the projections, revenue dedicated to the DI trust fund would only cover about three-quarters of benefits. Although policymakers may respond to this problem by transferring money from the OASI fund, they will have to make a decision one way or another by mid-decade.

The OASI trust fund has less of an immediate problem, but trouble is still lurking. It has been running cash deficits for the past few years, but the trust fund balance itself will continue to grow in nominal dollars through 2021 due to interest payments.  Beyond that, cash deficits will begin to draw down the deficit, leading to full exhaustion some time in the mid-2030s, although CBO does not make a specific projection.

The graph below shows cash flow deficits as they have changed over three recent CBO projections.

Social Security can be viewed two ways -- as an independent self-financed program or as a part of the broader budget. As we've explained before, and the latest projections confirm:

Either of these frameworks is sensible. Ironically, though, both frameworks should lead policymakers to the same conclusion: whether for its own sake or for the country’s fiscal viability, Social Security must be reformed; and the sooner we act, the better.

P.S. Check out Jed Graham's piece on the OASDI trust fund outlook here.

We noted earlier this week that CBO's current law economic assumptions in the near-term do not look very stellar, especially in 2013 when the economy is scheduled to absorb a large fiscal shock as a large number of tax cuts expire and the "sequester" resulting from the failure of the Super Committee cuts spending automatically across-the-board. As a result of these abrupt changes, CBO estimates a paltry 1 percent growth in real GDP between 2012 and 2013 and it estimates unemployment rate will actually increase.

At face, these estimates highlight the potential pitfalls of deficit reduction, but in fact they highlight the need to enact a smart and thoughtful plan to reduce the debt, as opposed to a stupid and mindless plan. While current law deficit reduction would put a damper on short-term growth, CBO finds that it would improve growth over the long-run -- by 0.1 to 0.2 percent annually in 2022 alone over the alternative scenario. Meanwhile, CBO makes it quite clear that our current policy track is unsustainable, explaining that:

"[Under current policy assumptions] the amounts the federal government would be required to borrow would be unsustainable...Large budget deficits and burgeoning debt would reduce national saving, thus leading to higher interest rates, even more borrowing from abroad, and less domestic investment—which in turn would suppress output and income in the United States...[and] also would boost the likelihood of a sudden fiscal crisis."

If policymakers limit themselves to either continuing current policies or else allowing the tightening under current law to take effect then they face a trade off between short and long-term prosperity. But there is a third option: we can enact a smart and well-thought out deficit reduction plan today which phases in gradually and has an eye toward economic growth; in doing so, we could balance the short and long-term needs of the country.

Last September, we called for the Super Committee to come up with a deficit reduction plan that would not only "Go Big," but also "Go Smart". That means focusing on at least two things -- the timing of the deficit reduction and its composition.

The Timing

When it comes to deficit reduction, timing is (almost) everything. When the economy is weak -- and particularly in the near-term -- too much deficit reduction can cause some contraction. Over the longer term, however, deficit reduction is necessary in order to avoid "crowding out" productive investment -- the result of deficit reduction is a marked increase in economic activity.

In analyzing the effects of continuing current policy -- that is cancelling the sequester, renewing all the tax cuts (including AMT patches), and freezing Medicare physician payments to avoid a 27 percent cut -- CBO shows a near-term improvement (relative to current law) but a weakened economy over the medium and long term.

But why is the short-term economy projected to be so much weaker under current law? Basically, because current law hits the economy with all the deficit reduction at once. In 2013, alone, the plan would reduce the deficit by two percent of GDP in 2013 (relative to CRFB's Realistic Baseline). Policymakers could instead realize the economic gains of debt reduction over the medium and long-term while mitigating the short-term impacts on growth by gradually phasing in savings.

This isn't a groundbreaking approach, but one that many debt reduction plans have relied on, including the Fiscal Commission. That plan would do more to reduce the deficit in 2022 and over the longer term than current law would, but would avoid the pitfall of a huge immediate change in government tax and spending levels.

