The Bottom Line

September 20, 2011

Update: Over at "Off the Charts," CBPP argues that the President's proposed war spending cap -- regardless of how it is counted toward deficit reduction -- would be helpful in preventing the type of cheating we describe below.

War spending is once again being used to avoid hard choices in budgeting. While the President is using a gimmick to try to count a current policy war drawdown as new deficit reduction, Senate Appropriators are using the Overseas Contingency Operations (OCO) accounts -- the war spending accounts -- to avoid enacting mandated defense cuts.

According to the National Journal, the Senate Appropriations Committee is moving $10 billion of base discretionary spending into the OCO budget. This change will allow them to avoid a portion of the $26 billion in defense spending cuts called for because of the discretionary caps from the Budget Control Act.  Because war spending is not subject to those caps, this effectively allows lawmakers to cheat the caps by falsely classifying spending, which is particularly worrying given calls from a few lawmakers to remove defense from a potential automatic sequester.

Russell Rumbaugh of the Stimson Center remarked that:

“The Senate appropriators have shown how tempting it will be to move base budget costs into war funding to avoid the Budget Control Act’s rules.  Although this time they found offsets within the war costs, the $10 billion move sets the precedent for doing so in the future, which could undermine the whole purpose of the Budget Control Act’s caps.”

Circumventing the budget caps in this manner is unacceptable, and it undermines the effectiveness of any caps regime. They also highlight the need for further reforms to the discretionary caps to make these kinds of budget games more difficult. One option would be to put OCO spending into its own cap as President Obama recommended recently (though it is a gimmick to count savings already in place, it is nonetheless useful to lock those savings in through procedural mechanisms). This could be accompanied by a stricter definition of OCO spending, as the Fiscal Commission recommended. And in order to avoid letting budget rules dictate military tactics, provisions could be put in place to allow for offsetting tax increases or spending cuts if these caps were exceeded.

Regardless of any procedural changes, though, lawmakers need to stop playing games with the deficit. The deficit and our long-term fiscal imbalance is real. Playing games, using gimmicks, using accounting tricks, or attempting to circumvent the caps only adds to the perception that Washington is not serious about the issue and further underlies the point that they are not ready to make the real choices that need to be made.

September 20, 2011

In a Bloomberg Op-Ed today, Glenn Hubbard, a former Chair of the Council of Economic Advisors under former President George W. Bush, joined the Announcement Effect Club. In his Op-Ed, Hubbard says that in order for the economy to begin growing, a long-term plan addressing our major structural reforms has to be implemented. Hubbard notes that the tax code is a mess, that short-term policies create business uncertainty, and the general uncertainty that looming deficit reduction create is hurting the economy.

As he notes, "The key, then, to any effort to boost the economy is to craft a short-term “stimulus” in the context of a longer-term structural reform plan that clarifies the deficit and debt path for the U.S" He also argues that there is no conflict between near-term stimulus and long-term deficit reduction.

As he writes:

Bear in mind that these structural reforms do not imply that all near-term stimulus must be off the table, only that any stimulus proposal be linked to longer-term fixes. For example, suppose that policy makers announced a credible reduction in future deficits caused by Social Security through a combination of gradual increases in the retirement age and slowing the growth in benefits for higher-income households. The enormous fiscal improvement from such a change would give leeway to strengthen Social Security benefits now for the least well-off and provide substantial incremental resources for training and re-employment of the long-term jobless.

Likewise, credible, gradual broadening of the base in the tax system by reducing tax expenditures on, say, housing and health insurance would give leeway to support business investment now with investment incentives and a much lower corporate tax rate. Or, as Obama has proposed, an infrastructure spending program could be made a high priority, but coupled with longer-term reductions in social spending.

Much of the debate over the stimulus paints economists and officials like myself, those concerned about the long term, as favoring inaction for (and perhaps indifference to) pressing short-run problems. This is a false choice: Enhancing a recovery in productivity and employment is a pressing policy need. Yet turning around the economy now also depends on grasping our structural problems and defining a policy for long-term reform and growth.

September 19, 2011
A Weekly Update on Fiscal Policy Developments and a Look Ahead

Game Time – NASCAR has begun its chase for the championship, baseball’s pennant race is under way, the deficit super committee is deliberating and we now have a budget plan from the White House. Its “Game on!” Will it be like the playoffs and some will go big while others go home?

White House Releases Deficit Game Plan – President Obama released his long-awaited deficit reduction blueprint Monday. The president rhetorically supported a “Go Big” approach to deficit reduction, as CRFB lauded in a statement, by proposing a plan the White House claims will reduce the deficit by over $4 trillion, which exceeds the congressional super committee’s mandate of recommending $1.5 trillion in deficit savings over the next decade. However, in reality the amount of savings is less than $2 trillion. CRFB pointed out in a blog post that “Go Medium” is a more apt description of the proposal. The plan has many good ideas that the super committee can draw from, but CRFB believes we must go farther. More analysis from CRFB will be forthcoming.

