The Bottom Line

October 25, 2011

We receive a fair amount of e-mails from concerned citizens every day, be it questions, concerns, comments, or just general thoughts. Every so often, we receive a comment that truly encapsulates what CRFB is striving for and why.

Today, we want to share such a letter we just recently received:

As a young voter who is just starting a family, the continued economic viability of this nation is a salient issue for me. While I consider myself a foreign policy buff, I fully understand that our ability to engage the world and promote democratic constitutionalism abroad begins with having things in order at home. Further, that to maintain our competitive edge in a globalizing and dynamic world, we will need to make substantial investments in infrastructure, education, technological advancement, and industry. Currently, our ability to make such investments is hamstrung by a federal budget in dire need of substantive reform. While this reform may be politically inconvenient, it is an economic, geopolitical, and national security necessity.

Our nation began in the 18th Century, nearly self-destructed in the 19th, and rose to power in the 20th; let us not fail it in the 21st. We owe it to ourselves, our posterity, and those who look to us to carry the torch of liberty guiding the free world, to ensure the continued viability of this great nation.

As such, as a young veteran who is attending graduate school and starting a family, I urge you to keep it up, and to keep thinking big.

You can trust that we'll keep thinking big. We always appreciate being contacted, and while we love letters like this, we always appreciate ones that have questions or that are critical. Click here to contact us.

October 24, 2011
A Weekly Update on Budget and Fiscal Policy Developments and a Look Ahead

Play Ball, Please – Baseball’s World Series is under way and it is a classic contest between evenly matched teams that could go either way. Meanwhile, Washington is experiencing its own Fall Classic that could go either way. The Joint Select Committee on Deficit Reduction (aka the Super Committee) is engaged in its own contest of wills that is generating a lot of “will” questions: Will the panel come up with a deal? Will the deal be for $1.2 trillion, or more, or less? As is usually the case in these big-time contests, the outcome will hinge on who steps up to the plate and delivers. Who will be the Mr. (or Ms.) October of the debt debate?

Super Committee in Seventh Inning Stretch – The deficit reduction All-Star team is getting into the late innings. They face a formal deadline of November 23rd to vote out recommendations for Congress to consider. However, the effective deadline could be even sooner in order to give the Congressional Budget Office (CBO) time to score the proposal, though the Committee is already giving possible options to CBO to score in order to speed up the process. Meanwhile, congressional leaders are getting more involved and are preparing members for a vote on whatever the Super Committee proposes. Committee members are also discussing a possible two-step process where the panel agrees on entitlement savings and closing tax loopholes and instructs the tax-writing committees to perform a fundamental overhaul of the tax code that achieves additional deficit reduction. The team takes the field for its next public hearing on Wednesday to discuss discretionary spending with CBO Director Doug Elmendorf. Meanwhile it continues regular private meetings in the clubhouse.

Going Big is More Practical – While it may sound like the equivalent of swinging for the bleachers when all that is needed is a base hit, a new brief released Friday by CRFB makes the case that going deep would be more helpful for the Super Committee than trying to hit a grounder. Going big with everything on the table presents more avenues for making the tradeoffs necessary to reach a deal, while a more narrow approach closes off many possibilities. CRFB also created a PowerPoint presentation to help make the case. See our Go Big page for more on the topic and watch the videos we produced with a diverse group of thought leaders explaining why going big is important and how to do it.

Tax Reform Celebrates 25th Anniversary – The Tax Reform Act of 1986 is a clear Hall of Famer when it comes to legislative accomplishments. The bipartisan reform simplified the tax code by eliminating many tax loopholes and also lowered rates. Harvard economist Martin Feldstein writes that the tax reform resulted in an increase in taxable income. On the occasion of the 25th anniversary of the reform act’s enactment, many are asking if that feat can be accomplished again. CRFB’s Paul Weinstein and Ed Lorenzen write in The Atlantic that while tax reform can be complicated, the Super Committee would not be working from scratch. They point to the Zero Plan from the Bowles-Simpson Fiscal Commission that simplifies the tax code, lowers rates, and eliminates costly tax expenditures to reduce the deficit (see here and here for more ideas). They also note that the Super Committee doesn’t have to do fundamental reform all at once; they can initiate a process for expedited consideration of tax reform that sets certain criteria and parameters.

Small Ball in Senate – The Senate is in recess this week while the House returns from its break. When they return, Senators will finish up amendments and vote on final passage on a “minibus” spending bill combining the FY 2012 Agriculture, Commerce-Justice-Science, and Transportation-Housing and Urban Development appropriations measures. The package totals $182 billion. Already way behind in moving the 12 annual spending bills, instead of rolling them up into one omnibus bill legislators decided to move a few smaller minibus packages. Yet, that approach is still moving slowly as a wave of amendments held up final passage in the Senate last week. With a November 18th deadline fast approaching, yet another continuing resolution is likely to prevent a government shutdown. The mini approach in the Senate has also failed to ease enactment of President Obama’s jobs agenda. After the full White House proposal failed earlier this month, Senate leaders choose to break it up to see if individual elements would be more palatable. However, a bill that would send $35 billion to state and local governments to pay for teachers and first responders failed to break a filibuster on a 50-50 vote.

Comparing Triggers – Managers often have pitch counts for their pitchers, especially when they have just returned from injury. Once a hurler reaches the set amount of pitches, a change on the mound is triggered. A similar concept has been proposed to help the ailing federal budget improve its performance. President Obama included a mechanism in his economic growth and deficit reduction plan setting targets for cutting the national debt and triggers to ensure those targets are met. A new brief compares it to the trigger proposed by the Peterson-Pew Commission on Budget Reform in Getting Back in the Black. See our one-stop resource on budget reform for more.

CPI Changes – Not to be confused with the RBI, the Consumer Price Index (CPI) is a measure of inflation that has a significant impact on the federal budget. Last week the IRS announced that it was increasing the value of tax breaks and the threshold for tax rates based on CPI changes. The Social Security Administration also announced there would be a cost-of-living-adjustment (COLA) of 3.6 percent for Social Security beneficiaries. According to reports, the Super Committee is considering changing to an alternative measure of CPI that is believed to be a more accurate measure of inflation, which would likely reduce changes to tax expenditures and Social Security benefits, thus reducing the deficit. Read more on chained CPI and its potential to reduce the deficit here.

Key Upcoming Dates (all times ET)

October 25

  • Military Personnel Subcommittee of the House Armed Services Committee hearing on "Military Retirement Reform" at 1 pm.

