‘Line’ Items: Columbo Edition A Weekly Update on Fiscal Policy Developments
Where Is Our Columbo? – Peter Falk, the award-winning actor best known for playing the rumpled, yet wily, Lt. Columbo, died on Thursday. Falk, who was an analyst with the Connecticut State Budget Bureau before embarking on a professional acting career, created an endearing and enduring character who used unique techniques to get the job done. Detective Columbo always got the bad guy using a brilliant mind and obsessive desire to tie up loose ends, all hidden behind a disheveled facade to lull the guilty party into a false sense of complacency. We’ve lost Columbo just as we need him in Washington. We have a crime in the mounting national debt and the perpetrators seem pretty complacent about it. In the show, the mystery was never in who committed the crime, but in how it would get solved. We face a similar problem now and could use Columbo’s eye for detail and ability to piece it all together to get a resolution. Who’s going to make the bust before we go bust?
Biden Talks Transfer to Obama and Congressional Leadership – The Biden group budget negotiations met a sudden and untimely end last week. Although the group agreed on about $2 trillion in deficit reduction, the talks fell victim to an impasse over issues such as revenue and Medicare. Democrats want a revenue component by eliminating some corporate tax breaks (see ideas for reforming tax expenditures here) while Republicans want changes to health care entitlements (see some ideas here). In a hopeful sign, according to the Washington Post, there appears to be growing consensus on cutting defense spending, just as former OMB Director Leon Panetta was confirmed last week to take his vast budget background to the Pentagon. President Obama is now stepping into the debt limit talks by holding separate meetings today with Senate Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY) after a meeting last week with House Speaker John Boehner (R-OH). CRFB last week offered its thoughts on what the debt limit negotiations should, and should not, accomplish.
Investigating the CPI – As lawmakers look for deficit savings that can gain bipartisan support, more eyes are turning to an alternative measure of inflation. The Consumer Price Index (CPI) is used throughout the budget to adjust federal benefits like Social Security payments for cost of living. It also affects certain tax provisions. Earlier this year CRFB’s Moment of Truth project recommended in a paper that using an alternative inflation measure, known as chained CPI, could save about $300 billion over the next decade. Since then the idea has gained support on both sides (for example, see here and here) and is now being considered as a part of the debt limit negotiations.
CBO Puts Out an APB for Debt Solutions – The Congressional Budget Office (CBO) last week released its annual Long-Term Budget Outlook, reinforcing that the current fiscal trajectory of the country is unsustainable. The report states that “the sooner that medium and long-term changes to tax and spending policies are agreed on, and the sooner they are carried out once the economy recovers, the smaller will be the damage to the economy from growing federal debt.” CRFB offered an analysis of the forecast, saying that “these chilling projections should be a cold shower on any plans to delay enacting a comprehensive plan to address the debt.”
Restoring Order Through Fiscal Rules – Congress is considering stricter budget rules to clamp down on the deficit. Senate Republican leader McConnell wants a vote on a balanced budget amendment next month. His caucus has coalesced around a bill that would require an annual balanced budget along with capping spending at 18 percent of GDP and a 2/3 majority to raise taxes. The House is planning to vote on a similar proposal the week of July 5. In addition, Rep. Kevin Brady (R-TX) last week introduced legislation imposing “mandatory smart caps” on federal spending that would limit non-interest spending as a percentage of ‘potential’ GDP. The bill also would create a sequestration process to enforce the caps that involves all federal spending; require prioritizing spending programs in the budget; a form of line-item veto for the president to strike out particular spending; a Sunset Commission to review federal programs; and a permanent continuing resolution that would automatically reduce spending from the previous year if a budget is not agreed to. The Peterson-Pew Commission on Budget Reform, a project of CRFB, has studied fiscal rules for over two years and unveiled a comprehensive blueprint for improving the budget process in the report, Getting Back in the Black. The Commission also recently provided a Fiscal Toolbox summarizing and comparing various fiscal rules and has just created a one-stop resource on the web with easy-to-access information on budget tools to help reduce the debt.
Just One More Thing – The famous detective liked wrapping everything up at the very end. In that spirit, CRFB has produced a wrap-up of our recent annual conference and dinner, which featured an all-star cast of economists, policymakers, and budget experts such as Federal Reserve Chairman Ben Bernanke, House Budget Committee Chair Paul Ryan (R-WI), and White House National Economic Council Director Gene Sperling. Check it out here to read the recap and watch videos of the conference as well as the subsequent cocktail reception with remarks from Office of Management and Budget Director Jack Lew and dinner event with a discussion between PBS NewsHour's Judy Woodruff and Fiscal Commission co-chairs Erskine Bowles and Alan Simpson.
Key Upcoming Dates
- Conference Board releases consumer confidence index for June.
- Senate Finance Committee hearing on “Perspectives on Deficit Reduction: A Review of Key Issues” at 10 am.
- Treasury Secretary Geithner says that the U.S. will default on its obligations by around August 2 if the statutory debt ceiling is not increased before then.