Super Committee Gets the Ball Rolling – The Joint Select Committee on Deficit Reduction (known as the “super committee”) held its first public hearing last week with CBO Director Douglas Elmendorf providing testimony on the history and drivers of the national debt. Several committee members, including Rep. Chris Van Hollen (D-MD) and Sen. John Kerry (D-MA), called on the committee to “go big” in reducing the deficit. The group had a private meeting over breakfast last Thursday and has another public hearing scheduled for this coming Thursday on revenue options and tax reform.

Leaders Join the Go Big Team – Last week over 60 economists, former policymakers and budget experts signed a letter to the super committee asking it to go big and go beyond its $1.5 trillion deficit reduction mandate. The letter was released at a press conference featuring White House Fiscal Commission co-chairs Erskine Bowles and Alan Simpson. A bipartisan group of 38 senators followed suit with a statement of principles also calling for the super committee to go big.

Lots of Tax Reform Plays Being Called – The Subcommittee on Fiscal Responsibility and Economic Growth of the Senate Finance Committee held a hearing last week on tax reform featuring heavy hitters such as former Federal Reserve Chair Alan Greenspan, former Michigan Governor John Engler and prominent economists John Taylor and Martin Feldstein. Reforming tax expenditures figured prominently in the discussion. See more on the subject here, here and here.

Key Upcoming Dates

September 20

  • Senate Budget Committee hearing on promoting job creation at 9:30 am.
  • Senate Finance Committee hearing on tax reform options to promote innovation at 10 am.
  • Joint Economic Committee hearing on "What is the Real Debt Limit" at 10 am.

September 21

  • House Budget Committee hearing on "The Broken Budget Process: Perspectives from Former CBO Directors" at 10 am.
  • IMF releases report on global financial stability.

September 22

  • Joint Select Committee on Deficit Reduction (Super Committee) hearing on revenue options and tax reform at 10 am.
  • House Budget Committee hearing on "The Broken Budget Process: Perspectives from Former Members of Congress" at 10 am.
  • Second GOP presidential debate in Florida.

October 1

  • New fiscal year begins. Legislation fully funding the federal government, or a stopgap measure with temporary financing of government operations, must be enacted by this date.

October 11

  • GOP presidential debate in New Hampshire.

October 14

  • Congressional committees must submit any recommendations to the Super Committee by this date.

October 18

  • GOP presidential debate in Nevada.

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.

 

September 19, 2011

With President Obama's deficit reduction plan now officially out, it's worth comparing the debt path under this plan to other debt paths. For the comparison graph below, we have thrown in CBO's August baseline (excluding the trigger included in the Budget Control Act), the Fiscal Commission, and CRFB's Realistic baseline. Also, note that the numbers for the Obama plan are using CBO savings numbers (presented in Table S-3 of the report).

As we suggested in our release earlier today, the President seems to accept the idea of going big and of pushing the Super Committee to exceed its mandate, but, as you can see in the graph below, his plan certainly does not go big enough.

 

 

Obviously, the plan is an improvement over the CRFB Realistic baseline, and it comes close to stabilizing the debt in the medium term. But it still leaves debt at a high level and would fail to stabilize it in the long-term -- meaning it essentially attempts to do the absolute minimum necessary to 'stabilize' the debt, and doesn't do nearly enough to set it on a declining path as a share of the economy. 

The President has shown what "going medium" would look like; going big would be better.

September 19, 2011
A Little Inflation Can be a Dangerous Thing

In today's New York Times, CRFB board member and former chairman of the Federal Reserve Paul Volcker has an op-ed on the dangers of inflation.

He writes that while "just a little inflation" can seem like an attractive option for invigorating the economy -- especially now given the "sense of desperation that both monetary and fiscal policy have almost exhausted their potential, given the size of the fiscal deficits and the already extremely low level of interest rates" -- it is a slippery slope.

He continues:

My point is not that we are on the edge today of serious inflation, which is unlikely if the Fed remains vigilant. Rather, the danger is that if, in desperation, we turn to deliberately seeking inflation to solve real problems — our economic imbalances, sluggish productivity, and excessive leverage — we would soon find that a little inflation doesn’t work. Then the instinct will be to do a little more — a seemingly temporary and “reasonable” 4 percent becomes 5, and then 6 and so on.

Mr. Volcker also voices support for a comprehensive deficit reduction plan, saying:

President Obama has now set out new proposals to support economic growth. I hope he will be able to work with a responsible Congress to find the common ground that is urgently needed to deal with the economic challenges before us, restoring a healthy economy “in a context of price stability.” I also hope they will reach agreement early next year on a strong program to deal responsibly with our huge budget deficit over the years ahead.

 

Click here to read the full op-ed.

 

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.

September 19, 2011

With the release of President Obama's deficit reduction plan this morning, CRFB has put out a press release commenting on the proposal.

We note that while the plan, excluding war savings, would exceed the Super Committee's mandate of $1.5 trillion, it would not be big enough to bring down the debt to sustainable levels. Also, the plan does not make the kind of changes to entitlement programs that are needed to stabilize the debt over the long-term, and completely avoids offering solutions for Social Security reform.