October 26

  • Health Subcommittee of the House Energy and Commerce Committee hearing on suspending implementation of the CLASS Act at 9 am.
  • Joint Select Committee on Deficit Reduction (Super Committee) hearing on discretionary spending at 10 am.
  • House Armed Services Committee hearing on the "Economic Consequences of Defense Sequestration" at 10 am.

October 27

  • Readiness Subcommittee of the House Armed Services Committee hearing on "Readiness in the Age of Austerity" at 10 am.

November 18

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

November 23

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

December 2

  • The Super Committee report and legislative language must be transmitted to the President and Congressional leaders by this date.

December 9

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

December 23

  • Congress must vote on the bill recommended by the Super Committee by this date. No amendments are allowed.
October 24, 2011

Two recent warnings over the United States' fiscal outlook are worth taking a look at. First, Bank of America Merrill Lynch released a report last week voicing concerns about the Super Committee and the risk of another potential credit-rating downgrade if they don't succeed. Second, the Government Accountability Office (GAO) released its most recent update on The Federal Government's Long-Term Fiscal Outlook.

The report from Bank of America Merrill Lynch, released Friday, warns that if the Super Committee fails to enact a fiscal reform package significant enough to reassure markets, the U.S. may face another credit rating downgrade from a rating agency -- possibly as soon as late November or December. According to the LA Times, Bank of America's North American economist Ethan Harris is doubtful that the Super Committee will be able to reach such a comprehensive fiscal plan, and that credit rating agencies will respond accordingly:

“The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan,” Harris wrote. “Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes.”

While the credit rating agency Standard & Poor's (S&P) has already downgraded the U.S. from AAA to AA+, the two other largest agencies -- Moody's Investors Services and Fitch Ratings -- still rate the United States AAA. Moody's, however, like S&P, has the outlook on the U.S. credit rating outlook as "negative" (Fitch Ratings maintains a "stable" outlook on the U.S. credit rating).  

The Bank of America report, while pessimistic, further underscores the need for the Super Committee to exceed expectations and its saving mandate by enacting a bipartisan, comprehensive fiscal reform plan that stabilizes and reduces the debt.

Turning to the GAO, their latest report says that while the United States' long-term fiscal outlook has improved since its previous report from January 2011 and that much of this improvement is due to the Budget Control Act (BCA), their simulations "continue to underscore the need to address the longer-term outlook as soon as possible while still recognizing the current weakness in the economy." Rising health-care costs and the aging of the population are cited as sources of budgetary pressure, as more members of the baby-boom generation retire and become eligible for Social Security and other federal health programs.

The report concludes:

Our simulations show that the Budget Control Act of 2011 will help reduce deficits. However, the longer-term fiscal challenge remains. The Joint Select Committee has the opportunity to improve the federal budget outlook by making changes to the structural imbalance between revenues and spending. Addressing the long-term fiscal challenge will not be easy. It will likely require difficult decisions affecting both federal spending and revenue.

There you have it -- two additional warnings that we need to get our finances in shape. Let's hope the Super Committee is listening.

October 24, 2011

You might have seen a piece featured in The Nation last week arguing “How the Austerity Class Rules Washington,” noting in the very first line how the Committee for a Responsible Federal Budget held a “high profile” symposium recently urging the Super Committee to think big and exceed its current mandate. The article continues on to make the case that CRFB and its leadership has been one of the “central organizers” behind an “austerity class” of experts and organizations here in Washington pushing for austerity over job creation, using national media, congressional testimonies, opinion pieces, newspaper editorials, events, and other methods to get its message out.

Well, first off, we didn’t realize we were so powerful! We’re truly honored to see that some people think we rule Washington. While that conclusion is debatable, there are a couple of things in the article we’d like to quickly clear up.

We completely agree that the economy needs to be the country's number-one focus. Where we differ with the opinions expressed in the article is that credible and gradual debt reduction is one of the best things lawmakers could do for the economy, this decade and beyond. There is evidence that our debt levels are already affecting the strength of the economy (see Reinhart and Rogoff, Stephen Cecchetti), and putting in place a plan today that gradually phases in savings as the economy strengthens can improve business and consumer confidence, increase more productive private investments down the road, increase the size of the economy over the long-term, and ultimately eliminate the risk of a fiscal crisis—which would be an anathema to an economic growth and job creation strategy.

So it’s not an either/or kind of deal. Deficit reduction is part of a pro-growth strategy, and would even provide fiscal space up front to allow lawmakers to focus on the economic recovery. However, simply relying on deficit-increasing policies in the short-term without addressing our long-term challenges would not have anywhere near the same benefits.

We’d also like to clear up a few factual mistakes in the article. The article states that when Congressman Paul Ryan (R-WI) released his Roadmap for debt reduction in 2008, we “lauded his ‘thoughtfulness and courage’” but that we “failed to mention that Ryan’s plan would increase the deficit, from a debt-to-GDP ratio of 60 percent in 2010 to 175 percent by 2050.” This is incorrect on two counts: the CBO estimate showed debt increasing to a high of 100%, and we raised serious concerns over how the plan’s debt levels “could be quite dangerous” in the very same press release and blog where we gave credit for the political courage. We applauded the “leadership and political courage” to put forward a plan, not the debt levels. CRFB has made this point many other times regarding other fiscal plans, including from the President.

That was also the rationale behind the “FI$CY” Award given to Congressman Ryan this past January for his contributions to promoting fiscal responsibility in FY 2010. The FY 2011 budget resolution he proposed this spring was well after the award, and while we gave Congressman Ryan credit for significantly reducing debt in his revised proposal and again showing political courage, we noted that all parts of the budget needed to be on the table, including revenues, and that the national debate had moved beyond just offering specifics to actually working toward a bipartisan compromise.

The article also claims that the Bowles-Simpson report “took aim at the social safety net”, when in fact the report lists protection of programs for the disadvantaged as one of its guiding principles. The plan did not include any reductions in safety net programs, and it contained recommendations which would strengthen the safety net and provide for greater progressivity in the tax code than current policies. Bowles and Simpson have consistently reiterated this principle for deficit reduction as well as the need to avoid cuts that could harm the fragile economic recovery, most recently in a Washington Post op-ed in which they wrote that the Select Committee:

“must be smart in how they achieve savings. They should avoid making immediate deep cuts that would jeopardize our fragile economic recovery….. And they should not make cuts that would harm the disadvantaged.”

CRFB works very hard to maintain its image as an independent and non-partisan arbiter of budget proposals. People are certainly entitled to their own opinions concerning the economy and rising debt, but we wanted to clear up the facts.

October 24, 2011

The Tax Reform Act of 1986 turned 25 on Saturday, prompting a number of commentators to write their perspective on the reform. We will highlight three specifically, focusing on the lessons from the 1986 Act, the possible economic effects, and why we should/how we can produce a similar reform effort today.

