The Bottom Line
On December 18, the FDIC reported that it has taken over an additional seven banks (First Federal Bank of California, Imperial Capital Bank, Independent Bankers' Bank, New South Federal Savings Bank, Citizens State Bank, Peoples First Community Bank, RockBridge Commercial Bank) for a cost to the FDIC of about $1.8 billion. This brings the total number of failed banks in 2009 to 140. Total deposits of all failed banks now equal $137 billion for 2009 and $371 billion since the beginning of 2008, all at an estimated cost to the FDIC of about $58 billion. Visit Stimulus.org for more details and a full list of FDIC bank closings.
|Total Deposits||Cost to the FDIC|
|First Federal Bank of California||$4,500,000,000||$146,300,000|
|Imperial Capital Bank||$2,800,000,000||$619,200,000|
|Independent Bankers' Bank||$511,500,000||$68,400,000|
|New South Federal Savings Banks||$1,200,000,000||$212,300,000|
|Citizens State Bank||$157,100,000||$76,600,000|
|Peoples First Community Bank||$1,700,000,000||$556,700,000|
|RockBridge Commercial Bank||$291,700,000||$124,200,000|
Last month, the International Monetary Fund released a report identifying successful measures that countries should keep in mind as they cope with government deficits and debt in the wake of the global recession, but continue to strive for responsible fiscal policies. Many countries have various “fiscal rules” intended to force a country’s lawmakers to consider the fiscal impacts of their actions, with a goal of long-term fiscal sustainability. The European Union, for example, requires member countries to maintain certain levels of debt and deficits. But, as the paper highlights, the recent global economic crisis has brought new scrutiny to the use and effectiveness of such rules. Among the report’s findings on successful measures:
- Fiscal rules must be credible and enforceable;
- Fiscal rules need to be flexible in order to deal with economic shocks;
- Implementation of new fiscal rules should begin immediately, but take effect gradually as economies continue to recover;
- In the wake of the recession the focus should be on the medium term and avoid a rapid return to any existing rules.
A December report released by the Peterson-Pew Commission on Budget Reform includes recommendations that parallel the IMF’s recommendations for ensuring a country’s success in maintaining a sound fiscal plan, while balancing those efforts with the continuing effects of the global recession on governments’ budgets. For example, the Commission report recommends Congress and the President enact debt reduction legislation now that would begin slowly in 2012 so as not to jeopardize the recovery, and that would also include flexibility to deal with poor economic times that may resurface. The IMF also recommends acting quickly to implement a fiscal consolidation plan, suggesting that, “…it may be helpful to design and announce early-on a credible rule-based framework, and a timetable for its implementation.” The Commission report recommends a similar goal for the United States: a medium-term goal of stabilizing the level of U.S. debt held by the public to 60 percent of GDP by 2018.
We hope all of our readers had very happy holidays. Now that we are back from our vacation, there is a lot to report on regarding congressional actions right before the holidays, as well as expected actions once they return.
On December 28 President Obama signed into law an increase to the debt ceiling, bringing the number up from $12.1 trillion to $12.39 trillion. This new limit passed the Senate just four days earlier by a vote of 60-39, with many Senators supporting the increase only after they were promised a debate in late January over the possibility of creating an independent and bipartisan commission to make recommendations on spending, taxes, and deficit reduction. The increase to the debt limit bought the Treasury two months of funding government operations, before the limit will need to be revisited again. Congress is expected to take up the issue shortly after reconvening on January 19. The Senate will consider a longer term debt bill – HJ Res 45, which has been passed by the House – along with several other amendments. These amendments will likely include consideration of pay-as-you-go budgeting rules, a proposal to bar the spending of extra TARP funds, and a possible proposal for the regulation of greenhouse gases. As for the debt ceiling itself, while the House version includes an increase to $13.029 trillion, it is unknown at this point how large of an increase Harry Reid will propose at this time.
Senate Democrats also passed their health care overhaul bill December 24. Negotiations with the House on a final bill are still to come (the House returns on January 12, the Senate on January 19). One of the biggest areas of contention is how the House and Senate will each go about funding their bills; with the Senate including a tax on high-end insurance plans and the House supporting a new surtax on millionaires.
CRFB has updated our comparison chart outlining the ten-year costs of the major provisions in both the House and the Senate bills. We have also created a number of sharable graphs that can be seen in this blog post. The one below shows the change in federal budgetary commitment to health care.