The Administration claims that the plan would save about $4.4 trillion in total (including interest savings, war savings, and the costs of the jobs proposals). However, as we noted in the release, counting the war savings is counting a policy that is already in place and is thus a gimmick to be avoided. Taking out the war savings and savings from the discretionary cuts in the Budget Control Act leads to total savings of less than $2 trillion. Granted, it's more than the Super Committee's mandate, but "Go Medium" seems to be a more accurate description.

Savings by Category of President Obama's Plan
Category 2012-2021 Savings (billions)
Budget Control Act $1,200
   
Obama Recommendations  
Revenue $1,573
Federal Health Programs $320
Other Mandatory $257
American Jobs Act -$447
War Drawdown $1,100
Interest $430
   
Total $4,400

Note: Many numbers are rounded

As CRFB president Maya MacGuineas said in our release:

There is a growing chorus of lawmakers, business leaders, former government officials, and experts urging the Super Committee to ‘go big’ and exceed its mandate. If we want to fully address our debt problems, the Super Committee will have to exceed its mandate and go well-beyond the proposals the President has called for.

September 16, 2011

With President Obama's deficit reduction plan set to be released on Monday, we already have some idea of what will be in it: reductions in tax expenditures for wealthy individuals and corporations, changes to health programs, and other mandatory savings. We also now know what won't be included in the plan: Social Security reform.

Following a pattern that we have seen this year with the House Republican budget and the President's Framework, Social Security will be excluded from an otherwise comprehensive budget plan. The White House had previously seemed open to at least switching to the chained CPI, which would reduce Social Security cost-of-living adjustments (COLAs). Now, even that step appears to be off the table.

This is a mistake. Even if Social Security reform does not yield significant savings in the first ten years (if the policies are backloaded), it would still significantly improve the long-term outlook (which is part of the Super Committee's mandate, as we noted here) and it would avoid a sudden 23 percent benefit cut in 2036. Social Security's finances need to be remedied and the sooner, the better, because the longer we wait to address the program, the larger the changes will need to be. Just over the next ten years, the program will run cash flow deficits of about $500 billion.

 

 

We hope that the Super Committee does not follow this example and keeps all options on the table. Fencing off parts of the budget is not the way to go.

 

September 16, 2011

The parade of submissions to the Super Committee has started. Over the next few months the Super Committee is likely to be inundated by fiscal plans from all over--and outside--Washington, building on the long-list of 30+ existing fiscal plans already on the table. The first two came in from Sen. Ron Johnson (R-WI)--on behalf of the Minority of the Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia--and a joint effort of U.S. PIRG and the National Taxpayers Union.

Johnson's report presents savings of $1.4 trillion over ten years, dealing mostly with (as you can imagine) the federal workforce and general government efficiencies. There is a huge list of options provided, with ten-year savings ranging from $1.5 million to $250 billion. Some of the bigger ticket items include cuts to the federal and contracting workforce, increasing employee contributions to the Federal Employees Retirement System (FERS), closing computer data centers, and sharp reductions in agency travel budgets.

The U.S. PIRG/NTU plan is a slightly larger version of one that they released last October. It includes about $1 trillion in savings over ten years, with most of its cuts in discretionary and other domestic spending. They have a number of reductions or eliminations in agriculture and energy subsidies, along with acquisition reductions and reforms in defense. In addition, they also suggest government reforms, such as reform of the government's IT and the sale of excess federal property. Also, it includes a few cuts in Medicare, reducing payments to teaching hospitals and high-cost areas.

These plans are likely to be the first of many that will be submitted to the Super Committee. Congressional committees only have until October 14 to submit their plans, so there should be a high volume of plans coming in over the next month. The Committee will certainly have plenty of ideas to use from these two plans, others that have already been released, and the many that are soon to come.

As more plans are submitted to the Super Committee, we will be compiling them into a table, which you can view here.

 

September 15, 2011

Update: The Gang of 36 has grown to 45 --23 Republicans, 21 Democrats, and 1 Independent. See below for the full list of participating Senators.

Today, a bipartisan group of 36 bipartisan Senators--18 Republicans, 17 Democrats, and 1 Independent -- called for the Super Committee to enact a large comprehensive deficit reduction plan. The members sent a letter to the Committee which, in many ways, echoes the letter that of over 60 business leaders, former government officials, and budget experts released earlier this week.

The letter calls for deficit reduction plan that not only puts the debt on a sustainable path, but also helps foster economic growth.

The main principles presented in the letter are:

  • Include enough deficit reduction to stabilize the debt as a share of the economy, and put the debt on a downward path, and provide fiscal certainty. We believe a reasonable target is at least $4 trillion, including previously enacted deficit measures. This will send the right message to the financial markets.
  • Use the established, bipartisan debt and deficit reduction frameworks as a starting point for discussions.
  • Focus on the major parts of the budget and include long-term entitlement reforms and pro-growth tax reform.
  • Be structured to grow the economy in the short, medium and long-term
  • Work to include the American public and the business community in a broader discussion about the breadth of the issues, challenges and opportunities facing us.