Gene Steuerle: Tax Reform - Lessons from History

The first is from CRFB board member Gene Steuerle, talking about the lessons to be learned from the 1986 reform. Being in the Treasury at the time of the reform, he is in a unique position to speak to this. In the piece, he outlines ten guidelines for reform that can be learned from the 1986 reform. First and foremost, policymakers need to think about what they value in a tax code and balance those concerns accordingly. These could be efficiency, progressivity, horizontal equity, or simplicity, to name some. Second, he stresses the importance of coordination in getting legislation passed: those who take the lead on reform need to have a strategy for getting a plan through Congress, and they need good information to back up that plan. Finally, a tax reform effort takes leadership from lawmakers, both to get the ball rolling and to provide the political will to get it through Congress. 

Martin Feldstein: The Tax Reform Evidence from 1986

Martin Feldstein analyzes the economic effects of the 1986 reform in an op-ed in the Wall Street Journal. In studying the incomes of people between 1985 and 1988, Feldstein finds a significant rise in the income of people in the former 50 percent bracket (the top rate pre-1986), which he attributes to the marginal rate cuts. He finds a less but still present positive response for taxpayers in lower brackets. Feldstein estimates that a 10 percent across-the-board cut in marginal tax rates by itself would only lose about 60 percent of the revenue a static estimate says it would. He concludes that a deficit-neutral tax reform that cut tax rates by 10 percent and included base broadening along the lines of the Feldstein-MacGuineas-Feenberg proposal could raise $500 billion over ten years using dynamic estimates.

Ed Lorenzen and Paul Weinstein: Tax Reform - 25 Years Old, and Ready for Facelift

CRFB's Paul Weinstein and Ed Lorenzen bring the talk of tax reform into the current context, calling for the Super Committee to use its unusual power to reform a code that has grown significantly in complexity over the past 25 years. Although many have said that tax reform is too heavy a task to be accomplished in the Committee's short time left, Weinstein and Lorenzen note that some plans for tax reform already exist (Fiscal Commission, Domenici-Rivlin) that would actually go further than the 1986 effort and also raise revenue. Even if the Super Committee does not have the will to undertake this comprehensive a reform in one month, they can still put in place a process for tax reform that sets the parameters and targets but leaves the details up to Congressional committees. This is the approach the Gang of Six took and would be easier for the Super Committee to do, considering their time constraint. 

The need for reform of the tax code is apparent, but it does not necessarily need to exactly follow the 1986 reform. For example, unlike the 1986 reforms that were deficit-neutral, we need tax reform that will raise revenue, probably by more comprehensively scaling back tax expenditures. However, we can use the political lessons from the Tax Reform Act of 1986 to make the tax reform we want today more likely.

 

October 21, 2011

As is well-known by now, the growth in entitlement programs fueled by rising health care costs and an aging population threatens an ever-increasing national debt. Our largest mandatory spending programs occupy nearly one-third of the federal budget and, in the coming years, payments out of these programs will continue to outpace the rate of growth in the overall economy. As such, serious entitlement reforms will have to play a role in a comprehensive approach to long-term debt reduction, along with other areas of the budget, in order to get our fiscal house in order.

However, the AARP, with substantial lobbying muscle and a new media campaign, is putting its well-heeled foot down against serious entitlement reforms from being part of the solution. Recently, AARP launched a national ad campaign arguing that savings from Medicare, Medicaid, and Social Security must be taken off the table in negotiations by the Super Committee. Among other things, in a letter to the Super Committee this week they argue against switching to chained CPI, increasing cost-sharing, allowing a 30 percent cut to Medicare payments to physicians as called for under the SGR formula, increasing the Medicare age, and reductions in the Medicaid matching rate. Nobody is calling for Congress to follow the current SGR (though it needs to be reformed) but their restrictions ultimately take about $400 billion of real savings off the table.

At the same time, AARP does suggest a couple of ways they think would be good approaches to finding savings in these programs, including prescription drug reforms and reducing waste, fraud, and abuse for a total of up to about $150 billion in potential savings. While these types of reform should absolutely be considered, we will need to go much further to control the growth in entitlement spending and public debt.

Taking ideas off of the table has been the main impediment so far to reaching a bipartisan "Grand Bargain" that will put the U.S. on a sustainable fiscal course and restore some faith among Americans that our political system can overcome significant challenges. Today, CRFB released an analysis of why a "Go Big" approach could improve the chances of the Super Committee’s success, principally by allowing for the political tradeoffs necessary for bipartisan agreement and promoting a sense of shared sacrifice. Over 155 business groups, 44 senators, and a group over 60 budget experts, former government officials, and business leaders have been calling for a big solution to debt reduction that focuses on how we can reach an agreement in the best interests of the country as a whole.

Without a strong sense of shared contributions to the solution, it will be easy to dismiss any deal. Given the size of our largest entitlement programs and the growth in their future spending projections, they also need to be central to the solution to control debt from a policy perspective. We need to recognize the importance of shared sacrifice for a better future, and we hope other organizations can begin to promote this message as well.

October 21, 2011

With just a month left to go before the temporary funding for FY 2012 runs out, the Senate is trying a different strategy from the one that has prevailed in Congress for the past year and a half in the upper chamber: they are actually trying to pass their appropriations bills, rather than relying on a continuing resolution. Granted, this strategy is not exactly like the 1974 Budget Act envisioned--passing the twelve appropriations bills one by one--but it is more in line with how the budget process has worked in practice. This strategy involves passing "minibuses," or groups of appropriations bills, to speed up the process.

Currently, the Senate is working on one which involves the Agriculture, Commerce-Justice-Science, and Transportation-HUD bills, totaling $182 billion. These bills have been designed, like all others in the Senate, to stay within the Budget Control Act caps. These bills spend more than their House counterparts, but the House considered these bills under the lower overall cap of the House budget resolution and they are generally willing to use the higher BCA cap. But since the Senate is on recess next week, they don't plan to vote on it until November 1. David Rogers of POLITICO believes that because of the lateness of the vote, the House may just scrap the process and go with a full-year CR.

However, according to CQ (subscription required for link), it is looking increasingly likely that Congress could pass the minibus and use a stopgap CR for the remaining nine bills. Of course, this would not be unusual for the appropriations process in practice. Congress very rarely passes all of its appropriations bills on time and uses a CR for whatever bills it hasn't passed.

But whether Congress goes with a CR or the full appropriations route, it could all be complicated by the Super Committee's December 23 deadline (by which Congress will have to vote on the plan). If that's combined with an ongoing CR or appropriations bills, it'll be quite a spectacle -- a combination that Sen. Mark Kirk (R-IL) called "the mother of all endgames." We'll just have to see what happens.