(We encourage you to share this graph, but please link to us.)
The Defense spending bill for FY 2010 provides $636 billion in discretionary spending for regular activities and war operations. It is $11 billion greater than last year’s total. The bill included some short-term extensions of federal unemployment benefits, as well as other non-military programs. Included in the Defense package was an extension, through February 2010, of existing unemployment and COBRA provisions.
The defense bill included a number of temporary measures that Congress was not able to fully address. These include:
- COBRA: President Obama signed the bill temporarily extending COBRA through February 28, 2010. The COBRA subsidy program extension included in the 2010 Defense bill will expand the amount of time people can get the subsidy from 9 - 15 months, extend the eligibility period for premium reduction for two months, and give credit against future payments to people who paid the full premium in December.
- Small Business Loans: The bill allows the SBA to continue two temporary enhancements to its loan guarantee program through February 28. It is fully offset.
- Patriot Act: Extends authorizations of the act through February 2010.
- Flood Insurance: Extends through February 2010.
- Medicare Physician Payments Extension: Delays through February 2010 a 21.2% cut to payments. The delay is fully offset.
- Surface Transportation Authorization Extension: Extends the authorization for the highway, transit, highway safety and motor carrier safety programs through February 2010.
- Unemployment Insurance: Extends expanded benefits through February 2010.
- Satellite Television Extension and Localism: This bill fully offsets the extension of a copyright license used by satellite television producers, through February 2010.
- Nutrition Assistance: The Supplemental Nutrition Assistance Program (SNAP) increased participation by 18% in the last year. This bill includes language ensuring it will have sufficient funding to meet the growing demand for nutrition assistance from modest-income families.
- Assistance Eligibility: Maintains HHS administered poverty guidelines at current levels through February 28, 2010.
Before leaving town for the holidays, the House passed a $150 billion jobs bill which the Senate did not have time to consider. About half of the bill -- $75 billion -- would be financed with leftover funds from TARP. It would $39.3 billion toward highways, transit, and HUD, $40 billion toward assistance for unemployed workers, and $2.8 billion for clean-water infrastructure. The jobs bill also extends unemployment benefits and health care subsidies for laid-off workers under COBRA for six months.
The bill still has to be considered in the Senate. CBO's cost estimate of the Jobs for Main Street Act can be seen here.
Non-Defense Appropriations Bills
On December 16 President Obama signed into law a $447 billion omnibus measure that provided spending on a number of appropriations bills through FY 2010. The bill provided spending for he Departments of Commerce, Defense, Education, HHS, HUD, Justice, Labor, State, Transportation, the Treasury, Veterans Affairs and other agencies. CRFB released a paper on controlling discretionary spending, pointing out:
"When added to the five already-passed bills, this minibus will put total non-stimulus, non-defense FY2010 appropriations at $583 billion. This represents an 8.2 percent increase over last year’s $539 billion."
As a heads up to all of The Bottom Line's loyal readers, we wanted to let you know that we will be taking a break from blogging over the holidays. But don't fret! - we will promptly resume on Monday, January 4th.
The Bottom Line launched just four short months ago, and since then we have written over 230 blog posts on all areas of budget, fiscal, and economic policy. We thought you might enjoy this "Wordle" graphic of our most commonly used words:
We wish all of you and your families a great holiday season. See you 2010!
UPDATE: CBO mistakenly overestimated the deficit-reducing effect of the Medicare Commission in their score. As a result, they now estimate deficit reduction of between 0.25 and 0.5 percent of GDP, as opposed to 0.5 percent in the second decade.
Today, Senator Reid released his Manager's Amendment of the Patient Protection and Affordable Care, which will likely be passed by the Senate before Christmas. The CBO also released its corrected score of the bill which showed that it would reduce $132 billion over the next decade ($60 billion excluding the CLASS Act). More importantly, the CBO estimates the bill could reduce the deficit in the second ten years by somewhere in the broad range of 0.25 percent and 0.5 percent of GDP. This is somewhat more significant than the
previous most recent bills from both the House and Senate, and is largely the result of new rules enhancing the power of the Independent Medicare Advisory Board (The "Medicare Commission").