Momentum is growing for the Super Committee to enact a $3 or $4 trillion plan that tackles entitlement spending and includes tax reform. This letter demonstrates that the Committee has bipartisan Congressional support for going big. We commend this important bipartisan effort.

The signatories to the letter include:

Sen. Lamar Alexander (R-TN), Sen. Kelly Ayotte (R-NH), Sen. Mark Begich (D-AK), Sen. Michael Bennet (D-CO), Sen. Scott Brown (R-MA), Sen. Richard Burr (R-NC), Sen. Ben Cardin (D-MD), Sen. Tom Carper (D-DE), Sen. Saxby Chambliss (R-GA), Sen. Dan Coats (R-IN), Sen. Tom Coburn (R-OK), Sen. Thad Cochran (R-MS), Sen. Kent Conrad (D-ND), Sen. Chris Coons (D-DE), Sen. Bob Corker (R-TN), Sen. John Cornyn (R-TX), Sen. Mike Crapo (R-ID), Sen. Dick Durbin (D-IL), Sen. Mike Enzi (R-WY), Sen. Dianne Feinstein (D-CA), Sen. Lindsey Graham (R-SC), Sen. Kay Hagan (D-NC), Sen. Kay Bailey Hutchison (R-TX), Sen. John Hoeven (R-ND), Sen. Johnny Isakson (R-GA), Sen. Mike Johanns (R-NE), Sen. Ron Johnson (R-WI), Sen. Mark Kirk (R-IL), Sen. Amy Klobuchar (D-MN), Sen. Herb Kohl (D-WI), Sen. Mary Landrieu (D-LA), Sen. Joe Lieberman (I-CT), Sen. Claire McCaskill (D-MO), Sen. Joe Manchin (D-WV), Sen. Jerry Moran (R-KS), Sen. Lisa Murkowski (R-AK), Sen. Bill Nelson (D-FL), Sen. Mark Pryor (D-AR), Sen. Pat Roberts (R-KS), Sen. Jeanne Shaheen (D-NH), Sen. Jon Tester (D-MT), Sen. Mark Udall (D-CO), Sen. Mark Warner (D-VA), Sen. Roger Wicker (R-MS), and Sen. Ron Wyden (D-OR).

 

September 15, 2011

Congress has a long checklist of things it has to do by the end of September. On Tuesday, it informally crossed one thing off when the House passed a "clean" extension of transportation programs through at least the end of the year. The Senate should pass it soon as well.

Also, Congress had the opportunity to pass a disapproval of the second tranche of the debt ceiling. The measure failed in the Senate, so it will not be sent to President Obama.

But there is much more for Congress to get done in the new few weeks.

  • Disaster relief: The Senate was able to pass a $7 billion disaster relief package on Tuesday by a 61-38 vote, after it was rejected 53-33 earlier. The House has yet to pass a bill, but supposedly, they are looking to offset the cost of disaster relief.
  • Appropriations bills: The government must be funded at the start of FY 2012 in two weeks. But there is a tougher item on the agenda that must be done by October 1: enacting all 12 appropriations bills or a CR for FY 2012. Under the Budget Control Act, the total cap for discretionary spending is $1.043 trillion for FY 2012, and the indication is that Congress will stick to the cap, despite some rumbling in the House about lower spending levels. The House has been working since it passed the House budget resolution (the "House Republican budget") in April to pass appropriations bills. So far, the full House has passed six appropriations, while the Senate has only passed one (Military Construction-VA). Other bills that have action in both chambers have significant funding differences, although this is partially because the House was operating under a lower cap ($1.019 trillion) when they passed their bills. If they are unable to get any of the bills finished in time, they will have to turn to a...
  • Continuing resolution: House Appropriations Committee chairman Hal Rogers (R-KY) released yesterday a $1.043 trillion CR that would fund the government through November 18. The measure would represent a 1.4 percent cut from FY 2011, which would be applied essentially across-the-board. It would also provide $3.65 billion in disaster relief. The fact that Rogers is using the BCA cap is a sign that reconciling House and Senate wishes may not be that difficult.  

Since there are a lot of moving parts, we have put all of the appropriations bills into the table below, showing its status in the House and Senate and the funding difference between the two bills, if applicable.

Appropriations Process Update
Bill House Status Senate Status Funding Difference
Military Construction-VA Passed House Passed Senate Minor Differences
Agriculture Passed House Passed Appropriations Senate $2.6 Billion Higher
Energy-Water Passed House Passed Appropriations Senate $1 Billion Higher
Homeland Security Passed House Passed Appropriations Senate $400 Million Higher
Defense Passed House Passed Subcommittee House $18.2 Billion Higher
Legislative Branch Passed House N/A N/A
Commerce-Justice-Science Passed Appropriations Passed Subcommittee Senate $2.5 Billion Higher
Financial Services Passed Appropriations Passed Subcommittee Senate $1.8 Billion Higher
Interior-Environment Passed Appropriations N/A N/A
State-Foreign Operations Passed Subcommittee N/A N/A
Transportation Passed Subcommittee N/A N/A
Labor-HHS-Education N/A N/A N/A

 

You can see the status of all of the appropriations bills at CQ's Budget Tracker (subscription required).