^{Note: Savings are rough and calculated from realistic projections of future deficits.}

While savings should be gradually phased in, they should be enacted today. This is true for at least two reasons. First of all, most policy changes are best implemented through gradual change -- and the sooner we start the faster we can achieve savings once the economy recovers. More importantly, this country has a credibility gap it has to face. Markets must be reassured that the government has the capacity and willingness to pay down its debt over the long-term -- otherwise we run the risk of needlessly provoking a possible fiscal crisis. The risk of something like that probably doesn't impact CBO's economic forecasts, but it's a valid concern nonetheless.

Most economists think that by putting place a plan today, we can actually provide some help to the short-term economy through and announcement effect, and this effect can in turn buy us time to make changes more gradually.

The Composition

Timing is critically important, but so is the composition of a debt reduction package. Not only would current law call for sharp immediate spending cuts and tax increases, but it would do so in perhaps the worst way possible. On the spending side, cuts would be across-the-board within the discretionary budget and a small number of non-discretionary programs. Because of the exemptions under the sequester, these cuts would fall largely on government purchases and investments -- and would be made to each program irrespective of its economic value.  Don't get us wrong, discretionary cuts will need to be part of the solution -- and likely beyond what has already been enacted. But cutting deep into these programs while ignoring entitlements is no way to control long-term deficits nor promote economic growth.

On the tax side, meanwhile, current law revenue comes in large part from increasing marginal rates. In fact, the expiration of the 2001/2003/2010 tax cuts will mean higher tax rates at almost every level and for almost every activity. To be sure, the difference between a 35 percent top marginal rate and a 39.6 percent top marginal rate is not by itself going to tank the economy; but this method of revenue generation will have negative growth effects by reducing the incentive to work. Meanwhile, increased taxes on capital gains and dividends will reduce investment incentives -- putting further downward pressure on growth.

A "Go Smart" deficit reduction plan would avoid indiscriminate discretionary cuts and marginal rate increases and instead focus on finding the best ways to promote growth. Deficit reduction, in and of itself, would get us part of the way there -- for example CBO estimated that $2.4 trillion (over ten years) in generic deficit reduction would increase the size of the economy by 1 percent -- but we can and should go much further.

The current tax code is a mess, and can be improved to both generate revenue and promote growth. The Fiscal Commission, the Domenici-Rivlin task force, and others have all proposed tax reform plans which would substantially lower individual and corporate rates while generating revenue from repealing or reforming the many deductions, exclusions, and other tax expenditures in the code. According to a 2006 JCT study, a plan like this could increase the size of the economy by between one and two percent over the medium term.

On the spending side, meanwhile, we should be looking to cut various programs which are believed to hurt economic growth -- for example agricultural and other spending that lead to a misallocation of resources. We should also look to reduce spending in a way which will encourage work and investment. CBO recently studied the economic impacts of gradually raising the Social Security and Medicare eligibility ages, noting that a combined effect of raising them could boost the size of the economy by two percent by 2035 and by three percent by 2060.

^{Sources: CBO and JCT.
*CBO states that in 2021, real GNP is 1 percent larger but that it grows over the long-term.
^CBO estimates that the combined effect of raising the three eligibility ages would be about 3 percent by 2060.} 

But it's not just about savings. A huge upside of a comprehensive debt reduction plan is that it can create the budgetary space for lawmakers to increase investments in specific areas while finding savings in others, so long as savings are sufficient to also stabilize and reduce the debt trajectory. Investments in areas like education, infrastructure, and R&D can produce large economic payoffs down the road, and could be protected or even enhanced in a comprehensive fiscal plan.

* * * * *

We have made the point before that reducing the deficit isn't just about the magnitude of the plan, but also about the details of the plan. CBO's economic projections demonstrate that the "when" matters a great deal, and it is clear that the "how" is equally important as well. Economic growth will not solve our debt problems alone -- we need real policy changes for that -- but we have every reason to promote it to aid in debt reduction and in expanding economic opportunities for future generations.