We will provide more information soon, but for now here is our newest chart comparing the new bill to previous versions:
|Provisions||Finance Committee||Senate Leadership
|Small Business Credits||($23)||($27)||($40)|
|Physician Payment Updates||($11)||($11)||$0|
|Medicare Prescription Drug Coverage||($21)||($23)||($23)|
|Measures to Slow Health Care Cost Growth||($14)||($17)||($12)|
|Other Spending Changes||($26)||($42)||($57)|
|Prescription Drug Cost Reductions||$28||$51||$51|
|Medicare Advantage Cuts||$114||$119||$119|
|Reductions in Provider Payment Updates||$163||$160||$157*|
|Medicare Premium Increase||$33||$36||$36|
|Medicare Payment Commission||$22||$23||$28|
|Measures to Slow Overall Health Care Cost Growth||$29||$26||$19|
|Measures to Reduce Federal Health Care Spending||$135||$129||$126|
|Excise Tax on High Cost Insurance||$201||$149||$149|
|Tax Gap and Loopholes Closing||$17||$17||$17|
|Limits to Health Care Tax Benefits||$42||$43||$41|
|Fees on Health Care Companies and Taxes on Certain Heath Procedures|| $121
|Medicare Payroll Tax Increase for High Earners||n/a||$54||$87|
|Interactions and Other Spending and Taxes
|Budgetary Impact Subtotal||$81||$57||$60|
|Total Budgetary Impact||$81||$130||$132|
| Tenth Year Budgetary Impact
|Deficit Reduction in Second Decade||0.25% to 0.5% of GDP||0.25% of GDP||0.25% to 0.5% of GDP|
|Reduction in Uninsured||29 million
||31 million||31 million|
Numbers in billions, with positive numbers representing a reduction in the deficit
Sources: Congressional Budget Office, Joint Committee on Taxation, and Authors' Calculations
*Assumes $10 billion in home health cuts are the result of market-based payment updates
+The CLASS Act makes available government-sponsored long-term care insurance. Because this insurance would have a "vesting period," the provision appears to raise considerable amounts of revenue over the next decade. However, these revenues must ultimately be used to cover the program's costs, and therefore do not belong in the bill as an offset.
In a blog post earlier this week, Stan Collender presented a laundry list of suggestions about how deficit hawks can be more effective. As a proud member of that group, we welcome Stan’s advice. Having reviewed the list, we were pleased to find that we already are doing everything that Stan wanted. We’re not sure who Stan is writing about, but it’s obviously not us.
Here’s Stan’s checklist and how the Committee for a Responsible Federal Budget measures up:
- “Advocate aggressively and forcefully for reducing the deficit. Pay-as-you-go rules for new proposals are important, but existing programs already in the baseline shouldn’t get a free pass.”
- “But understand that there are times, like when the economy is in the tank, that reducing the deficit or running a surplus is the wrong fiscal policy.”
Check - We have written extensively on how there are times where deficits are good (see here) and that Deficit reduction should phase in slowly once the economy has recovered so as not to destabilize an economic recovery (see here and here).
- “Be the one that helps define when a deficit is appropriate. One of the most important contributions hawks can make will be to communicate this so that it becomes the common wisdom…”
Check - Devoted an entire paper to it (see Good Deficit/Bad Deficit from our Fiscal Roadmap Project).
- “Don’t allow the deficit to be a partisan issue. Both political parties frequently use the deficit as an excuse whenever they oppose something but don’t want to state the real reason for the opposition.”
Check - We certainly don't do that, and our bipartisan credentials are solid. CRFB's board is about as bipartisan as it gets. It represents views from both sides of the aisle, bringing together budget experts with different political beliefs but who all share a common interest in getting deficits and the debt to sustainable levels.
We agree some budget experts do seem to use different standards for the two different parties.
- “Advocate as forcefully for debt reduction as deficit reduction when it makes sense economically.”
You guessed it, CHECK - The newly released Red Ink Rising from the Peterson-Pew Commission on Budget Reform discusses the importance of focusing on debt and not just deficits, as the debt level could negatively affect the credit ratings on U.S. debt instruments, interest rates throughout the economy, and threatens budget flexibility to respond to emergencies.
So, thank you Stan for pointing out everything that “real, substantively based” deficit hawks should be doing.