September 14, 2011

Today, Vice President Joe Biden convened the first cabinet-level meeting as part of the Administration's "Campaign to Cut Waste." He also announced a new Medicaid initiative designed at saving $2 billion over five years. According to OMB Director Jack Lew:  

HHS today released its final rule for the Medicaid Recovery Audit Contractor Program, a waste-cutting program created by the Affordable Care Act that’s projected to save $2.1 billion over the next five years – $900 million of which will be returned to states. The new program is based on the successful Medicare Recovery Audit Contractor program, which the Vice President announced has already recovered nearly $670 million to date in 2011 – increasing the taxpayer dollars recovered by nearly 800% compared to 2010.

Secretary of Labor Hilda Solis joined with the Vice President to discuss new Labor Department plans to reduce improper Unemployment Insurance payments by strengthening accountability for states...

As part of the Administration’s efforts to cut wasteful and inefficient spending, the Vice President also asked today’s meeting attendees to report back on wasteful spending practices at each of their agencies... 

By holding these regular cabinet meetings, the Vice President is making clear that each member of the Cabinet is going to be held accountable for both the dollars they spend and making government work more efficiently."

Initiatives like these to reduce waste, fraud, and abuse are very important. Not only do they help to save money, but in an era of scarce resources they help demonstrate that government's intent to spend its money wisely. Of course, as CBO Director Doug Elmendorf pointed out recently, cutting waste and fraud is not a panacea; and it isn't going to make a major dent in our fiscal picture. But it's a start, and we hope to see more of it in the coming weeks and months.

September 14, 2011

Today, members of the Blue Dog Coalition—a group of fiscally conservative Democrats—sent a letter to the Super Committee urging it to exceed the committee’s mandate "and cut the deficit by $4 trillion over the next 10 years.”

Of course, we strongly agree with this sentiment, and the Blue Dogs are making this message even stronger. Recently, we wrote a paper calling for the Super Committee to Go Big, Go Long, and Go Smart. This was followed up by a letter signed by over 60 Business Leaders, former government officials, and experts, including Fiscal Commission (and Moment of Truth Project) co-chairs Erskine Bowles and Al Simpson. In addition, members of the Super Committee itself have started calling on the group to go big.

Here is the Blue Dog letter:

Dear Members of Joint Committee on Deficit Reduction:

On August 11, 2011, we sent a letter to every member of the Committee, urging you to work with your colleagues to achieve a balanced, bipartisan solution that will ensure the United States remains the world’s leading economy.

We have spent the past month with our constituents back home. As Blue Dogs, we represent diverse districts that span the country, yet we heard one consistent message: quit the partisan bickering and get something accomplished.

Congress and the Joint Committee on Deficit Reduction have a rare opportunity to put our fiscal house in order at a time when the public is paying close attention to our deficits and debt. Leaders of both parties will urge you to retreat to the stale party positions and talking points. Political operatives, with an eye toward November 2012, will turn this into a battle of Democrats versus Republicans. Now is the time to take a time-out from the 2012 elections, put party affiliations aside, and work together for the sake of our country’s future.

The Budget Control Act of 2011 charged you to find $1.2 trillion in deficit reductions, but we urge you to think bigger and bolder. We believe that the Joint Committee on Deficit Reduction should report a plan to Congress that would truly stabilize the debt as a share of the economy, and cut the deficit by $4 trillion over the next 10 years.

The roadmaps to achieve this goal are plentiful and bipartisan. In March, the Blue Dog Coalition outlined the “Blue Dog Benchmarks of Fiscal Reform,” which would cut the deficit by $4 trillion over ten years, stabilize the debt, and reduce the size of government. These benchmarks were based on the Fiscal Commission Report, but there are other large, bipartisan plans that achieve the same goals. The ideas are out there. Now we just need to prove that Congress has the political will.

We are heartened by the tone and optimism of your opening statements at the first official Joint Committee meeting. We stand willing to work with you to achieve big results for the future of our country."

 

September 13, 2011

Yesterday, we released a letter signed by over 60 leading budget experts from various fields urging the Joint Select Committee on Deficit Reduction (“Super Committee”) to Go Big in its mission to address the nation’s deficit and debt. Since yesterday’s press conference with the Fiscal Commission co-chairs Erskine Bowles and Al Simpson (who are also on the CRFB board and chair our Moment of Truth Project), the Go Big philosophy has gained traction. It was mentioned in pieces by Bloomberg, CNN Money, Reuters, the New York Times, the Washington Post and The Hill, to name a few.