Policymakers have a choice. They can rely on "mindless" and indiscriminate cuts with no regard for creating priorities and figuring out how to pay for them, or they can craft a well-thought-out debt reduction plan that sets the economy on a stronger economic path. Somehow, saying it's an obvious choice doesn't quite capture it.

CRFB board member Rudolph Penner recently co-authored a paper that is essentially a retrospective on the 2011 deficit debate. He and Urban Institute colleague John Palmer compared the President's Framework and the House Budget Resolution while also discussing the Budget Control Act that passed in August.

They describe the premise of the paper below:

House Republicans passed a budget in April 2011, largely based on the proposals of Chairman Ryan of the House Budget Committee (HBC). The president responded with his own budget framework. This paper spends considerable time describing these two approaches to longterm deficit reduction because they starkly illustrate the ideological gap between the president and the Republican Party on this matter. It is also fair to say that many congressional Democrats feel that the president’s proposals are not liberal enough, thus further heightening the contrast between the two parties.

Then they conclude:

Negotiations that build on the deficit reductions imposed by the BCA could be productive. But a huge ideological gap remains between the two political parties, and progress will be elusive unless both sides show more willingness to get things done for the good of the country. Without more progress, the nation will continue its march toward a sovereign debt crisis of Greek proportions. No one can predict when that might occur, but the risks are enormous, and it is time our leaders begin to lower them.

Click here to read the full paper.

"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.

Yesterday, CRFB released its analysis of the latest budget projections from CBO, discussing debt, deficits, spending, and revenues. We also updated the CRFB Realistic Baseline in our analysis to give a more realistic view of where the country is headed. Not surprisingly, it shows much higher debt and deficits than CBO's current law projections. As we stated in our report, these more realistic projections show the urgent need for a fiscal plan:

Current law projections may appear to be sustainable, but this sustainability would be achieved through unwise and unrealistic changes to the budget – changes that Congress has not allowed to occur in the past. Lawmakers must act soon to put in place a fiscal plan that stabilizes and reduces the debt trajectory as a share of the economy – one that relies on smart spending and revenue decisions and not blunt, across-the-board cuts.

The graph below shows the added costs/savings of policies that are likely to be continued, but are not in current law projections. The interest costs/savings are included within each policy in the graph. As a side note, the savings from the war drawdown are represented within the "Current Law" area, since it is the difference between the current law baseline (which assumes that war costs grow with inflation) and the baseline with the drawdown.

Not surprisingly, extending the 2001/2003/2010 tax cuts comes with the biggest price tag, projected to cost $2.8 trillion from 2013-2022. Patching the AMT will cost $800 billion, and the interaction between the tax cut extension and the AMT patch totals another $900 billion. Combining the effects of all three yields a revenue loss of $4.6 trillion ($5.4 trillion including interest costs). Should lawmakers turn off or dismantle the sequester, it would add another $1.2 trillion to the debt this decade -- something that should only be done if lawmakers have agreed to savings equal to or larger than those mandated.

The doc fix is less costly, but still expensive at just over $300 billion. Savings from assuming that the war in Afghanistan will be drawn down as scheduled are also significant, totaling about $850 billion.

The spending and revenue paths in CRFB's Realistic Baseline obviously show a much greater divergence than under current law. Turning off the trigger and the SGR push outlays up and the tax cuts and AMT patches lead to a significant drop in revenue. The result is deficits averaging 4.5 percent of GDP instead of 1.5 percent under current law over the next ten years. 

So it's still very clear -- the country is on an unsustainable path, which is now slightly worse than we projected last August (back then, we projected debt hitting 81 percent of GDP in 2021). The longer we wait, the more difficult the solutions become. But we also run the risk of letting the debt trajectory continue to worsen, as we see now.

Click here to read our full analysis.

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.

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. 

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.

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.