The table below shows the status of each appropriations bill.

Appropriations Bill Status
Bill House Status Senate Status
Agriculture Passed House Passed Committee
Commerce-Justice-Science Passed Committee Passed Committee
Defense Passed House Passed Committee
Energy-Water Passed House Passed Committee
Financial Services Passed Committee Passed Committee
Homeland Security Passed House Passed Committee
Interior-Environment  Passed Committee No Action
Labor-HHS-Education  No Action  Passed Committee
Legislative Branch  Passed House  Passed Committee
Military Construction-VA  Passed House  Passed Senate
State-Foreign Operations  Passed Subcommittee  Passed Committee
Transportation-HUD  Passed Subcommittee  Passed Committee

 

October 21, 2011

With the Super Committee deliberating and the window for committee submissions passed, CRFB has released an analysis and a corresponding slide show making the case for why Go Big could in fact improve the chances of the Super Committee's success in achieving at least its $1.2 trillion savings mandate.

The analysis walks through the political constraints of achieving a smaller savings package, showing that Democrats are unlikely to agree to serious entitlement reforms while Republicans are unlikely to agree to new revenues apart from comprehensive tax reforms and serious spending cuts. The answer? Go Big! And it's hard to see how Going Big would not quickly bring the Super Committee upwards of $1.5 trillion in savings.

As CRFB president Maya MacGuineas stated in a release accompanying the analysis:

Withough reforms to each area of the budget, including critical entitlement and tax reforms, it's difficult to see how the Super Committee could navigate the political constraints to achieve its target of at least $1.2 trillion in savings...

A big solution to debt reduction is a win-win. It can improve the chances of the Super Committee succeeding while also offering the best possible way to put debt on a downward path this decade.

The paper also goes into two other reasons why Going Big could improve the chances of success: shared sacrafice and the political and economic benefits of putting debt on a downward path.

Click here to read the full paper, and here for our slideshow summing up the arguments:

 

October 20, 2011

Earlier this week, the U.S. Postal Service (USPS) announced a number of rate increases to take effect in January 2012. For starters, the cost of first class postage (equivalently, the cost of a "forever" stamp) will increase by one cent, totaling 45 cents. Additionally, postcard postage will increase by three cents, letters to Canada and Mexico will go up five cents, and international letters will go up seven cents. As reported by Ed O’Keefe of the Washington Post, this will amount to an $888 million increase in revenue. For some, this change will seem out-of-the-blue as rates have not increased in 2.5 years; however, this is just a preliminary step in addressing the USPS’ mounting debt problem.

Over the past decade, the internet has changed the way we disseminate information, affecting not only newspapers and the advertising industry but the mail service industry as well. E-mail is now the preferred contact method for advertising as well as long-distance communication, siphoning demand from mail carriers, primarily the USPS. In the last four years alone, mail volume has fallen by 20 percent -- including a 7 percent decrease in first class mail volume in FY 2011 alone. Such sharp decreases in demand for postal services have left the USPS with $15 billion in debt. The finances for the USPS are important for the federal budget, given that it is a quasi-governmental agency.

The USPS broke from the federal government to become a semi-independent federal agency in the 1970s, reaching an agreement with the Treasury Department that they would split costs to the Civil Service Retirement System (CSRS). In 2006, a law was passed requiring that the USPS set aside money annually to cover the cost of future health benefits for retired workers, averaging $5.5 billion dollars every year for ten years. Back in September, the White House announced that it would give the USPS an extra three months to make this year's payment, in an effort to "save the deficit-plagued Postal Service from an embarrassing default." Each year, the federal government spends somewhere between $5 - $10 billion on the USPS.

One proposal to ease the debt burden faced by the USPS is for the federal government to refund up to $75 billion that USPS says it overpaid into the CSRS since the 1970’s. However, the Government Accountability Office (GAO) stated that the refund would merely transfer the burden of debt and not affect the long-run fiscal problems faced by USPS.

Aside from the issue of refunding overpayments, there have been a number of proposals for ways to ensure the long-run fiscal safety of the USPS. According to an article in the Wall Street Journal, an option supported by Postmaster General Patrick Donahue is to make standard mail ("junk mail") more lucrative to businesses in order to offset the declining first class mail volume with increases in standard mail delivery. Also on the revenues side, a bill proposed by Sen. John McCain (R-AZ) suggests the USPS be allowed to increase postage prices to cover the full costs of postage. This week's increases were certainly a step in this direction.

On the other side of the coin are a number of cost-cutting measures. A proposal supported by the White House, Congressional Republicans and 7 out of 10 Americans is to eliminate Saturday mail. Other proposals could involve cutting hundreds of thousands of jobs, selling mail-processing facilities, and closing large numbers of local post offices. However, the USPS is the seventh largest employer in the nation, making the debate surrounding how to fix its debt problem more than an actuarial problem, as it will affect its nearly one-half million workers and much larger customer base.

In some ways, the fiscal woes of the USPS are a microcosm of those faced by the larger US economy. Hopefully some mixture of revenue-increasing and cost-cutting measures can help preserve the USPS, its workers, and the vital services it provides for Americans.

October 20, 2011

The President’s Plan for Economic Growth and Deficit Reduction included a detailed legislative proposal intended to enforce a declining path for the federal debt, beginning in 2013. This “debt trigger” mechanism is similar to a proposal that the Peterson-Pew Commission on Budget Reform has developed over the last two years.

A new memo posted on the Commission’s One-Stop Shop for Budget Reform Tools resources page describes the similarities and differences between the debt trigger proposed by the President, and the mechanism recommended in the Peterson-Pew Commission’s November 2010 report, Getting Back in the Black.

As we say in the memo,

The President is to be commended for reinforcing his commitment to lowering the debt by proposing legislation to establish a permanent mechanism to impose automatic reductions in spending and tax expenditures unless the federal debt is on a declining path starting in 2014.

Although we're encouraged to see debt put on a downward path, as we've mentioned here, we're concerned that debt would be nearly stabilized at too high of a level -- though this idea would show progress in the right direction.

Click here to check out this new addition to our one-stop budget reform resource page, Path to Debt Stabilization: A Comparison of Debt Triggers.

October 20, 2011

We have updated our tracker of recommendations to the Super Committee with two plans that came out last Wednesday.