But it isn’t only the press which is taking notice. Earlier today, Senator (and Super Committee Member) John Kerry cited our recent paper in endorsing our requests for what we want from the Super Committee. As he said:

“Last week, the Committee for a Responsible Budget, a bipartisan organization which includes some of our country’s leading experts on budget issues, including the co-chairs of the Fiscal Commission, recommended that this Committee “go big, go long, and go smart…

Director Elmendorf’s testimony today helps solidify the reality that we need to “go big” and reach savings of more than $1.5 trillion to address long-term deficits. We need to “go long” and address our long-term budget issues. And most importantly of all we need to “go smart” and address the budget without preconceived dogmas or political agendas. So I look forward to delving more deeply into these issues today, and helping us shape recommendations for this Committee and this Congress to adopt. Thank you.”

Mr. Kerry’s remarks are quite encouraging, especially when combined with those of his Super Committee colleague, Representative Chris Van Hollen, who threw his support behind:

“Alan Simpson and Erskine Bowles [who] called upon our Committee to ‘go big’ – urging us to use this unique opportunity to develop a plan to reduce the deficit by over $4 trillion over 10 years”

Additionally, in his statement today before the committee Rep. Rob Portman highlighted the insufficiency of cutting $1.5 trillion over the next decade as compared to the growth of debt during that same period. Rep. Dave Camp then reiterated the notion that “at least” $1.5 trillion must be found in debt reduction. It seems that both parties on the Committee share the goal of going for at least $1.5 trillion and a desire to fulfill their mandate to assure the long-run health of the economy.

We are optimistic that the media’s response and the support of some members of the Super Committee are an indication of the accessibility of the ‘Go Big’ mantra and will hopefully help to spur the Super Committee to exceed its mandate in its recommendations to Congress.

September 13, 2011

UPDATE: The Super Committee hearing has begun and is streaming live on the Super Committee's website and on C-SPAN3.

Today, the Joint Select Committee on Deficit Reduction (Super Committee) will hold its first public hearing, beginning at 10:30am and airing live on C-SPAN3 -- don't forget to tune in.

The hearing will feature expert testimony from Doug Elmendorf, Director of the Congressional Budget Office, and the Committee will broadly look at the history and drivers of our debt (see CRFB's budget slideshow for an overview of the fiscal situation today and what is driving our future deficits). Yesterday, CRFB released a letter signed by over 60 former politicians, business leaders, and other experts urging the Super Committee to "Go Big" and exceed its mandate. We are anxious to see the Committee begin its work, and hope they succeed in producing a plan that can stabilize our debt and set it on a downward path (see our latest paper, What We Hope to See from the Super Committee).

Also today, the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth will hold a hearing at 2pm on deficits with testimony from former CEA chair Martin Feldstein, former Fed chair Alan Greenspan, former Treasury official and former CEA member John B. Taylor, former Governor and Business Roundtable head John Engler, and former JCT chief of staff and USC professor Edward Kleinbard.

September 13, 2011

Yesterday, the President offered a plan for how he would pay for his $447 billion jobs proposal. The pay-fors would come entirely from revenues, mainly from limiting itemized deductions and other tax expenditures for people earning over $200,000 ($250,000 for families) per year. Other offsets would include closing tax loopholes for oil and gas companies, taxing carried interest as ordinary income, and changing depreciation rules for corporate jets, to name a few.

These revenues provisions would not go into effect if the Super Committee identified at least $1.65 trillion in savings (the original $1.2 trillion requirement plus $450 billion for the jobs proposals).

 

 

Edward Glaeser offers an alternative offset, raising the Social Security retirement age. As he states:

"Raising the retirement age was always going to be part of any sensible entitlement reform, and this is the right time to start paying for current tax cuts with future benefit cuts. Inserting an offsetting retirement-age increase into the American Jobs Act would be a good way to show the world that the U.S. is getting serious about its finances."

This offset makes a lot of sense, particularly for the $240 billion payroll tax holiday. To finance the payroll tax holiday, the President has proposed transferring money from general revenues into the Social Security trust funds, which raises the concern that such transfers will become commonplace as the program’s yearly shortfalls deepen. Instead, that money could come out of the trust funds, and be offset with future changes.

According to our estimates, a holiday of this size would increase Social Security’s long-term actuarial imbalance by about 0.1 percent of payroll. In the context of a plan aimed at closing the 75-year shortfall of 2.22 percent of payroll and a 75th year gap of 4.28 percent of payroll, identifying an extra 0.1 percent should not be too difficult. This money could come not only from increasing the retirement age, but also a combination of gradual reductions in the benefit formula, adjustments to the tax base, and a correction to the measure of inflation used to calculate cost of living adjustments (COLAs). Such a comprehensive plan would easily pay for the payroll tax holiday over time, and might even do so within the decade (and some existing plans certainly would).

With population aging and health care costs set to push spending to ever increasing heights, we need savings that can grow over time. Social Security reform, in general, would do this. And raising the retirement age would have the added bonus of improve long-term growth by incentivize longer working lives. Comprehensive Social Security reform will be critical piece of a well-crafted fiscal plan, but so will reform to health care spending and the tax code.