Yesterday, on the heels of President Obama signing a $1.1 trillion "minibus" CRFB released a paper on the importance of controlling discretionary spending growth. The paper showed that, while fiscal conservatives tend to worry about mandatory spending, discretionary spending has actually been growing faster over the last decade. It also devotes a small box to discussing President Obama's proposed spending cuts -- which this blog will discuss in more detail. As we explain:
In his 2010 budget request, President Obama proposed terminating or cutting about 75 discretionary spending programs to achieve $11.5 billion in savings. Proposals ranged from as large as $3 billion for the F-22 Fighter Aircraft – which most experts deem no longer necessary - to as small as $1 million for the Christopher Columbus Fellowship Foundation – which the Administration found spent 80% of its funds on overhead.
We first discussed and analyzed these proposed cuts in our Analysis of the President's FY 2010 Budget back in May. There, we pointed out that administrations have historically faced opposition in Congress in trying to enact cuts and eliminations. As we wrote:
Despite proposing more cuts than the Obama Administration, President Bush saw limited success in eliminating or cutting government programs. For its FY2006 Budget, coming off a large electoral victory with a unified Congress and few spending pledges, the Bush Administration succeeded in achieving around 40% of its proposed cuts and saving roughly $6.5 billion. In the next two years, Congress enacted less than 15% of the Administration’s proposed cuts, for savings of less than $2 billion a year.
We haven't yet reviewed all of President's requested cuts (we plan to in the next month or so), but we did try to look at the President's top ten proposed cuts to see if they were included in the appropriations bills he has signed. We excluded defense spending because it has not been passed yet. We also excluded two proposed "corps of engineers" cuts, since they came out of difficult-to-trace earmark spending.
Of the top ten programs remaining, we found that only two were enacted as requested. Another three were partially enacted. Yet five of the proposed cuts were ignored altogether -- including four which received funding increases.
Out of the $1.78 billion in proposed savings from these ten items, in fact, Congress only enacted $560 million -- less than one third. And that doesn't even include the $200 million in increased spending for areas the President recommended cutting. That would put the net cut at closer to $360 million.
Here is a chart of the spending cuts (numbers in millions). We intend to expand it to include all the President's proposed cuts the coming months:
||Agency||FY2009 Levels||FY2010 Proposed Level||Actual FY2010 Funding Level|
|Health Care Facilities and Construction||HHS||$310||$0||$338|
|Surface Transportation Priorities||Transportation||$161||$0||$293|
|Water Infrastructure Earmarks||HHS||$145||$0||$162|
|Agricultural Research Service Buildings and Facilities||Agriculture||$47||-$50||$71|
|Nuclear Power 2010||Energy||$178||$20||$105|
|Election Assistance Commission Grants||Financial Services||$106||$52||$75|
|Safe and Drug Free Schools||Education||$295||$0||$0|
If Congress cannot even enact these small cuts, we worry about its ability to control discretionary spending on the whole. We thus urge Congress to enact some type of enforcement mechanism, such as caps, to keep Congress from bowing to the temptation to overspend. As we explain:
Just holding discretionary spending growth to inflation – with strong enforceable spending caps – would be a positive step. In the 1990s, it was these types of caps, along with pay-as-you-go rules, strong economic growth, slower-than-usual health care cost growth, and a commitment to deficit reduction that led to budget surpluses...caps would prevent the situation from further deteriorating, something which would almost certainly occur under the current process...controlling discretionary spending alone cannot be enough to avert the coming debt crisis...But discretionary controls can make a far bigger difference than most policymakers realize, and more importantly, they can send a signal that we are serious about getting our burgeoning debt under control.
Congress will leave town for the holidays without completing some serious fiscal business, but with a full agenda for next year. The House and Senate will have to raise the debt limit again early next year. Many members are clamoring for the establishment of a fiscal commission. And Democratic leaders from House Speaker Nancy Pelosi to President Obama have promised a new focus on deficit reduction. Republicans have promised to force the Democrats’ hands on the issue or make it a major issue in the fall election.
The chance that some type of bipartisan commission will be created to address the nation’s long-term fiscal challenges increased significantly this week as the idea has gained support and key leaders appear to be responding to mounting pressure to adopt the proposal.
CNN reported on Tuesday that President Obama is seriously contemplating an executive order to establish a commission, with White House advisors debating on how broad a mandate the panel should have. House Speaker Nancy Pelosi, who previously had been cold to such the idea, was quoted by Politico today as saying that “we’ll come to terms on a commission” early next year.