The first is by the Congressional Black Caucus, who sent a letter endorsing their alternative FY 2012 budget that came out in April. That budget relies mostly on revenue increases for deficit reduction: slapping a 5.4 percent surtax on millionaires, taxing capital gains as ordinary income, and enacting a financial speculation tax. There are also a number of base-broadening measures, and the inclusion of a public option in the health insurance exchanges. Additionally, they include a number of discretionary spending increases (relative to the President's FY 2012 budget) that total about $520 billion over ten years. The total amount of deficit reduction is $3.4 trillion relative to the President's budget (it's not clear how much it would be relative to current policy).

The second comes from Sen. Tom Carper (D-DE) representing the Federal Financial Management Subcommittee. The letter includes six different pieces of legislation that Sen. Carper has offered to address issues in the Subcommittee's jurisdiction. Specifically, these proposals involve reforming the Postal Service, reducing the tax gap, increasing Medicare and Medicaid program integrity efforts, reducing improper payments, and improving federal property and technology management. These recommendations are more targeted towards increasing government efficiency than significantly reducing the deficit.

Committee/Organization/Individual Date Ten-Year Savings
Center for American Progress (CRFB Overview) 9/6 $1.5 trillion

Senate Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia (Minority) (CRFB Overview)

9/15 $1.4 trillion

U.S. PIRG/National Taxpayers Union (CRFB Overview)

9/15 $1 trillion
Third Way (CRFB Overview) 9/15 $1.7 trillion
Taxpayers for Common Sense (CRFB Overview) 9/16 $1.7 trillion

President Obama (CRFB Overview)

9/19 $1.9 trillion
Sens. McCain, Carper, Coats, and Udall 9/20 N/A
Sen. Coburn  9/21 $300 billion
Rep. Coffman (CRFB Overview) 9/23 $103 billion
Center for Science in the Public Interest (CRFB Overview)    9/27 $200 billion

Sens. Coburn and Lieberman (CRFB Overview)

9/28 >$500 billion
99 Medical Assocations (CRFB Overview) 10/3 $62 billion

78 House Democrats (Medicare) (CRFB Overview)

10/5 $156 billion
65 House Democrats (Nuclear Arsenal) (CRFB Overview) 10/11 $200 billion
House Judiciary Committee (Majority) (CRFB Overview) 10/12 $57 billion
Federal Financial Management Subcommittee (CRFB Overview) 10/12 N/A
Congressional Black Caucus (CRFB Overview) 10/12 $3.4 trillion
House Democratic Caucus (CRFB Overview) 10/13 N/A
EPI/The Century Foundation (CRFB Overview) 10/13 $4.7 trillion
Senate Small Business Committee (Minority) (CRFB Overview) 10/13 N/A
Senate Armed Services Committee (Majority) (CRFB Overview) 10/14 <$2 billion
Senate Armed Services Committee (Minority) (CRFB Overview) 10/14 N/A
Senate Budget Committee (Bipartisan) (CRFB Overview) 10/14 N/A
Senate Commerce, Science, and Transportation (Bipartisan) (CRFB Overview) 10/14 $7 billion
Senate Finance Committee (Minority) (CRFB Overview) 10/14 N/A
House Financial Services Committee (Majority) (CRFB Overview) 10/14 N/A
House Homeland Security Committee (Majority) (CRFB Overview) 10/14 $8 billion
Senate Homeland Security Committee (Bipartisan) (CRFB Overview) 10/14 N/A
House Science Committee (Majority) (CRFB Overview) 10/14 N/A
Senate Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia (Majority) (CRFB Overview) 10/14 N/A
Congressional Progressive Caucus (CRFB Overview) 10/14 $3.9 trillion
38 House Democrats (Fossil Fuel Subsidies) (CRFB Overview) 10/14 $122 billion
14 Senate Democrats (Oil Subsidies) (CRFB Overview) 10/18 $21 billion

 

October 19, 2011

Social Security beneficiaries will see a raise in their benefits next year, resulting from a 3.6 percent cost-of-living adjustment (COLA) increase. The last time seniors saw such an increase was 2009, when they received a 5.8 percent bump in their Social Security checks. While this year's adjustment comes after two straight years of no COLA increase and is less than the 2009 increase, it is more than the average adjustment of the past ten years, which is 2.4 percent. This turns out to be about an average of $39 more per month or $467 per year (which may give a very slight boost to economic activity, although it might be tempered by the now likely increase in Medicare Part B premiums). 

Increases in COLA's are calculated from third quarter to third quarter changes in inflation (as measured by the CPI-W).

As we have stated many times before, switching to the chained-CPI would be better for our fiscal future and more accurately reflect cost-of-living adjustments, because the chained CPI measures inflation more accurately than the currently used metric. This is probably why moving to a chained CPI has received such widespread bipartisan support.

October 19, 2011

Yesterday, a group of 14 Senate Democrats sent a letter to the Super Committee, urging them to eliminate oil subsidies for the top five oil companies. The basis for this recommendation is the "Closing Big Oil Tax Loopholes Act," which failed to pass the Senate back in May. According to the letter, that bill would save $21 billion over ten years.

This letter is similar, albeit smaller in scope, to one that 38 House Democrats sent last Friday. That letter called for eliminating all fossil fuel subsidies, including "last in, first out" (LIFO) accounting, a method of accounting for inventory that President Obama has targeted for elimination. In total, adopting these recommendations would save more than the Senate proposal: $122 billion.

These two letters bring the total number of recommendations to the Super Committee to 31. As the Senate letter shows, submissions from Members of Congress are still coming in, even after the October 14 Congressional committee deadline has passed. We'll be sure to keep updating our table.

Committee/Organization/Individual Date Ten-Year Savings
Center for American Progress (CRFB Overview) 9/6 $1.5 trillion

Senate Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia (Minority) (CRFB Overview)

9/15 $1.4 trillion

U.S. PIRG/National Taxpayers Union (CRFB Overview)

9/15 $1 trillion
Third Way (CRFB Overview) 9/15 $1.7 trillion
Taxpayers for Common Sense (CRFB Overview) 9/16 $1.7 trillion

President Obama (CRFB Overview)

9/19 $1.9 trillion
Sens. McCain, Carper, Coats, and Udall 9/20 N/A
Sen. Coburn  9/21 $300 billion
Rep. Coffman (CRFB Overview) 9/23 $103 billion
Center for Science in the Public Interest (CRFB Overview)    9/27 $200 billion

Sens. Coburn and Lieberman (CRFB Overview)

