‘Line’ Items: Mother Nature Edition A Weekly Update on Fiscal Policy Developments and a Look Ahead

Quakes and ‘Canes – Washington and much of the East Coast were rattled by natural phenomena last week, with a 5.9-magnitude earthquake on Tuesday and Hurricane Irene storming up the coast over the weekend. Attention is now turning back to what will happen once lawmakers flood back into DC after Labor Day.

CBO Issues Fiscal Storm Warning – In its update of the Budget and Economic Outlook, the Congressional Budget Office (CBO) said that, while the recent debt ceiling deal had improved fiscal prospects for the next decade, the U.S. still faces “profound budgetary and economic challenges.” Beyond the ten-year window, CBO warned that an aging population and soaring healthcare costs could cause federal debt to skyrocket without changes. In addition, CBO’s near-term projections were likely too rosy as their economic predictions were formulated before the recent downturn in leading economic indicators and their fiscal projections assumed that the 2001/2003/2010 tax cuts would not be extended, the AMT would not be patched as it always is, and there would be no more doc fixes. CRFB updated its own baseline with realistic assumptions projecting that public debt will reach 80 percent of GDP in 2020.

Jackson Hole Shakes Things Up – Jackson Hole, Wyoming was the epicenter of a different kind of earth-moving event as economic and financial leaders met at the resort for the annual conference hosted by the Federal Reserve Bank of Kansas City. Fiscal matters were front and center at the proceedings. Federal Reserve Chair Ben Bernanke gave a speech where he stressed the importance of putting the U.S. on a sustainable fiscal path to economic and financial stability. He said that the country needs a “credible plan” now that will reduce deficits over the longer term while recognizing the short-term needs of the economic recovery. The speech echoed some of Bernanke’s remarks at CRFB’s Annual Conference in June (watch the video here). In later remarks at Jackson Hole, International Monetary Fund (IMF) head Christine Lagarde also emphasized the need for fiscal policy changes, stating that “policymakers must strike the right balance between reducing public debt and sustaining the recovery.” In addition, Bernanke also suggested budget process reform be a part of the solution. The Peterson-Pew Commission on Budget Reform offered a blueprint for budget process enhancements that can help put the country on the right fiscal course in Getting Back in the Black.

Supercommittee In the Eye of the Hurricane – The Joint Select Committee on Deficit Reduction is already facing scrutiny. Gang of Six member Sen. Mark Warner (D-VA) and many fiscal experts want the Committee to “go big, go bold” and go beyond its mandate of $1.5 trillion in deficit reduction. Many watchdogs are also calling for members to come back from recess early to start their deliberations. In response, Committee members are sending the message that work has already begun. Committee member Rep. Fred Upton (R-MI) said that the group has had “lengthy conference calls already.” Co-chairs Sen. Patty Murray (D-WA) and Rep. Jeb Hensarling (R-TX) released a joint statement on Wednesday saying that they are “engaging in serious discussions” to set rules and a schedule for the group, as well as hire staff. They also noted that members are reviewing recent deficit reduction efforts from other entities. It just so happens that CRFB has a handy comparison grid of all the deficit reduction plans. There is also word that the Committee will soon put up a website that will allow the public to offer ideas. Committee member Sen. Rob Portman (R-OH) has already created a section on his website for input from his constituents. Concerned citizens can complete CRFB’s popular “Stabilize the Debt” online budget simulator to test their deficit reduction ideas or discover new ones. 

Candidates Talk Economy – The whirlwind that will be the 2012 presidential campaign is beginning to take shape as candidates start to flesh out their policy positions in key areas, such as economic and fiscal issues. Former Utah Governor Jon Huntsman will unveil his economic plan this Wednesday, former Massachusetts Governor Mitt Romney will follow suit on September 6, and President Obama will also announce a detailed plan for boosting the economy and reducing the deficit shortly after Labor Day. CRFB will assess the fiscal impact of economic plans of the candidates. Several high-profile GOP debates are also planned for next month (see below), which will provide plenty of opportunity for the candidates to explain their fiscal priorities. CRFB will strive to make sure the right questions are asked of the candidates so that voters can make informed choices.

Krueger Named CEA Chair – Princeton University economist Alan Krueger has been tapped to be the new White House Council of Economic Advisers chair. Krueger will be a key player in dealing with the nightmare on main street as the economic recovery struggles to maintain steam.

Key Upcoming Dates

August 31

  • GOP presidential candidate Jon Huntsman unveils economic plan.

September 6

  • Senate back in session.
  • GOP presidential candidate Mitt Romney unveils economic plan.

September 7

  • House of Representatives back in session.
  • Debate at the Ronald Reagan Presidential Library in California for 2012 Republican presidential candidates.

September 12

  • GOP presidential debate in Florida.

September 16

  • The Joint Select Committee on Deficit Reduction (Super Committee) must hold its first meeting by this date.

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 then.

October 11

  • GOP presidential debate in New Hampshire.

October 14

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

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.

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