A group of key centrists in the Senate have demanded a vote on legislation to create a commission that will make recommendations to reduce the mounting federal debt in order to gain their support for a long-term debt limit increase.
At a hearing convened by the Senate Committee on Homeland Security and Governmental Affairs today former Federal Reserve chairman Alan Greenspan offered his approval of a bipartisan commission, saying it is “an excellent idea.” At the hearing, Senate Budget Committee chairman Kent Conrad (D-ND) stated that the proposal he introduced last week with Sen. Judd Gregg (R-NH) now has 34 sponsors. Conrad testified that a commission is needed because the “regular order will not take on burgeoning debt.”
There are still several issues that must be resolved among competing proposals for a budget panel. One is whether it should be formed though legislation or presidential directive. A directive would be easier to execute, but the commission would not have the full force of law and could not mandate that Congress vote up or down on its recommendations, like the Conrad/Gregg bill proposes. Other issues include how broad a mandate the entity should have and the make-up of the panel – whether it should be composed entirely of Members of Congress or include others.
CRFB supports a bipartisan special process for tackling the debt in the hope that it will focus much-needed attention on fiscal responsibility and establishing a shared fiscal goal. According to a recent statement from CRFB president Maya MacGuineas. “It is less important to us the specifics of any commission or task force than the reflection that Congress and the White House are finally willing to turn their attention to this pressing problem.”
With U.S. debt held by the public on track to exceed 100% of the economy in a little over a decade, policymakers must come together now and implement a plan for getting our fiscal house in order. Otherwise, our economic future, as well as that of the rest of the world, is at risk. The Peterson-Pew Commission on Budget Reform recently released a report that examines the consequences of the large government debt and suggested a plan for lowering that debt to 60 percent of GDP (an international standard). The report received widespread attention, including from The Economist, Wall Street Journal, and Capital Gains and Games.
Our debt has implications far beyond our borders. But we are not the first to deal with overwhelming debt and the United States can learn some lessons from other countries.
The bad news first:
A large and growing portion of our debt is held by foreign investors (see page 12 of the report). Without the reassurance that comes from having a plan to bring U.S. debt down to a sustainable level, those investors may begin demanding higher returns on their investments (thus, pushing interest rates up), or reduce lending to us altogether. This would hurt our ability to react to economic crises in the future, and to continue to pursue economic growth.
We are already starting to see some nervousness among our international creditors. China, our largest foreign creditor, has recently voiced concern over whether our debt, and its expected growth, is sustainable. And while U.S. Treasury debt instruments continue to be a safe haven for many investors, there is no telling when a fiscal crisis might trigger a change in that scenario. Some fear the United States may not continue to be the world’s reserve currency. The IMF and the UN have already begun to investigate a worldwide reserve currency as a potential alternative to the dollar.
Now the good news:
The United States is not the first country to face an unsustainable debt burden, and other countries have been successful in lowering their debt and improving their economic prospects (see pages 16 and 17 of the report and this paper on other fiscal success stories). While not perfect comparisons, those examples show that bringing a country’s debt to a sustainable level is possible. After a series of missteps, Canada successfully brought its debt level down and enjoyed a decade of budget surpluses.
However, we would be wise to learn from the mistakes of most other countries who undertook debt reduction: don’t wait too long. In many, if not most, cases, debt reduction came only with difficult and rapid policy changes after an economic crisis struck, precipitated by high debt and persistent deficits. Economies and people suffer greatly when their government fails to act until it is too late. Without concrete action soon, we might face an economic crisis sooner than we think, and our nation might lose its global clout.
The House has been extremely busy today, not only passing a $154 billion jobs bill but also passing a temporary continuing resolution, the defense appropriations bill, and a minor increase to the debt ceiling.
On the debt ceiling, the House voted to increase the limit by a tiny margin -- $290 billion -- in order to give the government the ability to finance operations for roughly another six weeks. The Senate is expected to approve this measure before adjourning for the year. This mini-increase in the debt ceiling will likely be welcomed by moderates in the Senate, who are hoping to use the next large increase in their favor to push for the need to create some sort of a fiscal commission. Why six weeks? This ostensibly gives President Obama the chance, in his State of the Union address next month, to lay out any plans for tackling runaway deficits and high debt. Many Democrats had originally hoped to pass a $2 trillion increase to the ceiling, which would be enough to hold off on another vote on this issue until after the 2010 midterm elections.