9/28 >$500 billion
99 Medical Assocations (CRFB Overview) 10/3 $62 billion

78 House Democrats (Medicare) (CRFB Overview)

10/5 $156 billion
65 House Democrats (Nuclear Arsenal) (CRFB Overview) 10/11 $200 billion
House Judiciary Committee (Majority) (CRFB Overview) 10/12 $57 billion
House Democratic Caucus (CRFB Overview) 10/13 N/A
EPI/The Century Foundation (CRFB Overview) 10/13 $4.7 trillion
Senate Small Business Committee (Minority) (CRFB Overview) 10/13 N/A
Senate Armed Services Committee (Majority) (CRFB Overview) 10/14 <$2 billion
Senate Armed Services Committee (Minority) (CRFB Overview) 10/14 N/A
Senate Budget Committee (Bipartisan) (CRFB Overview) 10/14 N/A
Senate Commerce, Science, and Transportation (Bipartisan) (CRFB Overview) 10/14 $7 billion
Senate Finance Committee (Minority) (CRFB Overview) 10/14 N/A
House Financial Services Committee (Majority) (CRFB Overview) 10/14 N/A
House Homeland Security Committee (Majority) (CRFB Overview) 10/14 $8 billion
Senate Homeland Security Committee (Bipartisan) (CRFB Overview) 10/14 N/A
House Science Committee (Majority) (CRFB Overview) 10/14 N/A
Senate Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia (Majority) (CRFB Overview) 10/14 N/A
Congressional Progressive Caucus (CRFB Overview) 10/14 $3.9 trillion
38 House Democrats (Fossil Fuel Subsidies) (CRFB Overview) 10/14 $122 billion
14 Senate Democrats (Oil Subsidies) (CRFB Overview) 10/18 $21 billion

 

October 18, 2011

For the past several weeks, we have been urging the Super Committee to Go Big on deficit-reduction and exceed its savings mandate of $1.5 trillion. The support behind Go Big has continued to grow, coming from individuals, groups, and organizations from across the political spectrum.

Continuing that momentum, former Senators Byron Dorgan (D-ND) and Judd Gregg (R-NH) published an op-ed in CNN Money yesterday on the need for long-term deficit reduction through a Go Big approach, writing (emphasis added):

If the super committee only reaches the stated goal of reducing by debt by $1.2 trillion to $1.5 trillion over ten years (or if it fails to reach any agreement), it will have done a great disservice to the American people. It is far short of what is needed to address this debt crisis, and we will continue to lurch toward fiscal chaos, recession and chronic unemployment. That is a future we can avoid if we have the courage to act now.

This is a rare opportunity. We say to the super committee: This is one of those rare moments where you have the opportunity to change the course of history.

For the sake of our country's economic future, you need to think big and bold.

This theme was echoed today by Rep. Frank Wolf (R-VA), speaking on MSNBC’s Morning Joe, where he said (in reference to the Super Committee reaching its mandate): "I am hopeful. There was a group of us that signed a letter the other day asking them to "Go Big"-- to go the $4 trillion level. Some people feel that if you only do the $1.2 or $1.5 [trillion], Moody's could very well downgrade us."

With the Super Committee’s recommendations due in just over a month, it is encouraging that momentum behind the Go Big movement has continued to grow. For more information on the growing support for Go Big and what it entails, visit our Go Big resource page.

October 18, 2011

Yesterday, presidential candidate and Congressman Ron Paul (R-TX) released his budget blueprint for what would be his first term in office, which he claims would balance the budget by 2015 as a result of a small $13 billion surplus in that year.

Rep. Paul's plan relies exclusively on spending cuts, eliminates all public debt held by the Federal Reserve (thus reducing debt held by the public by $1.6 trillion), and includes substantial tax decreases and tax cut extensions. His plan would be a bold shift for the federal budget.

Some of the major proposals are:

  • $1 trillion in spending cuts in 2013 through the elimination of five departments (Energy, HUD, Commerce, Interior, and Education)
  • Freezing spending, block-granting, and moving to the discretionary side of the budget for Medicaid, SCHIP, SNAP, family support programs, and child nutrition programs
  • Full Extension of 2001/2003/2010 income tax cuts
  • Repeal PPACA, including tax increases
  • Eliminate estate, gift, capital gains, and dividends taxes
  • Reduce corporate tax rate to 15%

His estimates of the plan rely on dynamic scoring when determining the costs of the policy proposals, GDP, spending and revenue levels and, thus, deficits and debt. In 2013 alone, Rep. Paul claims that he will cut spending by $902 billion and reduce revenue by $527 billion when compared to CBO's August baseline. He estimates that his plan would reduce debt held by the public to 52 percent of GDP in 2016, compared to 67 percent under CBO's current law baseline and about 76 percent under CFRB's Realistic Baseline.

While dynamic scoring would be ideal in a perfect world, in which experts fully understood the macroeconomic effects of policy changes on output, interest rates, and other variables, and where the difficulty of separating/disaggregating the impact of government policies on the economy from other factors affecting the economy didn't exist, the economics profession has not been able to fully solidify this process because of the sheer number of assumptions required. Thus, while Congressman Paul claims his plan would put debt on a downward path this decade, it's possible that conventional budget scoring could show that his plan would not reduce deficits and debt as much as he claims. As we see it, budget proposals should be scored based on existing methods and as accurately as possible, and any additional savings from dynamic effects should be a bonus. It’s possible that more will need to be done to put debt on a stable and falling path, but we congratulate Congressman Paul for putting out specific recommendations.

Click here to read Congressman Paul's latest budget proposal.

October 17, 2011

Update: The House and Senate Agricultural Committees sent a bicameral, bipartisan letter to the Super Committee on Friday, promising a $23 billion savings package by November 1. Once this package is specified, we will include it in the tracker. 

Last Friday was the last day for committees to submit recommendations to the Super Committee, so it's no surprise that a flood of letters came in just then. A number of committees (and the Congressional Progressive Caucus) offered up ideas spanning a wide range of areas. We will briefly go through all of them.

This list excludes the Majority side of the House Intelligence Committee--who also submitted a letter to the Super Committee on Friday--since they didn't include any specific recommendations.

Also, in addition to these Congressional submissions, the Economic Policy Institute and The Century Foundation compiled a list of revenue options that would raise $4.7 trillion. You can see these options here.

The sum total of these submissions bring our Super Committee tracker up to 29. Although the deadline for Congressional committees has passed, there is still the opportunity for other groups or individuals to make their ideas known.