September 13, 2011
A Weekly Update on Fiscal Policy Developments and a Look Ahead

Are You Ready for Some (Political) Football? – Football season got underway this weekend with hard-hitting action and thrilling finishes. Additionally, the Super Committee kicks off its work in earnest this week. The games on Capitol Hill are no less fierce than those on the gridiron, but how it all ends is still in question. There are more twists and turns to the budget drama than there are GOP presidential debates (there was another last night). Meanwhile, policymakers are trying to play offense with the economy while defending against the growing national debt. The Super Committee holds its first hearing today with growing calls for members to “go big” and recommend more than the $1.5 trillion in deficit reduction it was charged with finding. With some doubting that the Super Committee will agree on $1.5 trillion in savings, is it realistic to ask for more? Well, if the Redskins can dominate the Giants, anything is possible.

Obama Goes Deep on Jobs Plan – President Obama announced his plan to boost the economy and add jobs last week before a joint session of Congress, and yesterday he formally sent the legislative proposal to Congress for consideration. The plan, which includes extending the payroll tax holiday, creating a national infrastructure bank, and repairing and modernizing schools and transportation infrastructure, will cost $447 billion. OMB Director Jacob Lew says the plan will be offset by limiting tax breaks for those earning more than $200,000 a year and by cutting oil and gas subsidies. Reducing and eliminating tax expenditures is an idea that has gained support on both sides of the aisle (see more on the topic here and here).

Will Super Committee “Go Big” on Deficit Reduction? – President Obama is asking the Joint Select Committee on Deficit Reduction (aka Super Committee) to go beyond the $1.5 trillion in deficit reduction it is mandated to recommend in order to pay for his jobs plan (the White House will release a detailed plan next Monday). A growing chorus of others is also asking the committee to “go big” and go beyond $1.5 trillion. Yesterday, CRFB convened a press conference with White House Fiscal Commission co-chairs Erskine Bowles and Alan Simpson to release a letter from over 60 economists, business leaders, former policymakers and fiscal experts calling for the committee to go big. Many members of Congress also support going big. The committee holds it first hearing Tuesday with CBO Director Doug Elmendorf.

Appropriators Finally Moving the Ball, but the Clock is Ticking – While the Senate Appropriations Committee approved of three spending bills – Agriculture, Energy-Water, and Homeland Security – as well as the 302(b) allocations, lawmakers are also preparing a continuing resolution, recognizing that Congress will not pass all 12 FY 2012 spending bills before the new fiscal year begins on October 1. Once again, it looks like Congress will drop the ball on passing a budget in time.

Key Upcoming Dates

September 13

  • The Super Committee holds its first public hearing at 10:30 am on the history and drivers of our debt and its threat.
  • House Oversight Committee hearing on the president's jobs plan at 10 am.
  • Senate Finance Committee Fiscal Responsibility and Economic Growth Subcommittee hearing examining whether there is a role for tax reform in comprehensive deficit reduction and U.S. fiscal policy at 2:00 pm.
  • Federal budget for August released by Treasury Department.

September 14

  • House Budget Committee hearing on "The Need for Pro-Growth Tax Reform" at 10 am.
  • Senate Finance Committee hearing on tax reform options involving marginal rates, capital gains and dividends at 10 am.

September 15

  • Senate Budget Committee hearing on "Policy Prescriptions for the Economy" at 9:30 am.
  • Senate Finance Committee hearing on tax reform options that enhance retirement security at 10 am.
  • House Speaker John Boehner gives jobs policy address to the Economic Club of Washington.
  • Consumer Price Index for August released by Labor Department.

September 22

  • Second GOP presidential debate in Florida.

October 1

  • New fiscal year begins. Legislation fully funding the federal government, or a stopgap measure with temporary financing of government operations, must be enacted by this date.

October 11

  • GOP presidential debate in New Hampshire.

October 14

  • Congressional committees must submit any recommendations to the Super Committee by this date.

October 18

  • GOP presidential debate in Nevada.

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.

 

September 12, 2011

Following CRFB's theme of urging the Super Committee to "go big," a group of more than 60 former lawmakers, policymakers, economists and business leaders have signed a letter to the committee's co-chairs, urging them to exceed their mandate and put our country on a sustainable fiscal path.

The signatories of the letter run the gamut, from former Members of Congress, to former CBO and OMB directors, budget experts, business leaders, and professors. Despite their varying perspectives and ideological differences, all of them support a comprehensive budget plan that significantly exceeds the Super Committee's $1.5 trillion savings mandate.

The letter states:

We believe that a go big approach that goes well beyond the $1.5 trillion deficit reduction goal that the Committee has been charged with and includes major reforms of entitlement programs and the tax code is necessary to bring the debt down to a manageable and sustainable level, improve the long-term fiscal imbalance, reassure markets, and restore Americans’ faith in the political system.