See CRFB's latest primer on the debt ceiling.
The Defense appropriations bill the House sent to the Senate was a whopping $636.6 billion. That bill would also extend unemployment benefits and other non-military programs through the end of February. A summary of the bill can be seen here. As for the continuing resolution, the House adopted a short term CR to fund the agencies that have not yet had current year spending bills enacted. The current CR expires December 18, and the new one lasts until December 23 of this year.
This afternoon, the House passed a $154 billion economic aid package. Below we have listed the major spending areas within the bill:
|Highway Infrastructure||$28 billion|
|Other Infrastructure||$21 billion|
|Education Jobs Fund||$23 billion|
|Other Jobs Spending||$4 billion|
|Unemployment Insurance (6 month extension)||$41 billion|
|COBRA Extension (6 month extension)||$12 billion|
|FMAP Extension||$24 billion|
|Other Items||$3 billion|
Note: Numbers may not add exactly due to rounding.
To help pay for some of these initiatives, Congress and the Administration have both supported rescissions in TARP funds. In all, this bill cuts $75 billion in total TARP funding. As we have noted here, here, and here, using leftover TARP funds to pay for new stimulus spending amounts to a budget gimmick. Policymakers should find genuine offsets, even if these offsets occur in the out-years, to pay for any and all new spending and tax cuts.
Tim Penny, co-chair of the Peterson-Pew Commission on Budget Reform, was interviewed today for an hour on his home state public radio station. Saying that we're about to go over the cliff regarding the federal budget and its debt burden, Penny laid out the Commission's argument for beginning immediately to implement a plan for getting the nation's debt under control. Penny took a number of questions from callers, and didn't pull any punches in describing the necessity for action, and the extent of tough political choices that must be made. At the current rate of borrowing, the federal government will soon exceed debt levels not seen since World War II. As a portion of the country's economy, Federal debt held by the public will soon exceed 100%.
Today Maya MacGuineas also honed in on that alarming 100 percent projection for 2022, which is based on reasonable assumptions about what policymakers are likely to do on tax and spending policies. In other words, she wrote in the NY Daily News, we’ll owe loans that are equal to the entire value of all the economic activity generated in the United States in a given year….” Bottom line: “If we don’t wrestle this beast today, it will devour us tomorrow.”
The IRS has agreed to give up billions in tax money in exchange for Citigroup’s repurchase of $20 billion of its assets held by TARP. In a notice released on Friday, the IRS will exempt up to $38 billion in future Citi profits from taxable income.
Federal tax law permits companies to reduce their taxable incomes in profit-earning years by the amount of losses in bad years (it's called carryback loss). Under the law, the IRS, which is part of the Treasury, restricts the transfer of these benefits to new ownership in the case of a merger—as a way of preventing companies from buying unprofitable firms to evade taxes. As the law exists, Citi’s repurchase of assets held by the Treasury would qualify as a change in ownership, and thus exclude Citi from the tax benefit.
Since Citi has built up $38 billion in losses, the IRS notice on Friday will exempt up to $38 billion in future profits from taxable income.
According to a Washington Post article this morning, the exact value of the IRS ruling will depend on Citi’s future profits and other factors. But accounting experts have estimated that Citi will save at least several billion dollars. Some experts have also said that the lost tax revenue could easily outweigh the profits the Treasury will likely make in selling its ownership stake in Citi.
This IRS ruling just adds to the list of all the unprecedented methods in which the Treasury, FDIC, and Fed have provided lifelines to Citi (track them all at Stimulus.org).
Differing views on creating a deficit commission were aired at a Capitol Hill forum yesterday sponsored by the Cato Institute. The proposal, which is gaining bipartisan support in Congress, would create a bipartisan commission that would make recommendations to address the nation’s long-term fiscal challenges. Congress would vote on the recommendations on an expedited basis without amendments.