Committee/Organization/Individual Date Ten-Year Savings
Center for American Progress (CRFB Overview) 9/6 $1.5 trillion

Senate Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia (Minority) (CRFB Overview)

9/15 $1.4 trillion

U.S. PIRG/National Taxpayers Union (CRFB Overview)

9/15 $1 trillion
Third Way (CRFB Overview) 9/15 $1.7 trillion
Taxpayers for Common Sense (CRFB Overview) 9/16 $1.7 trillion

President Obama (CRFB Overview)

9/19 $1.9 trillion
Sens. McCain, Carper, Coats, and Udall 9/20 N/A
Sen. Coburn  9/21 $300 billion
Rep. Coffman (CRFB Overview) 9/23 $103 billion
Center for Science in the Public Interest (CRFB Overview)    9/27 $200 billion

Sens. Coburn and Lieberman (CRFB Overview)

9/28 >$500 billion
99 Medical Associations (CRFB Overview) 10/3 $62 billion

78 House Democrats (Medicare) (CRFB Overview)

10/5 $156 billion
65 House Democrats (Nuclear Arsenal) (CRFB Overview) 10/11 $200 billion
House Judiciary Committee (Majority) (CRFB Overview) 10/12 $57 billion
House Democratic Caucus (CRFB Overview) 10/13 N/A
EPI/The Century Foundation (CRFB Overview) 10/13 $4.7 trillion
Senate Small Business Committee (Minority) (CRFB Overview) 10/13 N/A
Senate Armed Services Committee (Majority) (CRFB Overview) 10/14 <$2 billion
Senate Armed Services Committee (Minority) (CRFB Overview) 10/14 N/A
Senate Budget Committee (Bipartisan) (CRFB Overview) 10/14 N/A
Senate Commerce, Science, and Transportation (Bipartisan) (CRFB Overview) 10/14 $7 billion
Senate Finance Committee (Minority) (CRFB Overview) 10/14 N/A
House Financial Services Committee (Majority) (CRFB Overview) 10/14 N/A
House Homeland Security Committee (Majority) (CRFB Overview) 10/14 $8 billion
Senate Homeland Security Committee (Bipartisan) (CRFB Overview) 10/14 N/A
House Science Committee (Majority) (CRFB Overview) 10/14 N/A
Senate Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia (Majority) (CRFB Overview) 10/14 N/A
Congressional Progressive Caucus (CRFB Overview) 10/14 $3.9 trillion

 

October 17, 2011
A Weekly Update of Budget Developments and a Look Ahead

Leaves of Change – The colors of fall draw many sightseers to view nature’s beauty. Yet, it is important to recognize that behind the changing leaves are nature’s preparations for surviving the harshness of the approaching winter. From a budget standpoint, this winter could be harsher than usual, with fights over the budget and the Super Committee. What colors will Washington show this fall? Hopefully there will be less red and yellow. The House is out this week while the Senate tries to make progress on appropriations.

CLASS Dismissed – On Friday the Obama Administration quietly announced that it was leaving behind the Community Living Assistance Services and Supports (CLASS) Act. The program was a part of last year’s health care reform bill, designed to facilitate long-term care. CRFB sharply criticized the program’s financing because it would have collected revenues for five years before any benefits were distributed. This timing gimmick helped boost the budget score for the health care bill over the ten year window, but it set up a fiscal train wreck because the program lacked sustainable funding for the longer term. The law required that the program be financially solvent over the course of a 75-year period, and the Department of Health and Human Services struggled to find a way to administer the program in an actuarially sound manner. Obviously it concluded that was not possible.

Primary Colors – Economic and fiscal issues were front and center last week in the presidential campaign as a debate that focused on the economy forced candidates to discuss these issues. The “9-9-9" plan from contender Herman Cain drew a great deal of attention. Many experts have criticized the plan for not raising sufficient revenue and for likely raising effective taxes on the poor. CRFB concluded that a lot more details will be needed to come to a definitive conclusion. But the fact that everyone is talking about the plan underscores the public hunger for a fiscal strategy. Meanwhile, the newspaper Politico held a contest to determine who could generate the most support for a third party candidacy. Two CRFB board members, Erskine Bowles, the White House Fiscal Commission co-chair, and David Walker, former comptroller general of the U.S., were among the ten nominees. Walker finished second behind winner Hilary Clinton, showing that voters are looking for someone to tackle our fiscal challenges.

Budget Reform Gets a Green Light – The Senate Budget Committee sent proposals to the Super Committee on Friday to improve the budget process. Recommended were a switch to biennial budgeting, changes to the Senate “vote-a-rama” process to make it more functional, and stronger incentives to produce a timely budget resolution. The Senate Budget Committee held a hearing earlier in the week on the topic where two witnesses, Phil Joyce of the University of Maryland, and Paul Posner of George Mason University, cited the work of the Peterson-Pew Commission on Budget Reform, a project of CRFB, on ways to strengthen the Budget Committee.

Moving Appropriations – Speaking of the broken budget process, congressional leaders have decided that the best approach to approving spending bills for the fiscal year that started at the beginning of the month is to rake up the 12 bills into a few “minibus” packages. The first minibus will come to the Senate floor this week, consisting of the Agriculture, Commerce-Justice-Science, and Transportation and Urban Development spending bills.

Super Committee Gets Ideas – Friday was the deadline for congressional committees to submit recommendations to the Super Committee and the ideas came like leaves falling from a tree. However, besides the budget reform proposal from the Senate Budget Committee mentioned above, there were few bipartisan proposals. CRFB is tracking submissions to the Super Committee here.

Key Upcoming Dates (all times ET)

October 18

  • Senate Finance Committee hearing on tax reform and charitable giving at 10 am.
  • GOP presidential debate in Nevada.

November 18

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

November 23

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

December 2

  • The Super Committee report and legislative language must be transmitted to the President and Congressional leaders by this date.

December 9

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

December 23

  • Congress must vote on the bill recommended by the Super Committee by this date. No amendments are allowed.
October 14, 2011

The CLASS Act, the new long-term care program enacted as part of the Affordable Care Act, has been dropped, as the Obama Administration has struggled to implement the program in an actuarially sound manner. Secretary of Health and Human Services Kathleen Sebelius said that, "I do not see a viable path forward for CLASS implementation at this time." The CLASS program would provide long-term care benefits to beneficiaries who paid monthly premiums for at least five years.

It was no secret that the CLASS Act was in trouble. Right from the outset, it seemed that the way the program was structured in ACA would not be viable, since the program was supposed to be self-sufficient. For one, CLASS seemed very susceptible to adverse selection, because it was voluntary and had a relatively short vesting period (five years). The result would be that people would wait until they were sick to enroll. Also, CLASS had been getting lower-than-expected enrollment, which would have forced HHS to increase premiums or reduce benefits, which would further drive away relatively healthy people from the program. In short, without changes, CLASS seemed likely to need general revenue in the future to keep it going.

As we argued back during the health care reform debate, using the revenues from the CLASS Act to fund other elements of the reform package was an egregious gimmick and threatened to leave the program in a dangerously unfunded state. At least that's not a worry anymore.