This letter adds to the growing number of voices who are looking for a large, comprehensive deficit reduction plan from the Super Committee. We have shown that saving $1.5 trillion over the next decade, while helping to fix the problem, will not be enough. The Super Committee represents a major opportunity to put our nation on a firm fiscal path. Luckily, the signers of this letter agree.

Click here to read the full letter and list of signatories.

September 12, 2011

Update: Click here to watch C-SPAN's video of the press conference.

This afternoon, CRFB will be hosting a press conference at the National Press Club to urge the Super Committee to "Go Big." The press conference will feature remarks from co-chairs Alan Simpson and Erskine Bowles of the National Commission on Fiscal Responsibility and Reform in addition to comments from CRFB president Maya MacGuineas on why the Super Committee must exceed its current mandate if we are to put debt on a downward path this decade.

The press conference will begin at 2:30pm in the Conference Room at the National Press Club (529 14th Street Northwest, Washington, DC 20045). It will also be broadcast live on C-SPAN 3, so be sure to tune in.

At the event, CRFB will also release a letter co-signed by over 60 business leaders and policy experts urging the Super Committee to "Go Big." The New York Times published an article on the letter in today's paper, so it is clearly generating some attention.

Hope you can tune in!

September 9, 2011

Yesterday evening, President Obama addressed a Joint Session of Congress to propose his newest economic recovery measure -- The American Jobs Act. The President's bill would have a $447 billion ten-year cost, which the President says would be fully paid for in the proposal he will give to the Super Committee a week from Monday recommending the Committee exceed its $1.5 trillion mandate.

The AJA, designed to stimulate economic activity and spur job creation, includes a mix of tax cuts--including various payroll tax holidays and hiring incentives--and spending increases, such as new infrastructure spending and an extension of unemployment insurance. The proposal also includes job-retraining proposals through reform to unemployment insurance.

 

Proposal 10-Year Cost (Billion)
Cut Employer Payroll Taxes from 6.2% to 3.1% and Create Bonus Payroll Tax Cut for New Jobs/Increased Wages $65
Extend 100% Expensing for 2012 $5
Teacher Rehiring and First Responders $35
Modernize Schools $30
Infrastructure Spending $50
Create an Infrastructure Bank $10
Rehabilitate and Repurpose Vacant Property $15
National Wireless Initiative (Paid For Through Spectrum Auction) $0
Veteran's Hiring Initiative N/A
Extend and Reform Unemployment Insurance $49
Tax Credit for Hiring Long-Term Unemployed $8
Create Fund for Low-Income Youth and Adults For Training and Year Round/Summer Jobs for Youth  $5
Cut Employee Side of Payroll Tax from 6.2% to 3.1% for 2012 $175
Total $447

 

It should be noted that the yearly spend out rate for the AJA might be similar, if not higher, than any one year that the 2009 ARRA ever had. According to CBO's analysis in January (Box 1-2), the maximum that the ARRA ever spent in a single year was $395 billion. We have yet to see if the plan is politically viable, and we are still waiting to see Obama's deficit reduction plan which would pay for it (we will release a paper later today with some ideas on why and how the President's jobs bill could be paid for).

As we suggested in a recent paper, one of the benefits if the Super Committee were to go big on deficit reduction and exceed its mandate would be fiscal space for near and long-term growth policies.

September 8, 2011

In case you missed it yesterday afternoon, CRFB put out its expectations for the Super Committee, urging them to Go Big! Given the severity of our debt challenge, enacting only $1.5 trillion savings over the next ten years is not enough. Compared to our Realistic Baseline, this amount would keep debt on an upward path relative to the economy, both over the medium-term and the long-term. 

 
So, what should the Committee do? Of course! it should exceed its mandate! Getting a $3 trillion to $4 trillion plan with legitimate savings would stabilize our debt in the medium-term and put it on a downward path. We also urged the Super Committee to Go Long, focusing on our long-term debt drivers, namely health care and retirement spending, even if some of those policies would have small deficit effects in the first decade. Focusing on the long-term is part of the statutory language of the Committee's mandate, so it should not be ignored.
 

 

We have also suggested that reducing the deficit is not just a counting exercise; it must also Go Smart in a way that focuses on economic growth, which is what CRFB president Maya MacGuineas reiterated today in an op-ed in The Hill:

"...done right, a smart debt-reduction plan is absolutely central to an economic-growth agenda...One benefit of a medium-term plan is that it can leave room upfront for the economic recovery to continue to take hold... The way to focus on the real drivers of the budget problem and the real keys to growth is for the super committee to choose to go big and tackle all these issues in one large deal."

In the short term, deficit-reducing policies should be phased in gradually to avoid harming the recovery. For long-term growth prospects, the Commitee should tackle tax reform that broadens the tax base and lowers rates. Also, it should consider reprioritizing spending to focus more on the investment elements of the budget.

Finally, we also urge the Super Committee to Go Honest by not relying on budget gimmicks and to Make It Stick  to reinforce savings once they are in place.

The perfect time for fiscal reform is now. The longer policymakers wait, the harder it becomes--both economically and politically.

 

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