House Budget Committee ranking member Rep. Paul Ryan (R-WI) kicked off the discussion by stating that, while he appreciates that the calls for a commission are drawing much-need attention to confronting long-term fiscal imbalances, he prefers that Congress “do its job” and work within the regular order as opposed to a special process. Ryan expressed concerns that “outsourcing” the job to a panel would result in a missed opportunity to achieve comprehensive entitlement reform. He disputed the fundamental notion behind calls for a commission, that Congress is unable to make the difficult decisions to shift the nation’s fiscal course. The Congressman argued that entitlement reform is not unpopular with voters and presented himself as a “living example.” He has offered a detailed blueprint for an overhaul and has been reelected in a competitive district; referring to himself as “a koala bear on the third rail” to underscore his vulnerability.
He did affirm that action needs to be taken now, stating that we are consigning the next generation to a lower standard of living if we continue our present fiscal course. He went on to say that a commission “is not the worst of all ideas.” The worst idea would be to do nothing. He also said that those proposing a commission have their hearts and minds in the right place.
He concluded by asserting that some may consider a commission a “punt” while he would rather “throw a pass” towards scoring a touchdown.
Former Congressional Budget Office director Douglas Holtz-Eakin followed and offered a defense of establishing a commission and commended those pushing it. In providing an overview of the immensity of the fiscal dilemma he referenced the new report released on Monday by the Peterson-Pew Commission on Budget Reform, of which he is a member.
According to Holtz-Eakin, the most important aspect of a commission is that it could establish a fiscal goal, which would provide policymakers with a “way to say no” to costly new government initiatives. He lamented that we have lost touch with the fact that not every good idea can be funded with taxpayer’s money.
He did close with a warning: that the commission must be organized in a way that “maximizes its success.” If a commission is formed and fails to adequately alleviate the fears of creditors concerned about mounting U.S. debt, then that could bring about the economic crisis we are trying to avoid.
Dan Mitchell of the Cato Institute then proceeded to castigate the commission idea as a ruse for raising taxes and increasing the size of government.
In direct contrast to Holtz-Eakin, who argued that all members of the commission should be members of Congress in order to promote accountability, Mitchell expressed concern that the commissioners would be legislators intent on using it as a vehicle to raise taxes and enact “phony” spending reforms that would be quickly rolled back. He depicted a commission as a “stalking horse” for a value-added tax.
Chris Edwards seconded the commission critique of his Cato colleague and listed changes he thinks are needed. He said a “revolt at the ballot box” is required to get new blood in Congress committed to a sustainable budget. He also called for political reforms such as term limits for Congress, random assignments to congressional committees and a spending cap in Congress.
Congress may soon decide on establishing some form of budget commission. A bipartisan group of centrist senators is withholding support for a major increase in the debt limit in order to extract a vote on forming a commission. Congressional leaders are negotiating with the group.
General Motors and Wells Fargo have both just announced that they intend to repay all of the $6.7 billion and $25 billion, respectively, in outstanding TARP investments. GM said it hopes to repay the Treasury by the end of June, but Wells Fargo did not offer a time frame.
As with Bank of America and Citigroup, the $6.7 billion that GM owes the Treasury far understates the complete efforts taken by the government to shore-up the company. Since last December, TARP has provided GM with over $50 billion in loans and capital infusions. Although GM only owes $6.7 billion to the Treasury, the federal government currently holds a 61 percent ownership stake in the company. As with Citigroup, the government will still own a portion of the company after the TARP repayment, and will have to make separate sales of its shares in the open market.
Below is a table of all the companies still heavily in debt to the government, but who have stated that they will repurchase all assets from TARP.
|Announcement of Repayment||Value of Assets to Repurchase from TARP
|Bank of America||12/2/2009||$45 billion|
|Wells Fargo||12/14/2009||$25 billion|
|General Motors||12/14/2009||$6.7 billion|
Several large banks have already repurchased assets held by the Treasury, including J.P. Morgan Chase, Goldman Sachs, Morgan Stanley, U.S. Bancorp, and Capital One. Several other large banks, such as PNC, have neither repaid TARP funds nor committed to doing so.
CRFB will continue to track TARP investments and repayments at Stimulus.org.
Earlier this year the White House created a contest for federal employees that was focused on producing real ideas that would yield monetary savings. They announced the winner, Nancy Fichtner, on saturday.
Nancy proposed that that veterans leaving VA hospitals should be able to take the medicine they’ve been using home with them instead of it being thrown away when they’re discharged. OMB posted these details on her idea:
As is the case in most hospitals all across the country, medicine that is used in the hospital is not given to patients to be brought home; instead, it is thrown out. “Currently the inpatient medications such as ointments, inhalers, eye drops, and other bulk items are being disposed of upon patient discharge.” Nancy proposes ending this waste and finding a way to allow this medicine to be used by those who need it.