HHS had spent much of this year trying to adjust the program to make it more actuarially sound, but it had seemed to have given up last month when no appropriations were made for the program in the first CR for FY 2012 and the staff was being transferred from the program's office. Now, the move is official.

Because of its seemingly unsound nature, CLASS had been targeted for significant reform or repeal by some fiscal plans, such as the Fiscal Commission and the Gang of Six. However, because of the vesting period, repeal would actually cost billions of dollars over the next ten years as beneficiaries paid the premiums but only were able to get a few years of benefits at most. In its most recent estimate of ACA back in February, CBO estimated that repealing CLASS would cost $86 billion from 2012-2021. Since the ACA was estimated to save $210 billion over the same period, the "repeal" of CLASS will wipe out some, but not all, of the net savings from the health care reform law (at least as of the most recent estimate).

Hopefully, lawmakers will work to make up for the near-term "savings" that CLASS would have produced with further health reforms. We need many more reforms to our health care programs if we are to control rising health care costs and rising debt.

 

October 13, 2011

With only a day left for Committees to send recommendations to the Super Committee, the House Democrats decided to take an omnibus approach. Letters from ranking members of all 16 committees were sent in one package, with an overall letter from Minority Leader Nancy Pelosi (D-CA). These letters are more a laundry list of recommendations than a coherent fiscal plan, so providing a topline savings number would be difficult. Nonetheless, here are some of the highlights:

  • Job creation: Not surprisingly, the number one common theme in these letters was job creation and the number one plan was the American Jobs Act. Investment in surface transportation, broadband, and other infrastrcture projects showed up a couple times as well. Expanded help for homeowners in a variety of ways also made an appearance.
  • Medicare prescription drugs: This area follows up on a letter that a group of House Democrats sent earlier to the Super Committee. House Energy and Commerce Committee ranking member Henry Waxman (D-CA) mentioned providing increased rebates to low-income seniors in Part D, one of the bigger ticket savings items in the letters. Also, Elijah Cummings (D-MD) of the Oversight Committee supported allowing Medicare to negotiate lower drug prices and to combine the purchasing power of all Federal Employee Health Benefit (FEHB) plans to negotiate prices as well.
  • Revenue odds-and-ends: Besides the implicit support for allowing the 2001/2003 upper-income tax cuts to expire, the letters included a number of smaller loophole-closers and revenue-raisers. Oil and gas tax preferences were targeted, and there were proposals to slap a fee on banks, legalize and tax internet gambling, and increase the guarantee fees that Fannie Mae and Freddie Mac charge. Comprehensive tax reform was mentioned a few times (as well as in the overall letter), but no proposals were made on that front.

For the purpose of simplicity, we will count these letters as one submission, making it the 15th in our Super Committee tracker. We will continue to update the table as remaining committees rush to meet their deadline. 

Committee/Organization/Individual Date Ten-Year Savings
Center for American Progress (CRFB Overview) 9/6 $1.5 trillion

Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia (Minority) (CRFB Overview)

9/15 $1.4 trillion

U.S. PIRG/National Taxpayers Union (CRFB Overview)

9/15 $1 trillion
Third Way (CRFB Overview) 9/15 $1.7 trillion
Taxpayers for Common Sense (CRFB Overview) 9/16 $1.7 trillion

President Obama (CRFB Overview)

9/19 $1.9 trillion
Sens. McCain, Carper, Coats, and Udall 9/20 N/A
Sen. Coburn  9/21 $300 billion
Rep. Coffman (CRFB Overview) 9/23 $103 billion
Center for Science in the Public Interest (CRFB Overview)    9/27 $200 billion

Sens. Coburn and Lieberman (CRFB Overview)

9/28 >$500 billion
99 Medical Assocations (CRFB Overview) 10/3 $62 billion

78 House Democrats (Medicare) (CRFB Overview)

10/5 $156 billion
65 House Democrats (Nuclear Arsenal) (CRFB Overview) 10/11 $200 billion
House Democratic Caucus (CRFB Overview) 10/13 N/A

 

October 13, 2011

With federal budget news in a bit of a holding pattern until next month, we return to our Spotlight on the States blog series with a discussion of New Jersey’s FY 2012 budget battle.

Back in February, Republican governor Chris Christie proposed a $29.4 billion budget proposal aimed at reducing the growing $10.5 billion state budget deficit. The governor’s plan represented a 2.6 percent reduction in appropriations from the previous fiscal year’s budget, relying entirely on spending cuts rather than revenue increases (in fact, he cut taxes by $200 million in his budget). The battle over the budget loomed as the Democrat-controlled legislature was determined to increase spending in a number of areas, offset by an increase in revenues from a proposed millionaires' surtax.

Two months after Gov. Christie’s budget proposal was released, Moody’s Investors Service downgraded New Jersey’s credit rating from Aa2 to Aa3, the fourth highest rating. New Jersey was then the third lowest rated state, just ahead of California and Illinois. Moody’s cited “the state's weakened financial position” as the reason for the downgrade, along with rising pension and health-care costs. The state’s unfunded pension liability was reported to be about $54 billion at the time, which together with debt payments and health benefits made up 13 percent of the 2010 budget and could rise to 30 percent within 8 years.

On June 28th, after months of negotiations, the New Jersey legislature passed a pension reform bill aiming to ensure the solvency of public pensions and health care plans over the long-run by increasing employee contributions to both and raising the retirement age for pensions. This bill came after the state government had skipped a $3 billion payment to the state pension fund in FY 2011. The reform would save $267 million in FY 2012 alone, with $224 million from the Police and Fire Retirement System and $43 million from the Public Employee Retirement System. Over the next 30 years, these savings would total around $130 billion and would increase the state's pension funding ratio (ratio of assets to liabilities) from 62 percent to 88 percent.

At that point, the state government had to hurry to pass a budget before the start of the fiscal year. The New Jersey legislature passed a last-minute $30.6 billion budget on June 29th, just two days before FY 2012. The plan was $1.1 billion more than Gov. Christie’s original budget proposal, and included the contentious millionaire surtax that the Governor swore he would veto. Since there had been no negotiations on the budget between the legislature and Gov. Christie, he simply amended the proposed budget with a number of line-item vetoes and adjustments to appropriations, amounting to $900 million in cuts – including the elimination of the millionaire’s surtax. The final restructured budget totaled $29.7 billion in spending.

The plan’s deficit-reduction comes almost entirely from the spending side of the budget – an approach similar to those taken by Ohio and Wisconsin. In a press conference last week, Gov. Christie highlighted the current savings of the pension program already for FY 2012 and pointed to the positive outlook of the New Jersey deficit as a result of the new budget and reform measures enacted earlier this year.

Syndicate content