The Peterson-Pew Commission’s “Red Ink Rising” plan for American lawmakers has earned some black ink worldwide too since its release, not to mention some airtime for what CNBC called the Common Cause. There was also support in editorial pages from coast to coast. As Drudge underscored earlier today when it linked to Reuters: “US needs plan to tame debt soon.”
LATimes opined: “Deficit-conscious lawmakers have proposed several ways to force Congress to address the looming fiscal problems, such as establishing a commission to recommend ways to bring the budget back into balance. We'd rather see Congress follow the recommendation of the nonpartisan Peterson-Pew Comission on Budget Reform and pledge to stabilize the federal debt at no more than 60% of GDP by 2018. Congress has time to figure out how best to curb its deficit-spending habit. Repairing the country's credibility as a borrower, however, can't wait.”
Noting the benchmarks and trigger in the Commission’s debt stabilization plan, The Washington Post editorial board said, “IT'S TIME to stop worrying about the deficit -- and start panicking about the debt…the fiscal picture is too daunting and too politically sensitive to be addressed under the regular order.”
AP’s Andrew Taylor answered the question of why debt is a problem now: “the new wrinkle is that the U.S. budget deficit picture has worsened so much -- largely because tax revenues have fallen off so sharply -- that the government is likely to reach a crisis point much sooner than under past forecasts.''What was once a three-decade problem is now a one-decade problem,'' [Former CBO director Doug] Holtz-Eakin said.”
"The long-run future is upon us," said former Clinton administration budget chief Alice Rivlin. Bush administration debt, rapidly escalating health care costs, a deep recession that has slashed tax revenue, and record government spending this year on a $787 billion stimulus and a $700 billion bank rescue have, she said, "raised the debt very, very rapidly, to nervous-making levels," reported Caroline Lochhead in the San Francisco Chronicle.
WSJ’s Sudeep Reddy said the Peterson-Pew Commission had “outlined a plan to do what current Washington policymakers have been unable to do: bring the rising federal debt under control.” A Huffington Post writer found inspiration in that possibility.
About the Post’s opinion, blogger Andrew Biggs thought it important to pass on these words: “Getting the debt back down to a reasonable level will require extraordinary, almost unimaginable, fiscal discipline and political cooperation. Failing to do so will lower the national standard of living and ultimately threaten America’s economic stability.”
According to a Donald Marron, reallocating TARP funds to use for other purposes (such as a jobs bill) may violate the letter of the law (and certinaly violates the spirit of it). We've written before about the problems of trying to repurpose TARP money (see CRFB's new paper on TARP, discussing its costs, programs, and issues going forward).
For one, the savings which CBO will score of rescinding TARP money are too high. They assume a 50 percent subsidy rate (based on their March baseine), which means that rescinding a dollar saves fifty cents. Newer estimates put subsidy rates at around 35 percent..
Secondly, both OMB and CBO now project a lot of the TARP money won't be spent anyway. How can you claim savings from deciding not to spend money which wouldn't have been spent anyway?
But Donald Marron points out a third, more fundamental issue from the law itself. Section 204 of the Emergency Economic Stabilization Act, the act that created TARP, states (emphasis added):
All provisions of this Act are designated as an emergency requirement and necessary to meet emergency needs pursuant to section 204(a) of S. Con. Res 21 (110th Congress), the concurrent resolution on the budget for fiscal year 2008 and rescissions of any amounts provided in this Act shall not be counted for purposes of budget enforcement.
This basically says that lawmakers cannot rescind TARP funds to pay for other initiatives. Despite this, Congress has already done so twice – rescinding $1.26 billion to help pay for the HOPE for Homeowners Program and $34 million to pay for a new TARP database. (It may be that this was allowed because both programs were related to TARP's innitial pupose).
A new “jobs bill” using a rescission of TARP funds as a “pay for” could be a whole separate issue. Congress rushed the passage of TARP because it was an emergency measure—lawmakers wanted to make sure that approved funds wouldn’t be “rescinded to pay for new, non-emergency spending.”
We aren't lawyers here. But if nothing else, using TARP as a pay for seems to violate the spirit of the law.